In Christakis v. Jeanne D'Arc Credit Union (SJC 11758) (May 6, 2015), the Massachusetts Supreme Judicial Court addressed the issue of whether judicial liens on real property remain valid after the owner of the property receives a discharge under Chapter 7 of the Bankruptcy Code.
Three creditors had sued the plaintiff, Pagona Christakis, to recover unpaid credit card debt. All three obtained final judgments, and levied the resulting executions on Christakis’s real property in Billerica. Subsequently, Christakis filed for Chapter 7 bankruptcy. She was granted a discharge in 2011. The Bankruptcy Court did not issue a ruling avoiding any of the defendants’ judicial liens (likely because Christakis did not request such a ruling).
After her bankruptcy discharge, Christakis filed a complaint in the Land Court to remove the judicial liens from her property. Two defendants failed to answer, and Christakis requested default judgment against them. She also moved for summary judgment against the answering defendant, Jeanne D'Arc Credit Union, which in turn moved for summary judgment in its favor. In an unusual procedural twist, the Land Court (Long, J.) granted summary judgment in favor of all three creditors. Christakis appealed.
In analyzing the question of whether the judicial liens on Christakis’s real property remained valid after her Bankruptcy discharge, the Supreme Judicial Court focused on the difference between an in personam action against the debtor/plaintiff to recover debt, which is barred by the bankruptcy discharge, and an in rem action against the debtor/plaintiff’s real property to recover debt, which is not necessarily barred by the bankruptcy discharge. While the Bankruptcy Code permits the Bankruptcy Court judge to avoid a judicial lien to the extent the lien impairs an exemption, 11 U.S.C. § 522(f)(1), no such request for avoidance was made in Christakis’s case; therefore the liens remained valid. The SJC declined to construe Massachusetts law differently from Federal law on the subject, holding that “where a discharge only voids a judgment as to actions in personam, the liens resting on that judgment need not be invalidated, because the judgment is not void as to actions in rem.”
The SJC affirmed the grant of summary judgment in favor of all three creditors, even the two that were defaulted, because the liens remained as a matter of law. The failure to answer Christakis’s complaint does not mean that the two defaulted creditors admitted Christakis’s conclusions of law. Where the liens survived discharge as a matter of law, nothing in Christakis’s complaint could compel a different outcome, and summary judgment was appropriate despite the defaults.
This case reaffirms the rights of creditors to recover valid judgments, received prior to bankruptcy, provided that the recovery can be sought in an in rem action against a debtor’s property. It also serves as a reminder to debtors to request a ruling from the Bankruptcy Court prior to discharge avoiding judicial liens. Such a request would likely be granted, at least to the extent the liens impair an exemption, such as the homestead exemption.
Read the full Decision here.