We have always told our bankruptcy clients how important it is to accurately listing every possible creditor. The New Jersey Courts have reminded us again why that is so.
First, a common misconception. People think that if they have gotten a bankruptcy discharge, all judgments or liens against their home are removed. This is not so. Mortgages and judgments, and certain other liens cannot be collected post-discharge against the debtor personally, but they stay attached to real estate. This usually comes up when the debtor in bankruptcy wants to sell or refinance a home. The judgments are still there, clouding title to the home. They can be removed, but extra steps are involved, either a motion during the bankruptcy case, or a motion in the New Jersey courts under its “cancellation of judgments” statute, filed a year or more after the bankruptcy discharge. This is usually pretty straightforward, assuming the attorney filing the motion knows what they are doing and the proper steps were taken in the bankruptcy case.
In Gaskill v Citi Mortgage Inc., (Appellate Division Sept. 28, 2012) however, the Gaskills could not get that relief to remove a judgment Citi had against them. The reason? In their bankruptcy they had never listed Citi as a creditor but instead had listed as the “creditor” only the collection law firm that had represented Citi in obtaining the judgment. Because of this, the Appellate Division held tht Citi itself never got information sufficient in time to protect its rights in the bankruptcy; its first notice of the bankruptcy, according to the opinion, came after the discharge was entered. As a result, the New Jersey Appellate Division held that the Gaskills were not entitled to the benefit of cancellation of the judgment as a lien on their home. (BUT See Note Below)
The take-away here is that those who need bankruptcy relief need to pay attention to the details. We routinely pull a judgment search as well as a full credit report for our clients. As the Gaskill case reminds us, not everyone does this. And those who intend to keep their home, or possibly buy another, need to be careful as well. As always, having the right attorney and sweating the details pays off.
NOTE: The Third Circuit Court of Appeals has held that in the typical “no asset” bankruptcy were the trustee has no money to pay claims of creditors, a bankruptcy discharge applies to everyone who was owed money,whether or not listed. Here, however, that was not the case, since the trustee arranged for creditors to get notice to file claims. Oddly, Citi actually filed a claim in the bankruptcy and even filed and lost a motion in the bankruptcy court seeking a declaration that its lien was not to be discharged. One has to question the logic or validity of the Appellate Division’s ruling, since Citi clearly knew about the bankruptcy in time to protects its rights. Further, Citi lost on nearly the same issue that the Appellate Division ruled the other way. For now, this ruling signals that those who rely on New Jersey statutes to clear their home of judgments has better turn square corners.
For help with debt or related problems, please feel free to contact us.