In an attempt to strike a balance between a debtor’s right to the “fresh start” contemplated in the Bankruptcy Code and a creditor’s right to collect on secured debt, the Massachusetts Supreme Judicial Court (the “SJC”) has squarely held that a judicial lien survives a bankruptcy discharge unless the Bankruptcy Court has ruled that the lien should be avoided.
In Christakis v. Jeanne D’Arc Credit Union, 471 Mass. 365 (2015), the defendants had each sued the plaintiff to collect on a debt. The defendants had each received final judgments and writs of execution against the plaintiff, and had each made a levy of execution on the plaintiff’s property. In other words, the creditor defendants had perfected liens against the debtor’s property using debt collection processes available under state law before the debtor filed a bankruptcy petition.
The SJC noted the plaintiff’s concession that judicial liens remain valid under federal law despite a discharge in bankruptcy, but stated, “we do not agree that Massachusetts law should differ from federal law in this regard.” Christakis, 471 Mass. at 368.
Quoting from various authorities, the SJC explained that while a bankruptcy discharge eliminates the possibility of recovery against the debtor personally, it leaves intact the possibility of an action “in rem.” Id. at 367-68.
In a footnote, the SJC explained that it did not use the Latin phrase “in rem” strictly, to mean “directed against the property itself.” Instead “in rem” is used more broadly in this context to encompass “‘suits to determine the validity of mortgages or other encumbrances upon land, or to enforce liens, or to quiet the title to land,’ which ‘involve the rights of all persons in so far as they assert any interests in the property which is the subject matter of the litigation,'” Christakis, 471 Mass. at 367, n.6, quoting Guida v. Second Nat’l Bank, 323 Mass. 100, 104 (1948).
According to the SJC, “[t]his distinction between in personam and in rem actions ‘comports with the purposes of the bankruptcy process by striking a balance between the need for debtors to obtain a reprieve from their debts, while simultaneously protecting creditors’ secured property rights.” Id. at 368, quoting United Presidential Life Ins. Co. v. Barker, 31 B.R. 145, 147 (N.D. Tex. 1983).
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