Treatment of Minnesota State-Court

Judgments Following Bankruptcy of the
Judgment Debtor
Jeremy J. Cobb, Esq.1

This article discusses Minnesota law relating to the removal (“discharge”) of judgments
following a judgment debtor’s bankruptcy.

Many debtors in bankruptcy come to counsel with preexisting judgments. They are
judgment debtors. In recent years, it has become more common for unsecured creditors, such as
bank card issuers or former lienholders with unsecured deficiency claims (such as an automobile
lender after repossession or junior mortgage lender after foreclosure), or their successors in
interest, such as debt buyers or parties acquiring rights pursuant to a credit default swap (CDS)
instrument, to file suit against debtors, thereby reducing the obligation to judgment and paving
the way for the judgment creditor to employ powerful state-law collection remedies such as
garnishment, attachment, execution, and levy. In addition, taxing authorities have many of the
same modes of collection available to them with no requirement for antecedent judicial
involvement. It is frequently the threat of garnishment of wages or funds held in deposit
accounts at financial institutions that motivates the debtor to seek bankruptcy protection.
One remedy available to judgment creditors is the attachment of the judgment to certain
property of the debtor, commonly a judgment lien on real property titled to the debtor. Many
debtors—and more than a few attorneys—imagine that bankruptcy can transport the debtor back
in time so as to remove such liens. This belief is unfounded and contrary to settled law.

Liens Pass Through Bankruptcy Unaffected . . . Except That Most of the Time They Can’t
Be Enforced
A fundamental mischaracterization of the nature of a bankruptcy discharge pervades the
bankruptcy bar. Rather than eliminating debts per se, a discharge merely eliminates a bankrupt’s
personal liability for discharged obligations. A bankruptcy discharge extinguishes a bankrupt’s
in personam liability only; in rem liability remains.2 Therefore, a creditor’s remedy to bring an

Mr. Cobb graduated from the University of Minnesota Law School in 2001, where he was an editor for the
Minnesota Journal of Law, Science & Technology and named to the dean’s list. He earned a bachelor of science in
chemical engineering from the University of Michigan, Ann Arbor, cum laude, in 1995. He was a Regents-Alumni
Scholar and earned Class Honors. He is a principal at Judson Cobb LLC and devotes a large portion of his practice
to bankruptcy. He may be reached at (763) 412-1996,, and via
11 U.S.C. § 524(a)(1) (2006); Johnson v. Home State Bank, 501 U.S. 78, 84 (1991) (“Rather, a bankruptcy
discharge extinguishes only one mode of enforcing a claim—namely, an action against the debtor in personam—
while leaving intact another—namely, an action against the debtor in rem.”). 


Naturally) Section 522(c) reads in pertinent part: Unless the case is dismissed. . This codifies the rule in Long v. “It is hornbook law that a valid lien survives a discharge in bankruptcy unless it is avoidable and the debtor takes the proper steps to avoid it. 617 (1886). Bullard. 117 U.S. .3 Accordingly.S.C. REP. and H.S. before the commencement of the case.C. whether or not discharge of such debt is waived[. § 522(c)(2) (2006).S. 7 Johnson. Bullard. 117 U. § 362 (2006).  4 2    . NO.. The rule in fact.”). subject to the automatic stay during the pendency of the case. except— (1) for [certain taxes and custom duties and for domestic support obligations]. Arruda v. “a creditor’s right to foreclose . 95-595 (1977)).S. . 501 U. Bankruptcy Discharge Under § 524 Voids Judgments to the Extent That Enforcement Is Predicated Solely on the Debtor’s Personal (In Personam) Liability Section 524 of the Bankruptcy Code reads in pertinent part: A discharge in a case under this title . to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged [pursuant to chapters 7. not avoided by the trustee exercising certain statutory powers.” 5 except when it doesn’t. goes back even further. and not void as securing a debt that is not an “allowed secured claim”]. Sears. 21 (1st Cir. 2002). 9. § 524(a)(1). 501 U.]6 The effect of a discharge is to void any judgment determinative of a debtor’s personal liability. survives or passes through the bankruptcy.action in rem against property of the debtor survives the debtor’s bankruptcy. it is settled law that a preexisting lien against property of the debtor passes through bankruptcy unaffected. and 13].7 Thus. at 83. 5 Johnson. 12. (2) [for] a debt secured by a lien that is [not avoided by the debtor as impairing an exempt property interest of the debtor. 310 F. .3d 13. 11 U. Such judgments do not survive discharge and are void by operation of law.S. .                                                              3 11 U.S. at 83 (citing Long v. 617 (1886) (“The setting apart of the homestead to the bankrupt under . voids any judgment at any time obtained. 11. . rather than merely voidable.”4 Thus. . 6 11 U. Roebuck & Co.C. Exempt Property Is Not Subject to Post-Petition Enforcement of Pre-Petition Debts (With Exceptions. did not relieve the property from the operation of liens created by contract before the bankruptcy.R. prepetition judgments cannot be enforced post-petition against property of the debtor (the automatic stay operates to prevent post-petition but pre-discharge attachment). [exempt] property is not liable during or after the case for any debt of the debtor that arose . .

A lien impairs an exemption to the extent that the sum of (1) the lien. Antioch Laurel Veterinary Hospital. § 522(c). § 550. STAT.  Lien partially avoidable.”14 You Might Not Know When You’re Impaired Ideally a debtor would know a priori when a lien “impairs an exemption to which the debtor would have been entitled under subsection (b). and other property ordinarily exempt under state law. and (3) “the amount of the exemption that the debtor could claim if there were no liens on the property. § 522(f)(3).8   Thus. except for certain kinds of debts.9 the debtor may generally avoid any lien on otherwiseexempt property of the debtor. 2003)).C. Id. follow the “full avoidance” approach. 14 Id. § 522(f)(1). 13 11 U. a creditor may not enforce a pre-petition lien in rem against property of the debtor unless the debtor or trustee has failed procedurally to avoid the lien or the lien is of a kind that the debtor or trustee may not avoid. Balancing the Rights of Debtors and Creditors: § 522(f)(1) of the Bankruptcy Code. § 522(f)(4). Other courts.  9 3    . This rule applies both to judicial liens—except those enforcing a “domestic support obligation”—and to nonpossessory. e.”15 but counsel must carefully read the Code’s definition in section 522(f)(2). Most courts. § 522. that is. Unless state law prohibits it. § 522(f)(2). REV.. compare Minnesota’s exemptions in MINN. nonpurchase-money security interests in household goods. follow the “entire lien avoidance” approach and hold that the lien may not be partially avoided. (2) all other liens on the property that have not been avoided.” “exceeds the value that the debtor’s interest in the property would have in the absence of any liens. § 522(f)(2)(C).37 (2012).”16 This gives rise to three possible scenarios: Scenario  Result 1 2 3 2 3 1 2 3   2 3             Cannot avoid the lien. If it would otherwise be partially avoided under the full avoidance approach. prescribed health aids.C.(3) (4) [for certain debts related to misconduct by a financial institution]. L.12 An important limitation is that a debtor may not avoid a mortgage. courts adhering to the entire lien avoidance approach hold that the lien is avoided in its entirety. since it does not fall within any of the applicable categories of liens subject to avoidance. 10 Exempt under id.S. § 522(f)(1). 15 Id. 12 For example. however.13 Nor may a debtor avoid the fixing of a lien in connection with a “judgment arising out of a mortgage foreclosure. See generally. Kolich v.g. 328 F.S. or [for certain fraudulent educational debts]. including those in Minnesota at the time of this article (see. 1215 (1998). herein described.11 tools of the trade. 16 Id. Mary-Alice Brady. 39 B.                                                               8 11 U.  Lien entirely avoidable.10 notwithstanding any putative contractual waiver given by the debtor to the contrary. Please note that courts have adopted two approaches when interpreting this statute.C. 11 “Household goods” is defined in id.3d 406 (8th Cir.

R. which might be rearranged. at least here in Minnesota. this exemption applies only once.3d 406 (8th Cir. the “value that the debtor’s interest in the property would have in the absence of any liens” exceeds all other liens not previously avoided. § 522(f)(3) does not generally apply under current Minnesota law. The lien may be avoided in its entirety. BANKR. The debtor may apply the entire exemption to the debtor’s equity in the property without any impairment. § for current figures. for joint petitioners. aff’d. and applied the Bankruptcy Code’s explicit mathematical formula outlined supra. 328 F. We can also see that if the debtor has no equity beyond unavoidable liens and the exemption. But the debtor can unquestionably elect to use the Minnesota homestead exemption—currently $390. the value of the debtor’s interest in the property is such that the debtor cannot apply the maximum available exemption to the debtor’s equity in the property because the lien is diminishing the debtor’s equity. Antioch Laurel Veterinary Hospital . and thus cannot avoid any portion of the lien. 1 (2012). 21 FED. In the second scenario. B. 20 Arruda v.21                                                              17 The late Judge Dreher.S. It is not additive.3d 13.]”17 I Don’t Always Choose Minnesota Exemptions. STAT. I Prefer to Avoid Liens Now.One might find the following simple graphic helpful: (2) (3) value (1) impairment If one views these elements as building blocks. In the final scenario. 2003). 19 Please note that the limitation of 11 U.P. But When I Do. the next adjustment is scheduled to take effect July 1.000 for non-agricultural land18—to make the exemption number much larger and avoid almost any judicial lien as described supra. the lien may be avoided. the debtor’s has no equity in the property to which to apply any available exemption. In the first scenario. See http://mn.02.C. then the lien is avoidable in its entirety. Unlike the federal exemptions. 273 B. expressly rejected this argument in Kolich v. so there is some calculus here—there may be tradeoffs between what may gained and what may be lost. subd. 9013 (“[a] request for an order shall be by written motion”).. 2002). 2014. P.A. we have to be consistent and apply them to all assets of the debtor. 18 MINN. Sears. nonetheless fails to take the proper steps to do so. 199 (8th Cir. Thus. to the extent that the debtor’s access to the maximum available exemption has been impaired. 4    . it turns out that we can. 21 (1st Cir. it is easy to see that if (1) is added. even though the debtor has no equity and ostensibly suffers no “impair[ment] of an[y] exemption to which the debtor would have been entitled[. Inc. it might exceed the value of the debtor’s interest in the property in the absence of any liens. writing for the majority. R.20 A debtor can avoid a lien only by court order. causing impairment. then the lien is not avoided. 2002). and avoidance is therefore properly done by motion of the debtor..19 What If I Have Avoidance Issues? If a debtor having statutory authorization to avoid the fixing of a lien. Roebuck & Co. what if we could change some numbers in the foregoing examples to be more favorable to us—thereby changing the results? Well. If we elect the Minnesota exemptions. 310 F.

”25 Thus. place of residence.181 as limited in its application only to those judgments not reduced to a lien. MINN. 1985).18 (1982) (repealed 1987). §§ 508. a judgment lien is created by operation of law upon all real property of the debtor in the county where docketed. 201-222 (2012).MINNESOTA LAW When a State-Court Judgment Becomes a Lien Against Real Property of the Judgment Debtor Minnesota law provides that. and the lien continues. for ten years after its entry. PRAC. which are not subject to avoidance under bankruptcy law in any event. § 548. Since most real property in Minnesota is under the abstract system. § 548. Inc.23 “From the time of docketing the judgment is a lien. 1. Brua. R. including after-acquired real property in such county.09 (emphasis added).2d 863 (Minn.01 (2012).181 and the Rule in Triangle Refineries Enter section 548. STAT. Nevertheless. . which directs the court administrator to discharge “all judgments entered in [state] court against the judgment debtor that were ordered discharged by the bankruptcy discharge.01 (2012). 1.15. 27 Id. occupation. App. Quoting the Minnesota Supreme Court. and post office address of the judgment debtor. but it is not a lien upon [Torrens] land24 unless it is also recorded . 24 MINN. When a State-Court Judgment Is Subject to “Discharge” Under State Law: Section 548. 508A.   28 Id. § 548. STAT. the Minnesota Court of Appeals interpreted the predecessor28 to section 548. Torrens land in Minnesota is less common than abstract land. § 548. Essentially. Additionally. “[e]very judgment requiring the payment of money shall be entered by the court administrator when ordered by the court and will be docketed by the court administrator upon the filing of” the judgment creditor’s affidavit “stating the full name. 26 Id. subd. upon all real property in the county then or thereafter owned by the judgment debtor.”22 Taxing authorities are exempt from the affidavit requirement.W.181. section 548. when the judgment expires. this means that most money judgments give rise to a judgment lien by operation of law upon all current or after-acquired real property in which the debtor has an interest. .181. The judgment survives. subd.181 of the Minnesota Statutes. except for certain judgments relating to domestic support obligations. the associated judgment lien also expires. GEN.”26 The term “discharge” as used therein to refer to the effect of state-court actions is an unfortunate coincidence.27 In Triangle Refineries. the Court of Appeals observed that                                                              22 MINN. v. 364 N. in the amount unpaid. except that Torrens—rather than “abstract”—land is subject to a recordation requirement. 23 5    .15 of the Minnesota Statutes describes the effect of a state-court discharge within the meaning of section 548. . since “discharge” is a bankruptcy term of art having a very specific meaning and implications. 25 MINN.09 (2012). STAT. Id. § 548. it is just a judicial decree directing the court administrator to record the judgment as satisfied. the judgment lien survives for ten years after entry.

or.181.18 and enacted section without further notice or hearing. 33 Id.181.181. then the judgment record would be left ambiguous and misleading—an unnecessary and undesirable result. subd. it might seem to authorize the court to order satisfaction of the judgment absolutely. Stat.181. But the court’s determination of the issue depends both on state law and federal law. of course. as if often the case with the law. § 548. . codifying the rule in Triangle Refineries to limit its application to “judgments entered in that court against the judgment debtor that were ordered discharged by the bankruptcy discharge”29 and specifically excluding any “judgment [that] was an enforceable lien on real property when the bankruptcy discharge was entered.                                                              29 Id.”30 Still. 1. § 548. CONCLUSION In sum. Olsen v. . if the statute be taken as authorizing an order for absolute discharge which is to be construed less comprehensively than its terms imply and as not affecting vested rights or liens. without regard to its being a lien.181. § 548.181 in its stead. Nelson. Thus. subd. 4. State-Court Procedure The application by a judgment debtor or party in interest33 to the court is simple and straightforward. . In 1987. 32 Id. 146 N. The district court’s Website contains a link34 to a one-page fill-in form entitled Application for Discharge of Judgment(s) (Minn. the effect would be to destroy a vested property right in no wise affected by the bankruptcy act. the judgment was an enforceable lien on real property when the bankruptcy discharge was entered”) on the other hand. for . 34 See http://www. manifestly contrary to the statutory intent. 1099 (Minn. it appears to be an open question as to whether the creditor must object to discharge within the meaning of section 548. 1. § 548.W. 1914). subd. shall discharge each judgment except a judgment in favor of a judgment creditor who has filed an objection to discharge of the judgment”)32 and subdivision 4 (“[i]f a judgment creditor objects .181 to preserve its lien. . but it cannot be given such broad construction. . subd. 1. 30 6    . and that of both subdivision 3 (“[t]he court administrator. Each debtor should consult competent counsel. There are excellent arguments on either side.[r]eading the statute literally. maybe. the court shall order the judgment discharged except to the extent that . § 548.mncourts. and how a court would rule is. . because the analysis is not straightforward. 31 Id. 3 (emphasis added). unknown. the answer to the question of whether a debtor can remove a state-court judgment after bankruptcy is. there is glaring tension between the language of subdivision 1 (limiting application to judgments “that were ordered discharged by the bankruptcy discharge”)31 on the one hand. we may add. subd. the Minnesota legislature repealed section 548.aspx?page=513&item=140&itemType=packetDetails.181) that most debtors could probably complete pro se. Id. § 548. 1097.