August 8, 2013
SANDRA STEUDTNER, Plaintiff-Appellant,
PATRICIA PECORARO, Defendant-Respondent.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted January 9, 2013
On appeal from the Superior Court of New Jersey, Law Division, Bergen County, Docket No. DJ-278710-09.
Brian R. Quentzel, attorney for appellant.
John W. Sywilok, attorney for respondent.
Before Judges Nugent and Haas.
Plaintiff Sandra Steudtner appeals from the denial of her motion for reconsideration of a Law Division judge's order that cancelled and discharged her judgment lien against defendant Patricia Pecoraro's residence under N.J.S.A. 2A:16-49.1. That statute authorizes the cancellation and discharge of a judgment lien that was discharged or dischargeable in bankruptcy proceedings. The Law Division judge had earlier determined that the parties' dispute about whether the judgment lien was dischargeable in defendant's bankruptcy proceedings should have been addressed by plaintiff during those proceedings. When the judge made that determination, he failed to appreciate the significance of plaintiff's evidence that the judgment lien had not been discharged, and was not dischargeable, during the bankruptcy proceedings. Consequently, plaintiff's motion for reconsideration should have been granted. We reverse the order denying that motion.
The parties do not dispute the facts. Plaintiff sued defendant in the Special Civil Part for breach of contract, and the parties settled the suit. Defendant breached the settlement agreement and in January 2007 plaintiff secured a judgment in the amount of $13, 132 against defendant. More than two years later, on November 17, 2009, plaintiff recorded the judgment.
On March 2, 2010, the court issued a writ of execution, which a sheriff's officer served on defendant on May 17, 2010. The next month, on June 24, 2010, defendant filed a bankruptcy petition under Chapter 7 of the United States Bankruptcy Code, listing plaintiff as a creditor in the petition's "Schedule F, Creditors Holding Unsecured Non-priority Claims."
Although defendant petitioned the Bankruptcy Court to discharge her debt to plaintiff, she did not petition the court to cancel the judgment lien on her residence. Rather, in the petition's "Schedule A - Real Property, " she represented that her home's value was $399, 900 and that she owed a mortgage balance of $344, 734.35, leaving $55, 165.65 in equity. Against that equity, defendant claimed an exemption of $21, 625 under 11 U.S.C.A. § 522(d)(1). Thus, based on the information provided by defendant in her bankruptcy petition, she had $33, 540.65 in equity in her home not subject to exemptions; more than double plaintiff's judgment lien of $13, 132.
In September 2010, the bankruptcy trustee filed a "Report of No Distribution, " in which he reported "that there is no property available for distribution from the estate over and above that exempted by law." On January 18, 2011, the bankruptcy judge entered an order discharging defendant.
A year later, in January 2012, plaintiff filed a motion in the Law Division to "maintain the status quo." She sought to have the court both extend indefinitely the writ of execution and direct the sheriff not to return the writ. Plaintiff supported her motion with her attorney's certification, which recounted the entry of the judgment, her attempts to collect the judgment from defendant's personalty, defendant's obstruction of that process, and the sheriff's levy on defendant's residence. The attorney averred that defendant's discharge in bankruptcy prevented plaintiff from pursuing personal liability against defendant, and that "the [p]laintiff is now limited to the real property, upon which was levied prior to the onset of the [d]efendant's Chapter 7 bankruptcy case." Explaining that the writ she had obtained before defendant declared bankruptcy was scheduled to be returned in March 2012, two years from the date it was issued, plaintiff sought to maintain the status quo "by extending the life of the subject writ of execution and continu[ing] its levy upon the subject property[.]"
In response to plaintiff's motion, defendant filed a cross-motion seeking to have the court discharge and cancel the judgment under N.J.S.A. 2A:16-49.1, which provides in pertinent part:
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 . . . . 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. (Emphasis added).
The dispositive question on defendant's cross-motion was whether plaintiff's judgment lien was "subject to be discharged or released under the provision of the Bankruptcy Act." The judge never directly addressed or answered that question. Rather, he decided that the issue should have been resolved in the bankruptcy court, believing that "otherwise there's no point in having a [b]ankruptcy [c]ourt."
In her opposition to the cross-motion, plaintiff explained that she was attempting to levy upon the non-exempt equity in defendant's home; that N.J.S.A. 2A:16-49.1 existed to eliminate a lien that impaired a defendant's exempt equity only; and that her judgment lien did not impair defendant's exempt equity. Defendant responded that the bankruptcy trustee's decision not to pursue her property demonstrated that the property had no equity, and she had therefore satisfied N.J.S.A. 2A:26-49.1.
In separate orders entered on February 17, 2012, the Law Division judge denied plaintiff's motion to maintain the status quo and granted defendant's cross-motion to dismiss the judgment lien. As previously stated, the judge granted defendant's motion on the basis that plaintiff had not resolved in the bankruptcy action the issue she was now raising; and that she was placing the court in a position of superseding the bankruptcy proceedings. Declining to substitute his judgment for that of the bankruptcy trustee, the judge discharged the judgment lien.
Plaintiff filed a motion for reconsideration, which the judge denied on March 16, 2002. In a written decision, the judge found plaintiff failed to satisfy the reconsideration standard. The judge relied, in large part, on the Chapter 7 trustee abandoning the property as there being no equity in the property.
Plaintiff appealed. The sole argument plaintiff presents on this appeal is:
THE LOWER COURT ERRED BY DISCHARGING THE PLAINTIFF'S JUDGMENT LIEN.
Plaintiff repeats the substantive arguments that she made in the Law Division and also asserts that the denial of her motion for reconsideration was palpably incorrect. Defendant disputes neither the procedural history nor the facts set forth by plaintiff, "except to assert that [defendant] is not precluded from re-opening the bankruptcy and filing an [a]ffirmative [m]otion under 11 U.S.C.A. Section 522(f) to avoid the [plaintiff's] lien."
When a party appeals from an order denying a motion for reconsideration, we review the denial under an "abuse of discretion" standard. Marinelli v. Mitts & Merrill, 303 N.J.Super. 61, 77 (App. Div. 1997). An abuse of discretion occurs when the basis for the judge's decision is either "palpably incorrect or irrational"; or when the judge has "failed to appreciate the significance of probative, competent evidence." Fusco v. Bd. of Educ. of Newark, 349 N.J.Super. 455, 462 (App. Div.), certif. denied, 174 N.J. 544 (2002). Here, the basis for the judge's decision is incorrect.
When a debtor attempts to discharge a valid and perfectedjudgment lien on real property under N.J.S.A. 2A:16-49.1, "the threshold and controlling issue is whether the judgment [lien] was subject to discharge or release in bankruptcy." Gaskill v. Citi Mortg., Inc., 428 N.J.Super. 234, 241 (App. Div. 2012). The statute applies if "the debtor could have obtained a discharge of the lien through the bankruptcy proceedings, [even if] the debtor [did] not . . . actually obtai[n] a discharge of the lien." Ibid.
"[W]hether a judgment lien is 'subject to discharge or release' [under N.J.S.A. 2A:16-49.1] must be measured by the circumstances existing as of the time of the filing of the bankruptcy petition." Chem. Bank v. James, 354 N.J.Super. 1, 10 (App. Div. 2002). Consequently, "[a]bandonment of property by the trustee does not affect whether a judgment lien is subject to discharge or release." Gaskill, supra, 428 N.J.Super. at 241. In the case before us, the motion judge erroneously based its decision on a report from the bankruptcy trustee who had apparently abandoned the real property that was subject to the judgment lien.
To determine whether plaintiff's judgment lien was subject to discharge, we turn to the Bankruptcy Code. The Bankruptcy Code permits a debtor to "avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled . . . if such lien is a judicial lien . . . ." 11 U.S.C.A. § 522(f)(1)(a). Here, defendant claimed an authorized exemption in the amount of $21, 625. As plaintiff explained to the Law Division judge, due to the amount of equity in defendant's home, defendant's exemption was not impaired by the judicial lien. The lien was not subject to discharge under 11 U.S.C.A. § 522(f)(1)(a), and defendant did not argue that her lien was subject to discharge under any other section of the Bankruptcy Code.
Plaintiff demonstrated on the motion record, on undisputed facts, that her judgment lien "was a lien on real property owned by [defendant] prior to the time [s]he was adjudged a bankrupt, and not subject to be discharged or released under the provisions of the Bankruptcy Act[.]" N.J.S.A. 2A:16-49.1. Defendant produced no competent evidence to the contrary, and does not argue before us that the judgment lien was subject to discharge under the Bankruptcy Act. Rather, she asserts that she is "not precluded from re-opening the bankruptcy and filing an [a]ffirmative [m]otion under 11 U.S.C. Section 522(f) to avoid . . . the lien." That assertion appears to be based on her belief that the value of her residence has further depreciated.
The motion judge misapplied his discretion when he denied plaintiff's motion for reconsideration. He did not analyze whether the lien was subject to discharge. He should have granted plaintiff's motion and should have vacated his previous order cancelling and discharging her judgment lien against defendant.
Plaintiff has not appealed the denial of her motion to "maintain the status quo, " believing that it may be "premature" to address the issue. Plaintiff nevertheless expresses her "belief" that the underlying writ of execution should be extended for the amount of time that it was stayed during defendant's bankruptcy proceedings. That issue is not properly before us and we therefore decline to address it.
The February 17, 2012 Law Division order cancelling and discharging plaintiff's judgment, and the order denying plaintiff's motion for reconsideration, are reversed. The parties may pursue in the Law Division, or in bankruptcy court, any remedies that may be available to them.