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Massachusetts Court: Real Property Liens Survive Bankruptcy Proceedings

house-of-domino-1440564-mIn a recent Massachusetts Supreme Judicial Court case, Christakis v. Jeanne D’Arc Credit Union, Mass. Sup. Jud. Ct. (2015), the court had before it the issue of whether or not judicial liens on real property remain after the owner of the property receives a discharge under Chapter 7 of the Bankruptcy Code.

The plaintiff had filed a complaint in land court to remove judicial liens on the real property she owned. Three creditors had obtained final judgments against the plaintiff owner. The liens on the property, which purportedly arose out of unpaid credit card bills, were finalized prior to the plaintiff’s filing for bankruptcy.

Once the plaintiff filed for bankruptcy, there were various cross motions and motions for summary judgment motions filed. However, only one out of the three creditors responded to the filing.

The plaintiff received a bankruptcy discharge but neither obtained nor sought a ruling from the bankruptcy court regarding the avoidance of any of the relevant liens. The bankruptcy judge granted summary judgment in favor of the creditor that responded, and default judgment as to the remaining two creditors, all of whom had liens on the property in question, who did not respond.

The court cited to the federal bankruptcy law, which states that a discharge operates as an injunction against any debtors attempting to collect debts as a personal liability. It is not that the debt itself is extinguished, but rather that the underlying debt cannot be enforced personally against the individual.

Essentially, liens that exist prior to bankruptcy proceedings survive a discharge, which removes the possibility of bringing an in personam action against a debtor but does not affect the possibility of bringing an in rem action against the same debtor.

The plaintiff next attempted to argue that the lien could not be upheld under state law, but the court disagreed. It found that the state has also differentiated between actions that are in personam and those that are in rem. Since the underlying debt itself is not extinguished, but only the ability to pursue the payment in personam, the lower court judge did not err in granting summary judgment to the credit union in this case. Therefore, the lower court’s judgment was affirmed as to the survival of the liens against the property.

The law firm of Pulgini & Norton offers skilled representation in a broad range of real estate matters in Boston and the surrounding communities. Our property transactions attorneys have over 40 years of combined practice in the law. We offer thorough and results-oriented legal guidance to buyers, sellers, and lenders in a wide range of real estate matters. Contact our office to discuss your questions or concerns.

More Blog Posts:

Appeals Court of Massachusetts Affirms Denial of Tax Abatement in Real Estate Case, Massachusetts Real Estate Lawyer Blog, published June 17, 2015

Massachusetts Appeals Court Affirms Finding of Abandoned Easement, Massachusetts Real Estate Lawyer Blog, published June 10, 2015

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