April 21, 2009
ABC BAIL BONDS, INC., PLAINTIFF-RESPONDENT,
RAUDO MUNOZ, NIDIA MUNOZ, CARMEN QUINONES, FELIX MUNOZ, ADDY MUNOZ, DEFENDANTS,
FELIX BLANCO, DEFENDANT-APPELLANT.
On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-736-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted December 15, 2008
Before Judges R. B. Coleman and Simonelli.
Defendant Felix Blanco appeals from an order of the Law Division, denying his motion to void a judgment and related judgment lien against him and in favor of plaintiff ABC Bail Bonds, Inc. (ABC or plaintiff). We reverse.
We briefly summarize the facts from the record. ABC issued a bail bond on behalf of co-defendant, Raudo Munoz, who subsequently fled the country. ABC sought injunctive relief against Blanco and several co-defendants as guarantors of the breached bail bond on behalf of co-defendant Raudo Munoz, in the amount of $125,000. On June 11, 2004, plaintiff obtained a final judgment against Blanco in the amount of $159,435.43.
On October 8, 2005, Blanco filed a voluntary petition for bankruptcy, under Chapter 7 in the United States Bankruptcy Court for the District of New Jersey. Defendant listed plaintiff's judgment under Schedule F: creditors holding unsecured non-priority claims. Pending a final discharge, defendant filed in the Bankruptcy Court a motion to avoid plaintiff's lien. In response, plaintiff filed a proof of claim asserting that it held a secured claim against defendant for $162,710.15. However, plaintiff later admitted that the lien was not perfected by a levy. On January 26, 2006, the bankruptcy trustee filed a notice of abandonment of defendant's interest in his real property, to which plaintiff initially objected but later withdrew its objection.
On March 24, 2006, the Bankruptcy Court granted defendant "a discharge under section 727 of title 11, United States Code, (the Bankruptcy Code)." 11 U.S.C.A. § 727. However, plaintiff's lien on defendant's property remained. Subsequently, the court voided plaintiff's judgment lien, pursuant to Section 522(f) of the Bankruptcy Code, to the extent of $84,964.74 plus any post-judgment interest accrued. Thus, the court left "a remaining judgment lien attaching to [defendant]'s Real Property of $75,352.24, with statutory interest accruing on this amount from October 9, 2005."
Co-defendant Raudo Munoz was arrested in the Dominican Republic and extradited to the United States in January 2007. Accordingly, plaintiff applied for the return of its previously forfeited bail and obtained a remittitur of $101,800.
On July, 23, 2007, defendant filed a motion in the Law Division to void plaintiff's lien and to remove the judgment of record from his real property pursuant to N.J.S.A. 2A:16-49.1, or alternatively to offset the judgment lien by plaintiff's bail refund of $101,800. In opposing the motion, plaintiff presented a calculation of defendant's debt that started with the original amount of the judgment lien plus interest, for a total of $170,432.32, and added post-bankruptcy fees, including a fugitive fee and attorney's fees, for a grand total of approximately $200,000. According to plaintiff's calculation, the balance after subtracting plaintiff's bail bond refund was $99,931.32.
On September 10, 2007, the Law Division conducted oral arguments telephonically and denied defendant's motion on grounds that (1) the court lacked jurisdiction in the matter pursuant to the Bankruptcy Court concurrent jurisdiction; and (2) N.J.S.A. 2A:16-49.1 did not apply because this was not a discharged debt under the statute, but rather a partially discharged debt, since a lien of approximately $75,000 remained.
On appeal, defendant contends that the trial court erred in concluding that (1) it did not have independent jurisdiction to avoid a judgment that was not entirely voided by the Bankruptcy Court; and (2) N.J.S.A. 2A:16-49.1 did not apply because defendant's indebtedness to plaintiff was not entirely discharged. Defendant further contends that he meets the requirements for statutory relief under N.J.S.A. 2A:16-49.1 because (1) he meets the time requirement; and (2) "the lien could have been subject to discharge in the bankruptcy proceeding." The conditions for discharge under N.J.S.A. 2A:16-49.1 are (1) "that defendant was discharged from [the] debts pursuant to the federal bankruptcy law, . . . includ[ing] defendant's indebtedness to plaintiff," and (2) "that defendant waited more than one year before applying to the state court." Assocs. Commercial Corp. v. Langston, 236 N.J. Super. 236, 241 (App. Div.), certif. denied, 118 N.J. 225 (1989), and certif. denied, 118 N.J. 229 (1989).
A discharge in bankruptcy "voids any judgment 'to the extent that such judgment is a determination of the personal liability of the debtor.'" Party Parrot, Inc. v. Birthdays & Holidays, Inc., 289 N.J. Super. 167, 173-74 (App. Div. 1996) (citations omitted). However, it does not discharge pre-existing liens on a debtor's property. Id. at 173. Under New Jersey law, after one year following bankruptcy discharge, a defendant can apply in the New Jersey Superior Court for an order canceling the judgment against the defendant. N.J.S.A. 2A:16:49.1. The statute states in relevant part:
At any time after 1 year has elapsed, since a bankrupt was discharged from his debts, . . . 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. . . . 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 . . . .
"The intent of N.J.S.A. 2A:16-49.1 is to provide the bankrupt debtor with an ancillary remedy within our state system to assure that judgments intended to be discharged under federal bankruptcy law will not continue to cloud the marketability of title to property owned by the debtor." Chem. Bank v. James, 354 N.J. Super. 1, 8 (App. Div. 2002) (citing Assocs. Commercial, supra, 236 N.J. Super. at 241). It does so by clearing the record, "'unless the judgment was not subject to discharge.'" Id. at 9 (citing Party Parrot, supra, 289 N.J. Super. at 173). Consequently, the controlling issue becomes whether "the lien was 'subject to be discharged or released' under the provisions of the Bankruptcy Code," and not whether it was actually discharged. Id. at 9 (quoting Assocs. Commercial, supra, 236 N.J. Super. at 241).
In and of itself, "the fact that defendant could have obtained a discharge of the lien during the pendency of the bankruptcy proceedings means that the lien was 'subject to be discharged or released under the provisions of the Bankruptcy Act' within the intent of the third sentence of N.J.S.A. 2A:16-49.1," regardless of whether it was in fact discharged at that time. Assocs. Commercial, supra, 236 N.J. Super. at 241. Significantly, "the only occasion for a party to invoke N.J.S.A. 2A:16-49.1 would be where the bankruptcy court has not discharged the judgment and/or the lien." Ibid.
Pursuant to Section 522 of the Bankruptcy Code, "a debtor can avoid a prepetition judicial lien to the extent that he can show that such lien impairs his exemption right whether or not there has been a levy." Party Parrot, supra, 289 N.J. Super. at 175-76 (citing 11 U.S.C.A. 522(f)(1); In re Tash, 80 B.R. 304, 306 (Bankr. D.N.J. 1987)). "The lien avoidance power contained in § 522(f) enables the debtor to extinguish or partially avoid the judicial lien of a creditor in property that would otherwise be exempt but for the creditor's lien." In re Steck, 298 B.R. 244, 250 (Bankr. D.N.J. 2003). However, "a debtor is permitted to avoid only that portion of the lien that impairs the exemption." Ibid. Section 522(f) states in relevant part:
For the purposes of this subsection, a lien shall be considered to impair an exemption to the extent that the sum of
(i) the lien;
(ii) all other liens on the property; and
(iii) the amount of the exemption that the debtor could claim if there were no liens on the property; exceeds the value that the debtor's interest in the property would have in the absence of any liens.
[11 U.S.C.A. § 522(f)(2)(A).]
New Jersey case law recognizes "the limitation of avoidance powers to the lesser of the amount of the value of the debtor's equity or of the amount of his homestead exemption by application of the version of 11 U.S.C.A. § 522(f)(1) in effect at the time of filing of defendant's bankruptcy petition." Chem. Bank, supra, 354 N.J. Super. at 9-10 (citing Party Parrot, supra, 289 N.J. Super. at 176-78). Notably, "[a] lien on the real estate enforced by levy, as opposed to the underlying judgment . . . is not subject to discharge or complete avoidance under the provisions of the Bankruptcy Code. If unperfected, however, plaintiff's lien [is] subject to avoidance under the Code and therefore may . . . be discharged of record" by the New Jersey Superior Court. Id. at 9. A lien is unperfected if plaintiff "failed to levy upon defendant's property prior to the filing of the bankruptcy petition, or within one year after defendant's discharge in bankruptcy." Ibid. (citing Party Parrot, supra, 289 N.J. Super. at 172).
In the case at bar, the Bankruptcy Court discharged defendant's personal debts, including the judgment in favor of plaintiff, and partially voided plaintiff's judgment lien pursuant to Section 522(f). As to the latter, it ordered "that the Clerk of the Superior Court of New Jersey shall partially discharge the [judgment lien entered on behalf of plaintiff] to the extent of $84,964.74 plus any post-judgment interest, . . . leaving a remaining judgment lien attaching to [defendant]'s Real Property of $75,352.24, with statutory interest accruing on this amount from October 9, 2005."
The motion court failed to distinguish the discharge during the bankruptcy proceedings of defendant's indebtedness to plaintiff, which was discharged in its entirety, from the judgment lien attaching to defendant's property, which was partially discharged, in a separate hearing, pursuant to Section 522. This obviously led the court to conclude erroneously that defendant's debt was not fully discharged and that consequently N.J.S.A. 2A:16-49.1, Party Parrot and Chemical Bank did not apply. However, Party Parrot and Chemical Bank, as well as Associates Commercial, involved situations where, as in the case at bar, a defendant's personal liability for an underlying debt was discharged pursuant to federal bankruptcy laws, but a related lien attaching to the defendant's property remained. See Party Parrot, supra, 289 N.J. Super. at 172, 178 (holding that if there was no levy, the lien was unenforceable); Chem. Bank, supra, 354 N.J. Super. at 4; Assocs. Commercial, supra, 236 N.J. Super. at 238-39.
Moreover, plaintiff's contention that defendant was not entitled to relief under N.J.S.A. 2A:16-49.1 because the trustee abandoned his interest in defendant's property lacks merit. "The issue of 'abandonment' does not affect the issue of whether the judgment lien was 'subject to discharge or release' at the time the bankruptcy petition was filed." Chem. Bank, supra, 354 N.J. Super. at 10. In Chemical Bank, the court noted that "N.J.S.A. 2A:16-49.1 would only be applicable under circumstances where the trustee in bankruptcy had abandoned the debtor's interest in his or her real property; otherwise, the trustee would have sold the debtor's interest in the property and applied the proceeds for the benefit of the bankrupt's estate." Ibid. Moreover, "the issue of whether a judgment lien is 'subject to discharge or release' must be measured by the circumstances existing as of the time of the filing of the bankruptcy petition." Ibid.
The issue decided in Chemical Bank was expressed as follows: "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." Id. at 4. In that case, plaintiff-creditor docketed a judgment against defendant and, as a result, obtained a lien against defendant's real property. Id. at 8. Subsequently, defendant filed for bankruptcy petition and "was discharged of his personal obligation on the debt to plaintiff." Ibid. However, plaintiff's pre-petition lien against defendant's property remained. Ibid. (citations omitted). In addition, (1) the trustee abandoned any interest in the debtor's property; and (2) "the creditor did not levy against the property of the debtor, neither prior to the filing of the bankruptcy petition, nor within one year of the debtor's discharge." Id. at 4, 6.
In Chemical Bank, the court held that a judgment lien is "subject to be discharged or released under the provisions of the Bankruptcy Act," where, as in this case, "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, 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)." Id. at 4-5.
Therefore, N.J.S.A. 2A:16-49.1 applies to the present case, and defendant is entitled to have the judgment against him fully discharged of record and the judgment lien discharged to the extent that it was subject to discharge under the Bankruptcy Act, as indicated in the order of the Bankruptcy Court directing the Clerk of the Superior Court of New Jersey to partially discharge the judgment lien to the extent of $84,964.74 plus any post-judgment interest.
Defendant further contends that "the trial court committed harmful error by not addressing [his] request for a complete setoff of [plaintiff]'s judgment lien pursuant to N.J.S.A. 2A:16-49.1 and as a matter of equity." Significantly, N.J.S.A. 2A:16-49.1 states in relevant part:
At any time after 1 year has elapsed, . . . [i]f 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 . . . .
In the case at bar, it is undisputed that plaintiff received a refund of its bail bond in the amount of $101,800. Plaintiff's assertion that as of August 2007 defendant owed it over $200,000 is based on an improper calculation. Defendant's calculation starts with the judgment balance plus interest for a total of over $170,000, notwithstanding the complete discharge of defendant's personal liability and the partial discharge of the lien in the bankruptcy proceedings. In addition, plaintiff's calculation adds post-bankruptcy fees to a debt that was discharged in bankruptcy and attorney's fees that were not awarded by any court.
We reverse and remand for a calculation of statutory interest on the $75,352.24 lien to be offset by the $101,800 bail bond refund that plaintiff received.
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