June 25, 2018

Is it Legal for a Judgment to Survive Bankruptcy?

For bankruptcy lawyers, the word “judgment” raises red flags. This is especially true when the judgment comes from another State. He is a question I received from a non-Georgia resident that raises a lot of questions about judgments.

My question is this-my father has a judgment against him by Bank of New York due to an unpaid debt. The debt was discharged in bankruptcy however, the judgment is still on the public records in New York. My father is now trying to buy a home, however, the title company wants the judgment released from the public records or at least subordinate to them. How can I make the Bank of New York relase their judgment from the public records?

Here is how I would analyze this situation: first, you say that “the debt was discharged in bankruptcy.” If the debt was discharged prior to a judgment being entered, the judgment is void and the creditor’s act of obtaining the judgment is a violation of the automatic stay. If this is the case I would contact the New York bank and demand that the judgment be vacated post haste. If this creditor was included in your father’s petition, I would ask for damages as well.
If the judgment was rendered prior to the bankruptcy, I would look to see if the debtor’s attorney filed a Motion to Avoid Lien. These motions are fairly common in the Northern District of Georgia, where I practice, but may not be as common in different filing districts. If a Motion to Avoid Judicial Lien was filed, the Order avoiding the lien should be filed in the appropriate New York public record, and a copy of the Order along with proof of county record filing sent to the creditor with a demand that the judgment be vacated.
If the judgment was rendered prior to the bankruptcy and no Motion to Avoid Lien was filed, I would take the position that any personal (in personam) liability for the debt has been extinguished. However the in rem part of the judgment (against property) may remain viable. Is this in rem judgment enforceable, and, if so, in what amount are questions of law for a New York attorney. Might the bankruptcy angle give you leverage for settlement? Perhaps.
Sometimes a strongly worded demand along with a reference to the bankruptcy and the unpleasant consequences of a discharge violation action may be enough to encourage the creditor and/or its lawyers to vacate the judgment. This is probably a situation where you should contact a consumer protection lawyer in New York. My friend and colleague, Jay Fleischman, a bankruptcy and consumer protection lawyer in New York, might be a good resource to contact about this.

Social Security Benefit Checks are Exempt from Garnishment, but….

My husband has been given benefits but we are being advise a judgement will be placed for medical procedures that insurance should have covered but didn’t. The facilty was subcontracted out by the doctor and was never given our insurance information to file on. Upon calling that insurance company, they have said that the claims is now too old for them to pay on. Can the attorney take my husbands social security benefits for the judgement.

Jonathan Ginsberg responds:  Social Security benefits cannot be garnished by this type of civil judgment creditor.  However, if you are using direct deposit and the Social Security funds are going into an account where you keep other money, your bank may inadvertantly honor a fi fa on the judgment.

I would consider sending a letter to the lawyer who is representing the judgment creditor to advise him that your husband’s sole source of income is Social Security and therefore exempt from garnishment.
Be aware, however, that other assets – his house, other bank accounts, other assets – can still be at risk.

Another point to consider – does this creditor have a legal right to sue?   Claims for breach of contract are subject to statutes of limitations.  If this debt is ten years old, for example, it may be “stale” and no longer actionable.  Recently, I have heard about a number of lawsuits filed on stale debt – if the defendant does not raise this issue, you could be stuck with judgments even when the underlying claim is bogus.  There is a remedy to challenge this type of judgment called a “collateral attack on the judgment” but collateral attacks are expensive and time consuming.

If you receive a lawsuit on a debt that seems unusually old, it would probably be worth the time to run the case by a lawyer.  My colleague Bill McLeod of Boston, regularly writes about Fair Debt Collection Practice horror stories.  If you are under any illusion that collection agencies are trustworthy entities, some of the examples Bill cites of egregious actions by bill collectors will open your eyes.

If you have other assets at risk, and the judgment is large enough, a bankruptcy might be something to consider.  As a rule, you are better off filing bankruptcy before a judgment is issued, but there is a procedure in bankruptcy practice called “avoiding the lien” where a judgment lien can be stripped and made into an unsecured debt.

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