Bankruptcy Court Sanctions Capital One For Failure to Release Judgment Lien 13 Years After Lien Originally Avoided

Bankruptcy Court Sanctions Capital One For Failure to Release Judgment Lien 13 Years After Lien Originally Avoided

On May 28, 2019, the Bankruptcy Court for the Eastern District of Kentucky granted the Debtors’ motion for contempt against Capital One Bank. The Debtor was represented by NACBA member J.D. Kermode.

On October 14, 2005, the Debtors filed a chapter 7 bankruptcy. At filing they owed one piece of real estate and claimed an exemption on the property. Capital One held a judgment lien on the property. Capital One was listed on Schedule D along with seven other entities “representing” Capital One. The Petition was served on all 8 entities.

On February 22, 2016, the Debtors filed a motion to avoid the judgment lien. The motion was served on the law firm that filed the judgment lien for Capital One. No party objected and the court entered an order granting the motion. Of importance, there was no proof of service that the order was served on Capital One. Debtors also received a discharge.

Subsequently Debtor (wife) ran into trouble selling real estate. After discharge, she inherited a 1/3 interest in her deceased parent’s real estate. She and her family wanted to sell the real estate but discovered the lien. She requested the lien be released by both certified letter and by phone call. She was told that she still owed on the debt to Capitol One.

The Debtor (hereinafter just the wife) then hired J.D. Kermode, NACBA member, from Lexington Kentucky. (Her original bankruptcy counsel no longer represented debtors in bankruptcy.)

The Debtor filed motions to reopen, substitute J.D. Kermode as counsel, and for sanctions for violating the discharge injunction. The motion for sanction was sent via certified mail to Capital One in care of its Chief Executive Officer. A hearing was set for February 14, 2019 on all three motions.

At the February 14, 2019 hearing only Debtor’s counsel appeared. The Court granted the motions to reopen and to substitute counsel. On the motion for sanctions the court entered a Release Order stating in part:

It is ORDERED that, based upon the Court’s review of the record, the Court finds that Creditor Capital One Bank’s (“Creditor”) judicial lien on Debtor’s real property has been avoided. [ECF No. 13.] An Order of Discharge was entered on March 9, 2006. Accordingly, the Court shall enforce the discharge injunction and Creditor Capital One Bank shall forthwith release its judicial lien on the real estate located at 229 Vine Street, Sadieville, Kentucky. If the Lienholder fails to act within 30 days, the Debtor is authorized to present this Order to the applicable recording office and the designated recording officer shall note the release in the applicable lien records.

The Release Order directed the Debtor to supplement the record with evidence supporting the relief requested in the motion for sanctions (within 14 days) and allowed any party 21 days to respond or to supplement the record. The hearing was reset for March 21, 2019. Debtor’s counsel served the order via certified mail to the CEO of Capital One.

The Debtor filed an affidavit concerning her inheritance and sale of the real estate, a statement of Debtor’s attorney’s fees. These were all served on Capital One via certified mail to its CEO. No other party filed a response.

During the time of the 2019 bankruptcy matters, Debtor’s family attempted to close on the sale of the property. The closing was postponed on January 18, 2019 to February 15, 2019, February 22, 2019 and finally February 28, 2019 which was the buyers final date. In order to facilitate the closing Debtor had to accept a reduction of $7,500.00 from her share of the sale to satisfy the lien and ostensibly to compensate the buyer for delay.


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