Judicial Liens Survive Discharge in Bankruptcy – May 2015

 

For the first time, the Supreme Judicial Court in Christakis v. Jeanne D’Arc Credit Union, 471 Mass. 365 (2015) addressed the balance of interests under state and federal law between debtors and judgment lien holders in bankruptcy.

A judgment lien is created under state law through the sheriff’s recording of a levy of execution issued by the court. The execution is the court’s instruction to the sheriff that the debtor’s assets be seized and secured for sale in order to satisfy its judgment. A lien initially established by prejudgment attachment of real estate is perfected by the sheriff’s recording of the levy.

Importantly, a discharge received by a debtor in bankruptcy does not extinguish the debt itself, but merely eliminates the creditor’s right to enforce it against the debtor, personally. The SJC recognized, consistent with the law in most jurisdictions, that the debt may still be enforced to the extent that the creditor holds perfected liens against the debtor’s property under applicable state law.