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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.
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.”).

action in rem against property of the debtor survives the debtor’s bankruptcy, subject to the
automatic stay during the pendency of the case. 3
Accordingly, it is settled law that a preexisting lien against property of the debtor passes
through bankruptcy unaffected. “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.” 4 Thus, “a
creditor’s right to foreclose . . . survives or passes through the bankruptcy,” 5 except when it

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 . . . voids any judgment at any time obtained,
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, 9, 11, 12, and
13], whether or not discharge of such debt is waived[.] 6

The effect of a discharge is to void any judgment determinative of a debtor’s personal

liability. This codifies the rule in Long v. Bullard, 117 U.S. 617 (1886). 7 Thus, prepetition
judgments cannot be enforced post-petition against property of the debtor (the automatic stay
operates to prevent post-petition but pre-discharge attachment). Such judgments do not survive
discharge and are void by operation of law, rather than merely voidable.

Exempt Property Is Not Subject to Post-Petition Enforcement of Pre-Petition Debts (With

Exceptions, Naturally)

Section 522(c) reads in pertinent part:

Unless the case is dismissed, [exempt] property is not liable during or after the
case for any debt of the debtor that arose . . . before the commencement of the
case, except—
(1) for [certain taxes and custom duties and for domestic support
(2) [for] a debt secured by a lien that is [not avoided by the debtor as
impairing an exempt property interest of the debtor; not avoided by
the trustee exercising certain statutory powers; and not void as
securing a debt that is not an “allowed secured claim”];

11 U.S.C. § 362 (2006).
Arruda v. Sears, Roebuck & Co., 310 F.3d 13, 21 (1st Cir. 2002).
Johnson, 501 U.S. at 83 (citing Long v. Bullard, 117 U.S. 617 (1886) (“The setting apart of the homestead to
the bankrupt under . . . did not relieve the property from the operation of liens created by contract before the
bankruptcy.”), 11 U.S.C. § 522(c)(2) (2006), and H.R. REP. NO. 95-595 (1977)). The rule in fact, goes back even
11 U.S.C. § 524(a)(1).
Johnson, 501 U.S. at 83.

(3) [for certain debts related to misconduct by a financial institution];
(4) [for certain fraudulent educational debts]. 8

Thus, except for certain kinds of debts, 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.
Unless state law prohibits it, 9 the debtor may generally avoid any lien on otherwise-
exempt property of the debtor, 10 notwithstanding any putative contractual waiver given by the
debtor to the contrary. This rule applies both to judicial liens—except those enforcing a
“domestic support obligation”—and to nonpossessory, nonpurchase-money security interests in
household goods, 11 tools of the trade, prescribed health aids, and other property ordinarily
exempt under state law. 12
An important limitation is that a debtor may not avoid a mortgage, since it does not fall
within any of the applicable categories of liens subject to avoidance. 13 Nor may a debtor avoid
the fixing of a lien in connection with a “judgment arising out of a mortgage foreclosure.” 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),” 15 but counsel must carefully read the
Code’s definition in section 522(f)(2). A lien impairs an exemption to the extent that the sum of
(1) the lien, (2) all other liens on the property that have not been avoided, and (3) “the amount of
the exemption that the debtor could claim if there were no liens on the property,” “exceeds the
value that the debtor’s interest in the property would have in the absence of any liens.” 16
This gives rise to three possible scenarios:

Scenario Result
(1) + (2) + (3) < 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 Cannot avoid the lien.
(2) + (3) < 𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 < (1) + (2) + (3) Lien partially avoidable.
𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣𝑣 < (2) + (3) Lien entirely avoidable.

11 U.S.C. § 522(c).
Id. § 522(f)(3).
Exempt under id. § 522, that is.
“Household goods” is defined in id. § 522(f)(4).
For example, compare Minnesota’s exemptions in MINN. STAT. § 550.37 (2012).
11 U.S.C. § 522(f)(1).
Id. § 522(f)(2)(C).
Id. § 522(f)(1).
Id. § 522(f)(2). Please note that courts have adopted two approaches when interpreting this statute. Most
courts, including those in Minnesota at the time of this article (see, e.g., Kolich v. Antioch Laurel Veterinary
Hospital, 328 F.3d 406 (8th Cir. 2003)), follow the “full avoidance” approach, herein described. Other courts,
however, follow the “entire lien avoidance” approach and hold that the lien may not be partially avoided. If it would
otherwise be partially avoided under the full avoidance approach, courts adhering to the entire lien avoidance
approach hold that the lien is avoided in its entirety. See generally, Mary-Alice Brady, Balancing the Rights of
Debtors and Creditors: § 522(f)(1) of the Bankruptcy Code, 39 B.C. L. REV. 1215 (1998).

One might find the following simple graphic helpful:

(2) (3) (1)

value impairment

If one views these elements as building blocks, which might be rearranged, it is easy to see that if
(1) is added, it might exceed the value of the debtor’s interest in the property in the absence of
any liens, causing impairment. We can also see that if the debtor has no equity beyond
unavoidable liens and the exemption, then the lien is avoidable in its entirety.
In the first scenario, 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. The debtor may apply the
entire exemption to the debtor’s equity in the property without any impairment, and thus cannot
avoid any portion of the lien.
In the second scenario, 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. Thus, to the extent that the debtor’s access to
the maximum available exemption has been impaired, the lien may be avoided.
In the final scenario, the debtor has no equity in the property to which to apply any
available exemption. The lien may be avoided in its entirety, 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[.]” 17

I Don’t Always Choose Minnesota Exemptions, But When I Do, I Prefer to Avoid Liens

Now, what if we could change some numbers in the foregoing examples to be more
favorable to us—thereby changing the results? Well, it turns out that we can, at least here in
Minnesota. If we elect the Minnesota exemptions, we have to be consistent and apply them to all
assets of the debtor, so there is some calculus here—there may be tradeoffs between what may
gained and what may be lost. But the debtor can unquestionably elect to use the Minnesota
homestead exemption—currently $390,000 for non-agricultural land 18—to make the exemption
number much larger and avoid almost any judicial lien as described supra. 19

What If I Have Avoidance Issues?

If a debtor having statutory authorization to avoid the fixing of a lien, nonetheless fails to
take the proper steps to do so, then the lien is not avoided. 20 A debtor can avoid a lien only by
court order, and avoidance is therefore properly done by motion of the debtor. 21

The late Judge Dreher, writing for the majority, expressly rejected this argument in Kolich v. Antioch Laurel
Veterinary Hospital, Inc., 273 B.R. 199 (8th Cir. B.A.P. 2002), aff’d, 328 F.3d 406 (8th Cir. 2003), and applied the
Bankruptcy Code’s explicit mathematical formula outlined supra.
MINN. STAT. § 510.02, subd. 1 (2012). See
rates/dollar-amount-adjustments for current figures; the next adjustment is scheduled to take effect July 1, 2014.
Unlike the federal exemptions, for joint petitioners, this exemption applies only once. It is not additive.
Please note that the limitation of 11 U.S.C. § 522(f)(3) does not generally apply under current Minnesota law.
Arruda v. Sears, Roebuck & Co., 310 F.3d 13, 21 (1st Cir. 2002).
FED. R. BANKR. P. 9013 (“[a] request for an order shall be by written motion”).

When a State-Court Judgment Becomes a Lien Against Real Property of the Judgment

Minnesota law provides that, except for certain judgments relating to domestic support
obligations, which are not subject to avoidance under bankruptcy law in any event, “[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, occupation, place of residence, and post
office address of the judgment debtor.” 22 Taxing authorities are exempt from the affidavit
requirement. 23 “From the time of docketing the judgment is a lien, in the amount unpaid, upon
all real property in the county then or thereafter owned by the judgment debtor, but it is not a
lien upon [Torrens] land 24 unless it is also recorded . . . . The judgment survives, and the lien
continues, for ten years after its entry.” 25
Thus, a judgment lien is created by operation of law upon all real property of the debtor
in the county where docketed, including after-acquired real property in such county, except that
Torrens—rather than “abstract”—land is subject to a recordation requirement. Since most real
property in Minnesota is under the abstract system, 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. Additionally, the judgment lien survives for ten years after
entry; when the judgment expires, the associated judgment lien also expires.

When a State-Court Judgment Is Subject to “Discharge” Under State Law: Section 548.181
and the Rule in Triangle Refineries

Enter section 548.181 of the Minnesota Statutes, 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.” 26 The term “discharge” as used therein to refer to the
effect of state-court actions is an unfortunate coincidence, since “discharge” is a bankruptcy term
of art having a very specific meaning and implications. Nevertheless, section 548.15 of the
Minnesota Statutes describes the effect of a state-court discharge within the meaning of section
548.181. Essentially, it is just a judicial decree directing the court administrator to record the
judgment as satisfied. 27
In Triangle Refineries, Inc. v. Brua, 364 N.W.2d 863 (Minn. Ct. App. 1985), the
Minnesota Court of Appeals interpreted the predecessor 28 to section 548.181 as limited in its
application only to those judgments not reduced to a lien. Quoting the Minnesota Supreme Court,
the Court of Appeals observed that

MINN. STAT. § 548.09 (2012).
MINN. STAT. §§ 508.01 (2012), 508A.01 (2012); MINN. GEN. R. PRAC. 201-222 (2012). Torrens land in
Minnesota is less common than abstract land.
MINN. STAT. § 548.09 (emphasis added).
Id. § 548.181, subd. 1.
Id. § 548.15, subd. 1.
Id. § 548.18 (1982) (repealed 1987).

[r]eading the statute literally, it might seem to authorize the court to order
satisfaction of the judgment absolutely, without regard to its being a lien; but it
cannot be given such broad construction, for . . . the effect would be to destroy a
vested property right in no wise affected by the bankruptcy act, or, we may add, 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, then the judgment record would be left ambiguous and
misleading—an unnecessary and undesirable result, manifestly contrary to the
statutory intent. Olsen v. Nelson, 146 N.W. 1097, 1099 (Minn. 1914).

In 1987, the Minnesota legislature repealed section 548.18 and enacted section 548.181
in its stead, 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.” 30
Still, 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,
and that of both subdivision 3 (“[t]he court administrator, without further notice or hearing, 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 . .
. the court shall order the judgment discharged except to the extent that . . . the judgment was an
enforceable lien on real property when the bankruptcy discharge was entered”) on the other
hand. Thus, it appears to be an open question as to whether the creditor must object to discharge
within the meaning of section 548.181 to preserve its lien. There are excellent arguments on
either side, and how a court would rule is, of course, unknown.

State-Court Procedure

The application by a judgment debtor or party in interest 33 to the court is simple and
straightforward. The district court’s Website contains a link 34 to a one-page fill-in form entitled
Application for Discharge of Judgment(s) (Minn. Stat. § 548.181) that most debtors could
probably complete pro se. But the court’s determination of the issue depends both on state law
and federal law.

In sum, the answer to the question of whether a debtor can remove a state-court judgment
after bankruptcy is, as if often the case with the law, maybe. Each debtor should consult
competent counsel, because the analysis is not straightforward.

Id. § 548.181, subd. 1.
Id. § 548.181, subd. 4.
Id. § 548.181, subd. 1.
Id. § 548.181, subd. 3 (emphasis added).
Id. § 548.181, subd. 1.