What Do You Mean That the Discharge from the Bankruptcy Court Did Not Make the Liens Go Away?
by Jeff Campbell, Esq.
It is well settled that under Federal law and Massachusetts state law that perfected liens do survive a bankruptcy discharge. In the recent case of Christakis v. Jeanne D’Arc Credit Union, 471 Mass. 365, 29 N.E.3d 823, decided on May 6, 2015, the Court delves into the distinction between In Personam actions and In Rem actions in examining the effect of a discharge order from the Bankruptcy Court upon recorded liens.
On July 26, 2010 Pagona Christakis (Christakis) filed a petition in the Bankruptcy Court seeking protection under Chapter 13 of the Bankruptcy Code. This case was converted to a Chapter 7 case on April 28, 2011. At the time of filing, there were a few recorded executions, one of which was held by Jeanne D’Arc Credit Union (Jeanne D’Arc). Christakis received a discharge from the Bankruptcy Court on August 19, 2011. Christakis had not sought or obtained a ruling from the Bankruptcy Court avoiding Jeanne D’Arc’s lien or any other lien.
Subsequent to the discharge from the Bankruptcy Court, Chistakis commenced an action in the Land Court to remove the liens that had attached to her Billerica property after the creditors, one of which was Jeanne D’Arc, obtained final judgment against her. Jeanne D’arc filed an answer. Two other creditors were defaulted. Christakis moved for default against the other two creditors. Jeanne D’Arc moved for summary judgment. The Land Court judge denied the motion for default and granted the motion for summary judgment, concluding that “the defendants’ liens remain, subject to potential review by the Bankruptcy Court to determine if they impair exempt property”. Christakis appealed to the Appeals Court and the SJC transferred the case on its own initiative.
The SJC pointed to 11 U.S.C. 524(a)(1) which provides that a discharge in bankruptcy “voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability
of the debtor with respect to any debt discharged under 11 U.S.C. section 727”. The court further pointed out that the debt itself is not extinguished by the discharge; it remains in existence but cannot be enforced personally against the debtor. See One to One Interactive, LLC v. Landrith, 76 Mass. App. Ct. 142 (2010). A bankruptcy discharge extinguishes only one mode of enforcing a claim – namely, an action against the debtor In Personam – while leaving an action against the discharged debtor, In Rem.
Johnson v. Home State Bank, 501 U.S. 78, 84 (1991). An unavoided, otherwise valid lien perfected prior to the bankruptcy filing “survives or passes through the bankruptcy”. Id at 83. The court went on to point out that the In Personam vs. In Rem distinction was a balancing of interest between debtors and creditors and that it would not alter that long standing balance.
The case serves as a good reminder that unless avoided by the bankruptcy court or disposed of by a sale free and clear of liens, perfected liens survive a discharge in bankruptcy.
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