Monthly Archives: March 2012

Judgment Liens and Bankruptcy

Is it too late to file for Bankruptcy? I’ve already been sued.

I have to file for Bankruptcy THIS WEEK.  I’ve been sued, and the answer date is Monday.

Judgments and judgment liens are creatures of State law, and as such, there is considerable variance around the Country.  This may also be an area of law where I think title attorneys are as ignorant as laymen.

Here’s the skinny.

No, it is not too late to file for Bankruptcy.

Calm down.  Now, breathe.  You have more time than you realize.  We can take a little time, get this done right; and still get you the result you want.

Here is why.  First of all, pending lawsuits against the Debtor are stopped — dead in their tracks — by a bankruptcy filing.  The reason is an order called the Automatic Stay that goes into effect the instant a Bankruptcy case is filed.  Second, that date in the Petition and Summons that you were served with?  That is the answer date.  If you don’t file an Answer, then a default judgment can and will be taken against you — eventually.  It probably won’t happen on the first possible day, but it might happen that week.  In Oklahoma once a Judgment is taken, it cannot be acted upon (i.e., a wage garnishment issue, etc.) for ten days absent some pretty extraordinary events.  So, even if a judgment is taken on Monday, you still have ten days before you need to start looking over your figurative shoulder.

So, what happens if that ten days has passed, and the creditor has recorded its judgment in County records creating a lien on your home?  Simple.  You will pay me a little bit more money, but not a lot more.  Once the Bankruptcy is filed a Motion to Avoid (or remove) the judgment lien from your homestead can be filed.  It is a relatively simple procedure, albeit a bit fiddly.  A motion (which is just a fancy name for a request ) is filed asking the Court to do this.  It must be served on the Creditor.  The Creditor is then given time to object (not likely), then in every case I’ve ever had, the Court grants the Motion and enters an Order that removes the Judgment lien from the Debtor’s home — caveat below.

Now, what happens if the Debtor owns real estate that is not his home?  At that point the Debtor really, really does need to file for Bankruptcy before the judgment lien is recorded.  A Motion to Avoid may only be granted to the extent that the judgment lien is impairing the Debtor’s interest in property that he can claim as exempt.  I have never seen a successful claim of exemption in real estate that is not homestead — at least not using Oklahoma’s exemption statutes.  Of course, filing for Bankruptcy when you own real estate that isn’t your home opens a whole ‘nother can of worms all by itself, but that is a subject for another day.

Another problem is created if you have recently moved to Oklahoma and are not entitled (according to the 2005 Bankruptcy Reform Act) to use Oklahoma exemptions.  If you are using exemptions from another State (or the Federal exemptions) you may have too much equity in your home to be able to avoid the lien.  That is something that you will need to discuss in detail with the attorney you hire to represent you in your Bankruptcy filing.

However, even if you own real estate that isn’t your home or you have just moved here and aren’t entitled to use Oklahoma exemptions, that does not mean game over.  You do still have options, and with a little bit of flexibility you may still wind up with the result that you want.  Those situations, though, get very fact specific very quickly.

Oh, and something that every title attorney should know — but too many of them don’t.  A judgment only becomes a lien when it attaches to real estate, and a judgment cannot attach to real estate after the Bankruptcy is filed and discharged.  So, if you file for bankruptcy and don’t own any real estate, you can’t avoid the judgment liens — because there aren’t any, but the judgments become toothless when the discharge is entered.  So, if you go to buy a house a few years after the Bankruptcy, those old judgments cannot attach to your new house — no matter what the title company may say.

So, if you are going to buy a new house, and the title company is very concerned that something wasn’t done right in your Bankruptcy — call your Bankruptcy attorney sooner rather than later.  The Title company is probably wrong, but if they aren’t your Attorney will need a little time to fix it.


Repeat Bankruptcy Filings

Most people have heard something about only being able to file a Bankruptcy every so many years.  I generally hear seven (which is the Biblical time period (Deut. 15:1).  Although, what most people are thinking of  is the time between Chapter 7 filings, and that is currently eight years.

The truth, like with most things, is more complicated.  I like to refer to the 2-4-6-8 rule.  This assumes, by the way, that every case filed ends in a discharge.  So, it is two years between a 13 followed by another 13 filing (although, you aren’t supposed to be able to complete a 13 plan in less than three years — hey, nobody every said the 2005 reform act made sense); four years between a 7 followed by a 13; six years between a 13 followed by a 7; and 8 years between two chapter 7’s.

So, I got a phone call this week from a man who has filed six Bankruptcies in the last 16 years.  That doesn’t compute.  First of all, only two of them were Chapter 7 cases.  Second, to date, none of the 13 filings have completed and resulted in a discharge — so, they never triggered the relevant waiting periods.

What causes that kind of repeat filing?  Despite what most people will assume, this kind of pattern generally includes a chronic health problem and at least a couple of periods of unemployment.  Those two things manage to cause the accumulation of medical debt, and periods of missed mortgage payments either during illness or following  a job loss.  The four incomplete Chapter 13 filings will almost always be caused by job losses, because you can’t make plan payments without regular income.

So, what does this tell me when I pick up the phone and encounter a would-be client who clearly has a history with the Bankruptcy Court?  The first thing I want to do is pull up his case history on the Court’s web site.  I want to see what was filed, when, and what happened to it.  Is he eligible for another filing, why did prior filings fail, have those problems been addressed, is there a compelling reason to try again?  These are the questions I begin with.

For the would be client there are a number of concerns.  First, is he eligible to refile?  Even if he meets the 2-4-6-8 rule above, if his most recent case was dismissed with a bar against refiling for 180 days (sometimes improperly referred to as a dismissal with prejudice); then, he has to wait out that 180 day period even if he has an aggressive creditor snapping at his heels.

Second, if he has been a debtor in at least one bankruptcy case in the last year, then the automatic stay will only last for 30 days when the case is filed unless the Judge agrees to extend it.  That requires notice to all creditors, an affidavit from the Debtor explaining why he should be given another chance; and possibly a hearing on the issue.  If the would be client has been a debtor in two bankruptcy cases pending in the last year, then there will be no automatic stay at all unless the Judge agrees to impose one.

Third, the would be client is going to have to convince me that he is worth taking on as a client; and he can expect that I will require considerably more cash up front than I would otherwise.  Of course, he may also have to convince the Court of his good faith if any annoyed creditor were to complain.

So, successive filings may be possible.  Oh, and you are always eligible to file a Chapter 13, you just may not be eligible for a discharge at the end.  The time periods above assume that the Debtor will need a discharge at the end of the case.  Without it, the Debtor will need to find a way to pay 100% of his debt in the Chapter 13.  That can be very useful, and a Chapter 7 filed with the intention of following it immediately with a Chapter 13 can be a very useful strategy for dealing with certain kinds of problems.  Oh, that is called a Chapter 20, by the way; and I will blog about it another day.