JUDICIAL LIENS AND BANKRUPT DEBTOR’S RESIDENCE

A judicial lien is an involuntary lien that arises out of a judgment in a lawsuit. First, there is a lawsuit where the debtor is normally the defendant. Second, the lawsuit ends with the debtor losing. Third, a judgment is entered saying that the defendant lost and owes plaintiff a sum of money. If nothing else happens after entry of judgment, there is no judicial lien. Plaintiff or creditor must take a fourth step where he applies for an involuntary lien on all the properties in the name of defendant. Fifth, the involuntary lien must be recorded in the county’s recorder’s office. The recording of the involuntary lien is the act that creates a judicial lien that attaches to all properties in the county in the name of judgment debtor.

 To illustrate, debtor owes American Express $50,000. Debtor defaults and fails to pay it back. Is there a judicial lien at this stage? No. There is only a breach of contract situation because of the failure to repay a loan. American Express files a lawsuit against debtor for breach of contract to collect the $50,000. Is there a judicial lien at this stage? No. There is only a lawsuit that has been filed for breach of contract. Can American Express garnish debtor’s wages at this point? No. Can it put a judicial lien on debtor’s residence at this point? No. After six months, the case is set for trial. At trial, American Express wins and thereafter gets a judgment against debtor for $50,000 plus interest, penalties, costs and legal fees of $20,000, making a total judgment against debtor of $70,000. Can American Express put a lien on debtor’s bank accounts for $70,000 at this point? No. There is a judgment that has not yet been entered is what creditor has. After 30 days, the judgment is entered. Can American Express garnish debtor’s wages at this point? NO. There is a judgment that has been entered but there is no writ of execution. After 30 days, American Express obtains a writ of execution and thereafter obtains a writ of garnishment against debtor’s wages. Can American Express start garnishing debtor’s wages? Yes. The sheriff will use the writ of wage garnishment to get 25% of debtor’s wages. So, if debtor has a gross monthly salary of $5,000, the sheriff will get 25% of that or $1,250 every month.

At that point, has a judicial lien for $70,000 attached to the debtor’s house? NO. American Express has a writ of wage garnishment but it has not yet applied for an involuntary lien against debtor’s properties in the county.  After 30 days from the issuance of the writ of wage garnishment, American Express applies for and obtains an involuntary lien against debtor for the judgment of $70,000. Is there a lien on debtor’s house? No. At this point, the involuntary lien has not yet been recorded in the recorder’s office. After one week, American Express records the notice of involuntary lien in Los Angeles County where debtor lives. Is there a lien for $70,000 on debtor’s house now? Yes.

How can debtor prevent the $70,000 lien from attaching to his residence? If debtor files for bankruptcy relief before the date of recording of the involuntary lien, the lien cannot attach to his residence because of the “automatic stay” in bankruptcy. The “automatic stay” is bankruptcy law that says that once debtor files a bankruptcy, all collection efforts are stopped as of the date and time of filing of the bankruptcy. For instance, in this example, debtor filed his Chapter 7 bankruptcy on November 24, 2011 at 2:01 p.m. American Express recorded the notice of involuntary lien for $70,000 on November 24, 2011 at 2:02 p.m. Did the lien of $70,000 attach to debtor’s residence? N0. The lien did not attach to his house because at 2:01 p.m. the bankruptcy filing automatically stopped all collection efforts. Since the recording of the involuntary lien is a collection effort, the recording is null and void.

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years.  He specializes in bankruptcy, business and civil litigation and has handled more than four thousand successful bankruptcy cases in California.  He speaks Mandarin and Fujien and looks forward to discussing your case with you personally.  Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.