Last updated: October 15th, 2020
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One breath summary: In Oregon, when a creditor wins a judgement against you for failing to pay a debt, it creates a lien against any real estate that you own or acquire during the course of the lien. This lien often survives a bankruptcy proceeding, and needs to be dealt with separately.
What is a Judgment Lien?
If a person fails to pay a debt, the creditor has the option to file a collections lawsuit against the person. The result of the litigation is often that the court will enter a judgment. A judgment is basically a court order that states that one person (called the judgment debtor) must pay money to another person (called the judgment creditor). Entry of the judgment enables the creditor to take certain collection actions, such as asset seizures and garnishment.
In Oregon, entry of a judgment also creates a judgment lien against the title to any real estate owned by the debtor, such as a house, condo, or bare land. The judgment lien automatically attaches to any real estate owned by the debtor in the county where the lawsuit occurred. The judgment lien also attaches to real estate the debtor acquires after entry of the judgment, but before the judgment lien expires, unless the debt is discharged in bankruptcy. To extend the judgment lien to real estate in other counties, a copy of the judgment must be recorded in the County Clerk lien record in the other county. Most judgments liens are valid for ten years, but may be extended for an additional ten years.
There are some circumstances when judgment liens are not created. For example, judgment liens are not created by parking violations, some convictions for traffic violations, and some small claims cases where the judgment amount is less than $3,000. When in doubt, the court records should be reviewed to determine whether a judgment lien was created.
What Happens to the Judgment Lien When the Judgment Debtor Files for Bankruptcy Protection?
One of the main reasons people file for bankruptcy protection is that a creditor has sued them and has obtained a judgment. However, a successful bankruptcy discharge only eliminates the debtor’s personal liability for payment of a debt; the bankruptcy discharge does not automatically eliminate the judgment lien. Some additional steps must be taken to address the judgment lien.
In some situations, it is possible to eliminate the judgment lien during the bankruptcy proceeding, either by filing a motion in a Chapter 7 bankruptcy case or as part of the Chapter 13 bankruptcy payment plan. However, in some situations, it is not possible to do so. Or, sometimes people simply neglect to address the judgment lien during the bankruptcy. As a result, these judgment liens may “survive” the bankruptcy proceeding.
What Can You Do About a Judgment Lien After a Bankruptcy Discharge?
If a judgment lien survives a bankruptcy proceeding , then it continues to be lien on real estate and will attach to real estate acquired by debtor after the bankruptcy. Another way of thinking of it: the bankruptcy eliminated the debtor’s personal liability, but the lien still exists against any real estate owned or later acquired by the debtor.
There are several options for dealing with a judgment lien after bankruptcy:
- Attempt to re-open the bankruptcy case and address the lien. However, due to filing fees and attorney fees, this is often not the most cost-effective option.
- Wait until judgment lien expires. However, most judgment liens are valid for 20 years, so this could be a long wait.
- Pay the creditor. If the obligation to pay the debt has been discharged in bankruptcy, this would not make much sense, but it is still an option.
- File a motion in state court to eliminate the judgment lien.
What is Involved in Filing a Motion to Discharge and Satisfy a Judgment Lien?
This situation is addressed by Oregon Revised Statutes § 18.238. That rule gives the Court the authority to eliminate the judgment lien if certain conditions are met. You have to show the Court that the debt was discharged in bankruptcy and either 1) at the time you filed for bankruptcy protection, you did not own any real estate for the judgment lien to attach to, or 2) if you did own real estate, the value of that real estate was less than the other liens against the property (such as mortgages), so there was no value of the judgment lien to attach to.
The process is usually straight-forward. The debtor’s attorney prepares and files a motion explaining why the conditions of ORS 18.238 are met and an affidavit or sworn declaration signed by the debtor. The documents are filed in the Court where the judgment was entered. A copy of the documents is served on the judgment creditor, usually by mail. The creditor has 17 days from mailing to file an objection. If the creditor files an objection, the Court will hold a hearing. However, typically, the creditor does not file an objection and, after the 17 day period has expired, the debtor’s attorney submits a proposed order for the judge to review and sign. The entire process usually takes less than a month and can be accomplished with modest attorney fees.
If you would like to discuss dealing with a judgment lien after bankruptcy, please feel free to contact Brian T. Hemphill to schedule a consultation.