TWISTS AND TURNS
had objected. The order overruling the
motion to reopen the case stated the
judge had weighed all pertinent factors,
including creditors’ reliance upon the
discharge and the debtors’ failure
to avoid the judicial liens, and found
these factors outweighed the benefit
the debtors would receive if the case
were reopened.
What if your client owns no real
property?
In order to take advantage of
the provisions of 11 U.S.C. § 522(f),
you must establish that a judicial lien
impairs a debtor’s exemption. If your
debtor owns no real estate which they
can exempt, any judicial lien is not
impairing an exemption and § 522(f)
The Bankruptcy Appellate won’t apply. Unless judicial liens can
Panel (BAP) for the Sixth Circuit be avoided by some other method, the
reversed on the basis that delay alone debtor’s fresh start will be impaired.
did not constitute prejudice, that 11 This is because while the discharge
U.S.C. § 350(b) had no time limitation, provided by 11 U.S.C. § 524(a)(1)
and that prejudice to creditors could will render a judgment underlying
not be presumed solely due to delay. the judicial lien void, and creditors
Although the decision is unpublished, should release liens based on voided
it contains a concise, yet thorough, judgments, they often don’t, so you
recitation of some of the underlying need to be proactive.
factors and legal principles to be
Some courts hold that the
considered when a motion to reopen
is filed. Foremost, the BAP recognized provisions of 11 U.S.C. § 506 may be
that avoiding judicial liens is a valid used to avoid judicial liens in situations
“cause” to reopen a case since it offers where no exemption is impaired. A
potential relief to debtors.3 However, it creditor has a secured claim only to
also recognized that laches is a valid the extent of the estate’s interest in
basis for denying a motion to reopen. any property of the debtor. 11 U.S.C.
Of course, the doctrine of laches § 506(a). When a debtor has no
requires not only unreasonable delay, impaired exemption, you may ask a
but prejudice to the other party from the court to classify any claim of a judicial
delay.4 Because the bankruptcy court lien holder as an unsecured claim
presumed prejudice to the Yonishes’ since the lien will not have attached to
creditors from the delay, without any any property. Pursuant to 11 U.S.C.
proof that creditors relied on the failure § 506(d), a lien securing a claim which
to avoid their liens or changed their is not an allowed secured claim is void.
position as a result, its ruling was an Thus, once a claim secured by a judicial
abuse of discretion, and the BAP lien is deemed an unsecured claim, and
reversed and remanded for further once the debtor obtains a discharge
of the underlying debts, the judgment
proceedings.
liens should be released. One method
3
See id. at *3 (citing In re
for accomplishing this is to move to
Oglesby, 519 B.R. 699 (Bankr.
compel the release of such liens upon
N.D. Ohio 2014)).
entry of the discharge in a case. See
4
See id. (citing EEOC v.
In re Blakely, Case No. 13-50069,
Watkins Motor Lines, Inc., 463 F.3d 2013 Bankr. LEXIS 5474, at *3 (Bankr.
436 (6th Cir. 2006)).
National Association of Consumer Bankruptcy Attorneys
Spring 2016
E.D. Ky. March 27, 2013); see also In
re Mayer, 541 B.R. 812 (Bankr. E.D.
La. 2015) (applying § 506(d) to avoid
wholly unsecured judicial lien against
rental property where no exemption
claimed, and noting Dewsnup5does
not apply to nonconsensual liens). As
a practice pointer, consider listing the
specific liens being avoided in the order
compelling their release, and include
a provision which permits your client
to record the order and a copy of his
discharge in the event the creditors fail
to release voluntarily.
CONCLUSION
Despite our best efforts to glean
the full extent of the claims against our
debtor clients, sometimes judicial liens
are overlooked or unknown. If you
need to reopen a closed case to avoid
such liens, work to convince your judge
that avoiding liens is a valid reason to
do so, and that the passage of time by
itself, without prejudice to creditors,
should not bar such efforts. If you
have debtors where 11 U.S.C. § 522(f)
doesn’t apply because no exemption
is impaired, consider using 11 U.S.C.
§§ 506(a) and (d) to obtain an order
avoiding judicial liens upon entry of a
discharge in the case.
\Firm
Seminar
Outlines\Avoiding
Judgment Liens - NACBA article DAL
20160309.docx
5 Dewsnup v. Timm, 502 U.S.
410, 112 S.Ct. 773, 116 L.Ed.2d
902 (1992).
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