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Associates Commercial Corp. v. Langston

Decided: September 15, 1989.


On appeal from Superior Court of New Jersey, Law Division, Camden County.

King and Skillman. The opinion of the court was delivered by Skillman, J.A.D.


[236 NJSuper Page 238] On July 12, 1978, plaintiff secured a judgment of $15,824.34 against defendants Sheba and James Langston, who are mother and son.*fn1 On January 13, 1981, Sheba Langston filed a petition for relief under Chapter 13 of the United States Bankruptcy Code, listing plaintiff as one of her creditors. Defendant made all necessary payments pursuant to the Chapter 13 plan and on July 14, 1983 she received a release from all debts dischargeable under the 1978 Bankruptcy Code as well as all judgments establishing liability for those debts. Defendant's indebtedness to plaintiff was discharged through this order. However, defendant

failed to petition the bankruptcy court to cancel the lien on defendant's residence created as a result of the judgment. Consequently, when defendant and her husband entered into a contract in 1987 to sell the property, a title search revealed the unsatisfied judgment and defendant was required to escrow the amount of the judgment at closing.

Subsequently, defendant filed a motion with the bankruptcy court for an order reopening her bankruptcy proceeding and discharging judicial liens of record. However, defendant withdrew the motion after the bankruptcy court expressed doubt whether it could grant relief in view of the conveyance of the property to a third party.

Defendant then filed a motion seeking discharge in the trial court which entered the judgment. The trial court vacated the judgment but refused to discharge the lien derived from the judgment. Defendant appeals.

Defendant's motion to discharge plaintiff's judgment and the consequent lien on her former residence was based upon N.J.S.A. 2A:16-49.1, which provides in pertinent part as follows:

At any time after 1 year has elapsed, since a bankrupt was discharged from his debts, pursuant to the acts of Congress relating to bankruptcy, he may apply, upon proof of his discharge, to the court in which a judgment was rendered against him, or to the court of which it has become a judgment by docketing it, or filing a transcript thereof, for an order directing the judgment to be canceled and discharged of record. If it appears upon the hearing that he has been discharged from the payment of that judgment or the debt upon which such judgment was recovered, an order shall be made directing said judgment to be canceled and discharged of record; and thereupon the clerk of said court shall cancel and discharge the same by entering on the record or in the margin of the record of judgment, that the same is canceled and discharged by order of the court, giving the date of entry of the order of discharge. Where the judgment was a lien on real property owned by the bankrupt prior to the time he was adjudged a bankrupt, and not subject to be discharged or released under the provisions of the Bankruptcy Act, the lien thereof upon said real estate shall not be affected by said order and may be enforced, but in all other respects the judgment shall be of no force or validity, nor shall the same be a lien on real property acquired by him subsequent to his discharge in bankruptcy.

The sponsor's statement to the bill which became N.J.S.A. 2A:16-49.1 stated that:

The purpose of this bill is to carry through the intention of the Bankruptcy Act, i.e. to give the bankrupt a fresh start in life. If judgments that have been discharged in bankruptcy are allowed to remain of record, the practical effect may be to require payment at sometime in the future, thereby negating the intended benefits of the bankruptcy proceedings.

It is undisputed that defendant was discharged from her debts pursuant to the federal bankruptcy law, that the discharge included defendant's indebtedness to plaintiff and that defendant waited more than one year before applying to the state court. Therefore, defendant satisfied all the preconditions set forth in the first two sentences of N.J.S.A. 2A:16-49.1 for discharge of the judgment in favor of plaintiff.

In addition, it is undisputed that defendant could have obtained a discharge of the lien during the pendency of the bankruptcy proceedings. ...

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