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Delaware Bankruptcy Litigation Information on Corporate Bankruptcy Proceedings in Delaware and Throughout the United States

Ruling Confirms that Judicial Liens are Dischargeable in Chapter 7

Posted in Opinions

Summary

In an opinion issued March 16, 2012, Judge Sontchi of the Delaware Bankruptcy Court ruled that unpaid debts subject to a judicial lien are dischargeable in bankruptcy. Judge Sontchi’s opinion is available here (the “Opinion”).  The Opinion, like all those published by Judge Sontchi, walks readers through the relevant law in making its final ruling; in this case determining what liens are dischargeable pursuant to the bankruptcy code.

Background

Tracey Chambers Coleman (the "Debtor") had debts of $12,381 arising from unpaid attorney fees, awarded in three separate orders (the "Orders"), which were incurred in the course of a custody dispute.  This Orders were issued from 2008 through 2010.  Opinion at *4-7.  The Debtor filed a Motion to Avoid Judicial Lien (the "Motion") to which her former spouse objected.  The Opinion was issued to decide the Motion.

Judge Sontchi’s Opinion

Judge Sontchi began his the Opinion with a discussion of Section 522(f)(1) as follows: 

a debtor “may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under [section 522(b)], if such lien is – (A) a judicial lien, other than a judicial lien that secures a debt of a kind that is specified in section 523(a)(5).” Section 523(a), in turn, provides that a debtor’s discharge does not apply to any debt that is for a “domestic support obligation” which is defined in section 101(14A). “The elements that must be satisfied for a domestic support obligation to arise are as follows: (i) the payee of the obligation must be either a governmental unit or a person with a particular relationship to the debtor or a child of the debtor; (ii) the nature of the obligation must be support; (iii) the source of the obligation must be an agreement, court order, or other determination; and (iv) the assignment status of the obligation must be consistent with paragraph (D).” In re Anthony, 453 B.R. 782, 786 (Bankr. D. N. J. 2011)

Opinion at *2.  In this case, Judge Sontchi held that the initial reasoning for the first two orders was insufficient to rule that they were support obligations.  Opinion at *8-9.  The final of the three Orders, however, "set forth a thorough basis for the Court’s action in 2011."  Opinion at *9.  Judge Sontchi thus held that the third Order was thus a non-dischargeable domestic support obligation.

Judge Sontchi then analyzed the extent of the Debtor’s non-exempt personal property, and determined it to be worth $4,355.  As this is greater than the $3,000 that was non-dischargeable, the dischargeable portion of the judicial lien survives such that the entire $4,355 of non-exempt property was subject to the judicial liens established in the three prior Orders, with the remainder of the judicial liens being avoidable.  Opinion at *10-11.

 
The Delaware Bankruptcy Court consistently issues thorough, well reasoned opinions.  While the opinions of the Delaware Bankruptcy Court could be shorter, they are more likely to be upheld than opinions with less detail.  This consistency and quality are not unique to the Delaware Bankruptcy Court, but they are qualities that are attractive for parties who desire final rulings that will be upheld in subsequent litigation.

John Bird practices with the law firm Fox Rothschild LLP in Wilmington, Delaware. You can reach John at 302-622-4263, or jbird@foxrothschild.com.