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The cancellation of a judgment means that a lien is extinguished and removed from the court records maintained by the judgment section of the Court in the State of New Jersey. In New Jersey, there is an ability to perform a judgment lien search, usually requested from an entity called “Charles Jones” that is relied upon by real estate and bankruptcy lawyers. There are two separate events when a judgment is first entered and later cancelled. One entry identifies creditor and defendant, the judgment entry date and amount. After a Bankruptcy Court Order or Order from the New Jersey State Court grants relief from the judgment, a second entry is docketed to complete the process of cancelling the judgment.

What Happens If I’ve Entered Into A Settlement And Then File Bankruptcy?

There is no prohibition from seeking relief to discharge a debt that is agreed to a Stipulation of Settlement. In most circumstances, a Stipulation of Settlement or a settlement agreement will have negotiated default provisions. If the individual debtor or company defaults on payment of the amount owed, an acceleration of the entire debt amount owed under the agreement will occur. Most Stipulations also include a right to enter a judgment by Motion or require execution of a consent judgment to be held in escrow by counsel that can be filed with the Court upon breach of the payment terms of the Stipulation.

A term in a Stipulation that a debt may not be discharged in a Bankruptcy case is void and unenforceable as against public policy.

If My Debt Was Discharged In Bankruptcy, Why Is There Still A Lien On My Property?

The legal status of a lien against real estate owned by the debtor at the time of the filing after a discharge in a Bankruptcy case is somewhat of an anomaly in the law. The lien itself remains a cloud on title despite the fact that the personal obligation to pay the lien has been discharged. In a situation where there is a judgment lien in a chapter 7 bankruptcy, in most cases the lien is subject to higher priority liens such as first and second mortgage liens or tax sale certificates on property. It is unusual in the circumstance if that lien remains on the property but it really is a cloud on title. It is very rare for anyone to actually attempt to enforce a judgment lien after the bankruptcy case is filed. The only enforcement mechanism allowed is called an In rem enforcement solely against the real estate itself. In most circumstances the property is usually encumbered by mortgages so the lien enforcement is not economically justified. 

What Happens When The Lien Survives A Bankruptcy Discharge?

After a bankruptcy discharge, if a lien was not contested in the case, there is a period of time that that creditor can seek to enforce that lien against property. This lien foreclosure remedy is not economically viable for creditors. I have never seen one in all my years of practice of the attempt to enforce a sale of real estate by a junior lien creditor in these circumstances because of secured creditors who old liens higher in priority than the judgment lien creditor.

Can You Remove A Judgment Lien Discharged In Bankruptcy?

Judgment liens that are personally discharged in a bankruptcy that remain as a cloud on title can be removed through application of a New Jersey statute N.J.S.A. 2A:16-49.1. That statute is an ancillary remedy, which permits a Debtor to file a motion one year after a bankruptcy discharge has been entered to cancel a judgment that was subject to be discharge under the bankruptcy case to be cancelled and removed of record. A motion must be filed in the court where the judgment was entered. In most circumstances, Chapter 7 trustees take no action to avoid the liens because they do not have an incentive unless there is equity in the property.

For more information on Judgment Liens Law in New Jersey, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (908) 373-8500 today.

Michael McLaughlin, Esq.

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