New Jersey Appellate Division Holds Judgment Lien Should Be Discharged Post-Bankruptcy

The New Jersey Appellate Division recently discharged a creditor’s judgment lien on the debtor’s property after the debtor declared bankruptcy and had the underlying debt discharged.  See Cooper Electric Supply Co., v. J & Jay Electric, Inc., 2020 WL 5496490 (N.J. Super. Ct. App. Div. Sept. 11, 2020).  In 2008, plaintiff obtained a judgment against defendant and docketed the judgment.  Although plaintiff received a writ of execution, the record was not clear on if plaintiff ever levied on defendant’s house. In 2010, defendant and his wife filed for bankruptcy, and listed plaintiff as an unsecured creditor.  The bankruptcy trustee paid plaintiff about 7% of the judgment amount, and defendant obtained an order of discharge.  Six years later, defendant filed an application under N.J.S.A. 2A:16-49.1 to discharge the judgment lien on his property.  Under that statute, a debtor can discharge a judgment so long as (i) the request is made more than one year after the Bankruptcy Court discharges the debtor’s debts; (ii) the discharge includes the judgment at issue; and (iii) the lien is “subject to be discharged or released under the provisions of the Bankruptcy Act.”  The trial court denied the motion, stating only “Court understands that a writ of execution was issued prior to filing.”

On appeal, the Court reversed.  The Court found that defendant met the first two prongs of the test under the statute, but that “[t]he dispositive issue under the statute is whether the Bankruptcy Court could have discharged the judgment lien. If it could — regardless of whether it did — then the Superior Court is obliged to discharge the lien.”  The Court then determined that, under 11 U.S.C. § 522(f), the lien was subject to avoidance based on the total amount of debts encumbering defendant’s property.  Accordingly, the Court found that it was “subject to be discharged” and discharged it under N.J.S.A. 2A:16-49.1.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com, Michael Crowley at mcrowley@riker.com, or Anthony Lombardo at alombardo@riker.com.