Debtor Could Reopen Chapter 13 to Avoid Judgment Lien which Creditor Attempted to Renew in State Court, but Could Not Recover Sanctions

Debtor Could Reopen Chapter 13 to Avoid Judgment Lien which Creditor Attempted to Renew in State Court, but Could Not Recover Sanctions

The debtor has reopened this Chapter 13 proceeding for the purpose of avoiding a judgment lien and imposing sanctions on the judgment creditor and its counsel as a penalty for their attempt to renew that lien in state court.

On November 15, 2006, Truck Center, Inc., obtained and docketed a judgment in the amount of $6,556.13 against Debtor. Eight days later, Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code. In schedules filed with her petition, the debtor reported ownership of a residence at 59 Wide Beach Road, and further claimed an exemption for the full amount of any equity in that property. The schedules also listed Truck Center as a general unsecured creditor. Meanwhile, the Statement of Financial Affairs made no mention of any outstanding judgment. Then on January 17, 2007,  Truck Center filed a timely proof of claim. Although the creditor attached a copy of its judgment as an exhibit, the proof of claim asserted only an unsecured obligation.

This court granted an order confirming the debtor’s proposed plan on July 10, 2007. Pursuant to the plan’s treatment of unsecured creditors,  Truck Center would eventually receive a distribution equal to 16% of its claim. Debtor obtained a discharge on September 12, 2011, and her case was closed on November 10, 2011. Prior to that initial closing of the case, however, the debtor neglected to avoid the lien of  Truck Center, either by reason of its status as a preference under 11 U.S.C. §547, or pursuant to 11 U.S.C. § 522(f), by reason of the lien’s impairment of the debtor’s homestead exemption.

Under State, a judgment becomes a lien on real property “from the time of the docketing of the judgment with the clerk of the county in which the property is located until ten years after the filing of the judgment-roll. . . .” However, “a renewal action may be brought between the same parties to the original action during the tenth year to extend the lien for an additional 10-year period.” Accordingly, on October 26, 2016, the state court granted the application of Truck Center for the issuance of an Order to Show Cause why the movant’s outstanding judgment and judgment lien should not be renewed. Through counsel, Debtor opposed this extension. In a decision dated November 16, 2016, State Court ruled in favor of Debtor, and held that the Order of Discharge in bankruptcy barred  Truck Center from seeking a renewal of its lien. The State Court further held that under the doctrine of judicial estoppel, the filing of an unsecured proof of claim precluded  Truck Center from asserting the renewal rights of a secured creditor.

After the conclusion of proceedings in State Court, Debtor retained new counsel, who obtained an order reopening her bankruptcy case. In Bankruptcy Court, Debtor now seeks to avoid the underlying judgment of Truck Center, Inc., and to hold the creditor and its counsel in contempt for a violation of the Order of Discharge. In particular, the debtor requests the imposition of sanctions and the recovery of her legal fees and expenses. These legal fees and expenses include charges of $2,365 by prior counsel in the state court proceeding, together with the value of services rendered by new counsel in connection with the present application in Bankruptcy Court. Truck Center responds that the Discharge Order voids only personal liability, and does not impair any outstanding lien or the right to seek a renewal of that lien.

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