wvbankers.org 24 West Virginia Banker Bankruptcy and Judgment Liens: Traps for the Unwary By Steve Brown, Investors Title Insurance Company When searching a title or reviewing the results of a title search, the title examiner may discover that the current property owner, or a previous owner, has been involved in a bankruptcy proceeding while owner of the property. Often, the property owner’s bankruptcy was preceded by the entry of a number of judgments in favor of the owner’s creditors, which served as precipitating factors for the bankruptcy proceeding. In determining whether the pre-bankruptcy judgments remain attached as liens against the subject property, the title examiner’s limited knowledge of the effect of bankruptcy proceedings on judgment liens against the debtor’s property may create traps for the title examiner in rendering the title opinion. Those traps may be avoided by a better understanding of the effect of bankruptcy proceedings on judgment liens that attach before the bankruptcy filing and by disclosing the bankruptcy issues and seeking the advice of a knowledgeable bankruptcy attorney or the title insurer. The property owner facing a significant judgment or numerous judgments or demands by creditors will seek the protection of the bankruptcy courts by filing a voluntary petition or may have an involuntary petition filed by his or her creditors. When the petition is filed, all debts owed by the debtor are called “pre-petition” debts. The principal goal of the debtor, once in bankruptcy, is to obtain relief from as many pre-bankruptcy obligations as possible. The principal and most commonly known way the debtor accomplishes this goal in bankruptcy proceedings is by obtaining a discharge. Under each of the bankruptcy chapters, a debtor may obtain a discharge of some of all of the debtor’s indebtedness if the debtor meets the statutory requirements for the discharge, pursuant to 11 U.S.C. Section 727, 944, 1141, 1228 or 1328. The effect of a discharge is described in 11 U.S.C. Section 524 provides: (a) A discharge in a case under this title: 1. voids any judgment to the extent that such judgment is a determination of the personal liability of the debtor with respect to any [pre-petition] debt discharged under ... this title ... 2. operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor ...
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