Filing a claim against a debtor in court is often a step that creditors must take in order to receive the money they are owed. Yet a creditor can only obtain the money if the judgment can be enforced. If a debtor will not pay, our collections lawyers can assist you with a judgment lien against the debtor’s property.
What is a judgment lien?
A judgment lien gives you personal stake in a debtor’s property. In other words, it allows you to turn an unsecured loan or debt into a secured one. The debtor cannot sell his or her property with a clear title unless they pay back the delinquent balance owed against the lien. In some cases, this makes it very difficult to sell the property at all. If the property is sold, the money owed to you will be taken from the sale of the property.
How it works
Once a judgment has entered, a Parsippany New Jersey judgment lien attorney will obtain and then place the lien. It is important to properly attach the lien to the specific property to protect your claim. A mortgage holder has a lien on the property owner’s real estate until you pay the mortgage in full. Similarly, the holder of a properly attached judgment lien has a security interest in the defendant/debtor’s property.
In general, and with some exceptions, a judgment lien against real estate would be paid upon the sale or refinance of the property. However, judgment liens impair the property’s equity. Therefore, a property owner may have motivation to pay a judgment lien claim as soon as the owner is aware of the lien.
What else it can do
When there is sufficient equity in real estate, a judgment lien also elevates an otherwise unsecured claim to secured status. It thus provides greater (though not complete) protection for the creditor in the event of a bankruptcy by the property owner.
Your judgment liens attorney’s role
A collection attorney can also advise as to which properties may be more quickly collected upon, such as bank accounts or other assets. In addition, he can advise whether you should turn the judgment into a:
- real estate lien,
- bank account levy, or
- garnishment of the debtor’s wages.
Seasoned collection attorneys can help assess which of these tools will be the most effective in a given case.
Enforcing a judgment lien in New Jersey
It is not the business of the court to enforce the judgment lien. That responsibility falls to you or your collections attorney. The court only grants permission to place a lien on the property. In New Jersey, liens can only be placed on real estate. You can, however, obtain writs of execution against other kinds of property including personal assets, stocks, bonds, and valuable property.
The first part of the process is recording the judgment with the Office of the Superior Court Clerk in Trenton. In the process, a lien is automatically placed on the real estate. Depending on whether the property is the debtor’s place of residence or is property owned for the purposes of renting, the judgment creditor can force the sale of the property to recover the debt. If the property is their place of residence, then the creditor cannot force the sale of the property and must wait until the debtor decides to sell the property themselves or clear the lien by repaying the outstanding debt.
Whether or not it will be worth forcing the sale depends on several factors including whether or not the debtor co-owns the property with someone else. In some cases, it will not be practical and simply waiting for the debtor to sell the property themselves will be the better option. Judgment liens remain enforceable for 20 years after the original judgment. After that, they must be renewed.
Judgment liens and bankruptcy in New Jersey
If a business or a client files for bankruptcy, the bankruptcy alone is not enough to discharge the lien in New Jersey. It can stop a lien from being placed on a property only if filed before the lien has taken effect. It also prevents the creditor from taking additional action against the debtor if they already have a lien on their property. In some cases, discharging the lien can also become an issue during the bankruptcy.
New Jersey allows individual debtors to discharge judgment liens after one year of filing for bankruptcy. But this is predicated on the fact that the debt that the debtor owed was discharged during the bankruptcy. There are ways to prevent a debt from being discharged if the debtor can be proven to have operated in bad faith or fraudulently made a purchase they knew they could not afford prior to the bankruptcy.
Chapter 13 BankruptcyIn Chapter 13, you can place a lien on a debtor’s home or other property. But the original lender’s lien takes precedence over yours. If the debtor owns the property outright and yours was the first lien on the property, then you have the equivalent of a secured interest in the property.
Chapter 7 BankruptcyIf the debtor is a business, then their options are more limited. Discharging debts in Chapter 7 requires the dissolution of the business. During a Chapter 7 bankruptcy, all of the debts that the debtor-company owed are discharged and repaid to creditors through the liquidation of the business. If the business owned some real estate, your lien would remain valid. For that reason, it is important to move quickly when attempting to recover a debt. There usually are multiple creditors making claims against the debtor-business’s property.
Chapter 11 Bankruptcy
In the case of a Chapter 11 bankruptcy, a judgment lien may be stripped if the debt itself is part of the bankruptcy plan or, in other words, the debtor has dealt with it in their reorganization plan and the creditor participated in the bankruptcy. In certain cases, junior lenders liens can be stripped down if there is another lien that takes precedence. Additionally, a creditor may choose to take no action and thus not be a participant in the bankruptcy to avoid the Chapter 11 lien stripping.
Determining whether or not to participate in a Chapter 11 is a choice best left to a qualified collections attorney.
Contact a New Jersey judgment liens attorney
Could a judgment lien help you collect on a debt? Let the experienced collection attorneys at Snellings Law LLC discuss this option with you. Contact us today.
Have a question? Get in touch with us. We would be glad to hear from you.
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