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Bankruptcy And Liens
Many people think that when a debtor goes bankrupt, they are immune from debts forever. That is not true. Usually, the filing of the bankruptcy petition covers a snapshot of a moment in time. The creditors affected by the bankruptcy are those that held a claim against the debtor that arose prior to the filing of the debtors's bankruptcy petition.
Sometimes the cause of action is post-bankruptcy, and the creditor's claim arrives after the filing of the debtor's BK petition, so the claim will not be part of the debtor's bankruptcy. If a discharge has been entered, it is very difficult for the debtor to get their case reopened to include a new debt. What if there were post judgment costs not disclosed in the bankruptcy?
You might want to tread lightly in the area of demanding costs that have not been added to the judgment, in light of California CCP 724.070(a):
If a judgment creditor intentionally conditions delivery of an acknowledgment of satisfaction of judgment upon the performance of any act or the payment of an amount in excess of that to which the judgment creditor is entitled under the judgment, the judgment creditor is liable to the judgment debtor for all damages sustained by reason of such action or two hundred fifty dollars ($250), whichever is the greater amount.
Usually, a debtor can only re-open a bankruptcy case to bring in a pre-petition debt that was inadvertently omitted from the original petition. The debtor cannot move the clock forward to include a later-incurred debt. The debtor cannot successfully file for bankruptcy again for many years, so you have got plenty of time to collect, without fear of them successfully going bankrupt again.
However, property liens are another matter. Many people think that if the debtor's debts are discharged in bankruptcy, and the debtor owns no property, the creditor's liens will remain, and can be renewed. Many people think that a lien can be "avoided" (removed) in bankruptcy only if it impairs the debtor's homestead exemption. Neither of these beliefs are true.
If you renew a judgment during the time that the debtors's bankruptcy is open, that is a violation of the automatic stay. If you were not noticed of the bankruptcy and did not know of it, there is little risk of sanctions; however any further recovery actions would be sanctionable.
Only if you were a secured creditor and there were sufficient assets to pay other secured creditors; the legally correct way to handle this situation would be to move to re-open the bankruptcy case and seek retroactive relief from the stay. The argument would be that is the only possibility for you to get proper, equitable relief. That is, if you were properly notified, you could have either sought relief in the bankruptcy case or renewed after the bankruptcy stay expired.
Usually, when a debtor files bankruptcy, you will quickly receive a notice of a "motion to avoid a judicial lien" - even if the debtor does not currently own any property. If a lien has been recorded at least 90 days before the bankruptcy filing, the lien is not erased; however nothing can be done to enforce the lien without written permission from the court or the bankruptcy is dismissed.
Why do bankruptcy attorneys usually file a motion to avoid a judicial lien when a lien has not attached to any primary residence? The reason why this filing occurs, is to discharge the judgment and any liens that might have been created with a recorded abstract of judgment. Once a judgment debt has been discharged, no one can file an abstract of judgment at a county recorder for that judgment.
If the debtor had a lawyer representing them in bankruptcy court, their lawyer will probably file motions to avoid all liens for two reasons:
1) They can bill for it. It is probably a boiler plate template that requires little work and generates more income.
2) They do this as a preventive measure so that no one can come back later to say that they did not "do" something that they should have, and thus bring up the threat of malpractice. It is a "belt and suspenders" approach which protects them, enriches them, and guards against surprises in the bankruptcy process if additional assets or amended filings appear.
What if the motion to avoid a judicial lien is granted, and later the debtor's bankruptcy is dismissed? If the debtor's bankruptcy attempt fails, the motion to avoid a judicial lien is history. If the debtor gets bounced out of BK court for whatever reason and does not get a discharge, then the judgment remains in effect, and you can record an abstract of judgment.
If the debtor's bankruptcy is dismissed or denied, and they later buy or inherit a property, your lien may attach to the property. Should the debtor acquire property in a county that you do not have an abstract of judgment filed in, there would be no automatic attachment of your lien. Under certain circumstances, the debtor can even get federal income tax liens and debts discharged.
Some states let you record one lien statewide, however California has 58 counties. It is expensive and time consuming to record 58 abstract of judgment liens in California.
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