I am not a lawyer, I am a judgment referral expert (Judgment Broker). This article is based on my experience in California. Laws vary in each state, and nothing in any of my articles should ever be considered legal advice. This article is my opinion about bankruptcy and property liens.
Many people think that when a debtor goes bankrupt, they are immune from debts forever. That is not true. Usually, the filing of the bankruptcy petition covers a snapshot of a moment in time. The creditors affected by the bankruptcy are those that held a claim against the debtor that arose prior to the filing of the debtor's bankruptcy petition.
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Sometimes the cause of action is post-bankruptcy, and the creditor's claim arrives after the filing of the debtor's BK petition, so the claim will not be part of the bankruptcy. If a discharge has been entered, it is very difficult for the debtor to get their case reopened to include a new debt.
Usually, a debtor can only re-open a bankruptcy case to bring in a pre-petition debt that was inadvertently omitted from the original petition. The debtor cannot move the clock forward to include a later-incurred debt. The debtor cannot successfully file doe bankruptcy again for many years, so you've got plenty of time to collect, without fear of them successfully going bankrupt again.
However, property liens are another matter. Many people think that if the debtor's debts are discharged in bankruptcy, and the debtor owns no property, the creditor's liens will remain, and can be renewed. Many people think that a lien can be "avoided" (removed) in bankruptcy only if it impairs the debtor's homestead exemption. Neither of these beliefs are true.
Usually, when a debtor files bankruptcy, you will quickly receive a notice of a "motion to avoid a judicial lien" - even if the debtor does not currently own any property.
Why do bankruptcy attorneys usually file a motion to avoid a judicial lien when a lien has not attached to any primary residence? The reason why this filing occurs, is to discharge the judgment and any liens that might have been created with a recorded abstract of judgment. Once a judgment debt has been discharged, no one can file an abstract of judgment at a county recorder for that judgment.
If the debtor had a lawyer representing them in bankruptcy court, their lawyer will probably file motions to avoid all liens for two reasons:
1) They can bill for it. It is probably a boiler plate template that requires little work and generates more income.
2) They do this as a preventive measure so that no one can come back later to say that they did not "do" something that they should have, and thus bring up the threat of malpractice. It is a "belt and suspenders" approach which protects them, enriches them, and guards against surprises in the bankruptcy process if additional assets or amended filings appear.
What if the motion to avoid a judicial lien is granted, and later the bankruptcy is dismissed? If the debtor's bankruptcy attempt fails, the motion to avoid a judicial lien is history. If the debtor gets bounced out of BK court for whatever reason and does not get a discharge, then the judgment remains in effect, and you can record an abstract of judgment.
If the debtor's bankruptcy is dismissed or denied, and they later buy or inherit a property, your lien may attach to the property. Should the debtor acquire property in a county that you do not have an abstract of judgment filed in, there would be no automatic attachment of your lien.
Some states let you record one lien statewide, however California has 58 counties. It is expensive and time consuming to record 58 abstract of judgment liens in California.
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