On appeal from the Superior Court of New Jersey, Law Division, Special Civil Part, Morris County, Docket Number DC-03784-00 and docketed judgment number DJ-224630-00.
The opinion of the court was delivered by: Fall, J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Newman, Fall and Hoens.
This is an application pursuant to N.J.S.A. 2A:16-49.1 by judgment debtors discharged in bankruptcy to cancel and discharge of record a judgment that had been entered against them and levied upon their real property prior to the filing of their bankruptcy petition. We first hold that once a monetary judgment entered in the Special Civil Part has been docketed with the Clerk of Superior Court it becomes a Superior Court judgment, a lien against the real property of the judgment debtors, and is not subject to the levying and sale prohibitions contained in N.J.S.A. 2A:17-17. We also rule that when a docketed Superior Court judgment has been levied against the real property of the judgment debtors prior to their filing of a bankruptcy petition, N.J.S.A. 2A:16-49.1 precludes the canceling and discharge of that judgment as a lien against the real property of those judgment debtors after their discharge in bankruptcy, unless the court finds that the judgment lien was "subject to be discharged or released under the provisions of the Bankruptcy Act." N.J.S.A. 2A:16-49.1. Here, we conclude that the judgment lien cannot be canceled and discharged of record because it has not impaired an allowable exemption under the Bankruptcy Code. The following factual and procedural history informs these conclusions.
Plaintiff New Century Financial Services, Inc. is the assignee of a defaulted Chase Manhattan credit card obligation owed by defendants Webster N. Staples and Darnell Staples. On or about May 31, 2000, plaintiff filed a complaint against defendants in the Special Civil Part. Default judgment was entered against defendants on September 29, 2000, in favor of plaintiff in the amount of $2,393.29, plus $114.06 in costs. Pursuant to N.J.S.A. 2A:16-39, on November 21, 2000, the judgment was docketed with the Clerk of Superior Court in the amount of $2,393.29.
On August 28, 2001, at plaintiff's request, the Morris County Sheriff's Office levied upon defendants' real property known as 19 Pleasant Hill Road, Succasunna.
On June 4, 2002, defendants filed a petition in bankruptcy under Chapter 7 of the Bankruptcy Code. Plaintiff was listed as an unsecured creditor in their bankruptcy petition. Pursuant to 11 U.S.C.A. § 7272 of the Bankruptcy Code, the Bankruptcy Court issued a Discharge of Debtors on September 12, 2002.
On or about August 3, 2004, defendants filed a motion in the Law Division seeking to void the judgment as a lien against their real property, pursuant to N.J.S.A. 2A:16-49.1, on the grounds that the judgment lien impaired their homestead exemption under 11 U.S.C.A. § 522(d)(1) of the Bankruptcy Code.
In other words, defendants contended that although "the judgment was a lien on real property owned by the bankrupt[s] prior to the time [they] were adjudged . . . bankrupt," N.J.S.A. 2A:16-49.1, the judgment was "subject to be discharged or released under the provisions of the Bankruptcy Act," ibid., thereby entitling them to "an order directing the judgment to be canceled and discharged of record." Ibid. More specifically, defendants contended that the balance on the first and second mortgages on the subject property approximately equaled the fair market value of their property and they, thereby, had no equity value in the property. Therefore, argued defendants, their homestead exemptions totaling $34,850 exceeded their equity value of the property, as computed by 11 U.S.C.A. § 522(f)(2)(A), and those exemptions would be unduly impaired if plaintiff's lien was not discharged. Plaintiff opposed defendants' motion.
A hearing was conducted on defendants' motion in the Special Civil Part on October 8, 2004. The motion judge did not reach the issue of application or interpretation of N.J.S.A. 2A:16-49.1. In granting defendants' application, the judge concluded that N.J.S.A. 2A:17-17 precluded the levying upon and sale of real property by execution on judgments obtained in the Special Civil Part.*fn1
On or about October 13, 2004, plaintiff filed a motion seeking reconsideration of the court's ruling. In its moving papers, plaintiff argued that once a Special Civil Part judgment is docketed, it becomes a Superior Court judgment and is not subject to the levying and sale prohibition contained in N.J.S.A. 2A:17-17. Plaintiff maintained that because the judgment had been obtained against defendants and docketed and levied against prior to the filing of the bankruptcy petition, N.J.S.A. 2A:16-49.1 precluded canceling the judgment as a lien against defendants' real property. More specifically, plaintiff relied upon the following language contained in that statute:
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 not be enforced, but in all other respects the judgment shall be of no force or validity, nor ...