On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. BER-L- 5030-90.
Before Judges Newman, Braithwaite and Fall.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
The question presented in this appeal is whether N.J.S.A. 2A:16-49.1 authorizes the cancellation and discharge of a judgment lien of record against the real property of a judgment debtor whose personal liability for the underlying debt has been discharged in a bankruptcy proceeding, where the bankrupt's interest in that real property was abandoned by the trustee during the bankruptcy proceedings.
We hold that when a judgment lien was "subject to be discharged or released under the provisions of the Bankruptcy Act," and the creditor did not levy against the property of the debtor prior to the filing of the bankruptcy petition, or within one year of the debtor's discharge, relief is available to the debtor to cancel and discharge the judgment lien pursuant to N.J.S.A. 2A:16-49.1, notwithstanding the trustee's abandonment of the bankrupt's interest in that property during the bankruptcy proceedings pursuant to 11 U.S.C.A. § 554(a).
N.J.S.A. 2A:16-49.1 provides:
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 the 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. Notice of the application, accompanied with copies of the papers upon which it is made, must be served upon the judgment creditor, or his attorney of record in said judgment, in the manner prescribed in R.R. 4:5-1, et cetera, of The Revision of The Rules Governing the Courts of the State of New Jersey (1953); provided, however, nothing herein contained shall prevent said judgment notwithstanding such discharge of record from being used as a set-off in any action in which it otherwise could be used. [Emphasis added.]
The facts and procedural history giving rise to this appeal follow.
On August 14, 1990, plaintiff Chemical Bank docketed a judgment against defendant Donald James in the amount of $112,929.25, plus costs of $115.
On March 18, 1994, defendant filed a Chapter 7 Bankruptcy Petition, listing plaintiff as an unsecured creditor in the amount of $113,044.25 based upon that judgment.
At the time of the filing of the bankruptcy petition, defendant owned a one-half interest in a condominium known as Unit 5J, 200 Old Palisade Road, Fort Lee. The petition listed the value of the condominium as unknown, and stated it was encumbered by a mortgage owed to Household Finance Services in the amount of approximately $130,000. However, Schedule D of the petition, entitled "Creditors Holding Secured Claims," lists the market value of the property subject to the mortgage lien of Household Finance as approximately $115,000.
Although the judgment attached against defendant's interest in the condominium, plaintiff did not levy or execute upon its judgment prior to defendant's commencement of the bankruptcy proceeding, or within one year after defendant's discharge in bankruptcy.
Prior to the discharge, the trustee in bankruptcy filed a notice of proposed abandonment with respect to defendant's interest in the condominium, stating "there is no equity which could be realized for the benefit of the estate[,]" in light of defendant's one-half interest in the condominium being encumbered by a mortgage in the amount of $130,000. There was no opposition interposed and the abandonment by the trustee took effect on June 5, 1994.
On July 20, 1994, the bankruptcy court ordered a discharge of defendant's debts and any judgments against him personally. The ...