Expert: Mark J. Markus- California Bankruptcy Attorney - 1/12/2011

Question
QUESTION: I work for an Homeowners Association management company & I do all the small claims for the associations. My situation is I have a Homeowner who we filed a lien on & no response from them. Next we filed a small claims suit & received a judgment, still no response from the debtor. Now we have filed a debtors exam & received a letter from their attorney stating that if we don't dismiss the case due to them filing bankruptcy (chapter 7), after the lien & the judgment was set, that they would pursue a contempt-of-court action against us. The question here is do we, as the creditor, have any rights to this debit because we took the appropriate steps before taking them to court & does the lien & judgment make it a secured debit?

ANSWER: It is difficult to answer your question without knowing the exact dates each thing occurred.  First of all, normally one cannot obtain a lien prior to getting a court judgment, so that sounds strange to me although it may be authorized by the CC&Rs for the property.  If you filed the lawsuit and/or the lien after the Chapter 7 case was filed, then you for sure have to dismiss the case and remove the lien.   You cannot proceed with the judgment debtor examination in any case because it is stayed by the bankruptcy case.   If the lien was recorded within 90 days prior to filing the bankruptcy case, the debtor can take steps to remove it, but you're not under an obligation to do so prior to them getting a court order.  Technically I believe the underlying case should be dismissed since the debt will be discharged in the Chapter 7 case.

If the lien is valid and they don't remove it, then you should get paid upon a refinance or sale of the property.  If you wish to pursue other remedies on the lien now (such as foreclosure) you need to file a motion for relief from the automatic stay with the bankruptcy court for permission to do so.

In short, you need to consult with a bankruptcy attorney in the location where the case was filed to go over your situation in more detail and represent you as necessary.

Mark J. Markus, Attorney at Law
Handling exclusively bankruptcy law cases in California since 1991.
http://www.bklaw.com/

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QUESTION: the lien was recorded on 1/30/2008, the judgment was received 7/13/2009 & the bankruptcy was filed 6/17/2010 as an unsecured debt with dates of 2007-2008 with an "unknown" amount.

Answer
OK, then assuming the lien was valid, it should survive the bankruptcy, but I am not an expert on HOA liens and you should discuss that with a real estate or similar attorney.

I don't know that there's any reason to dismiss the case since the judgment has already been entered and all you're doing is the debtor exam.  I would just cancel the judgment debtor exam (take it off calendar) and then act accordingly on the lien (depending on if there's any equity above the lien, etc...you can get permission from the BK court to pursue that).

Again, you should consult with a bankruptcy attorney in locale where the case was filed to go through all your options.