How to Avoid Liens on Your House in Bankruptcy

by Jeremy J. Cobb on Dec. 07, 2019

Bankruptcy & Debt Bankruptcy Bankruptcy & Debt  Credit & Debt 

Summary: This article discusses Minnesota law relating to the removal (“discharge”) of judgments following a judgment debtor’s bankruptcy.

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Treatment of Minnesota State-Court Judgments Following Bankruptcy of the Judgment Debtor


Jeremy J. Cobb, Esq.[1]


This article discusses Minnesota law relating to the removal (“discharge”) of judgments following a judgment debtor’s bankruptcy.




Many debtors in bankruptcy come to counsel with preexisting judgments. They are judgment debtors. In recent years, it has become more common for unsecured creditors, such as bank card issuers or former lienholders with unsecured deficiency claims (such as an automobile lender after repossession or junior mortgage lender after foreclosure), or their successors in interest, such as debt buyers or parties acquiring rights pursuant to a credit default swap (CDS) instrument, to file suit against debtors, thereby reducing the obligation to judgment and paving the way for the judgment creditor to employ powerful state-law collection remedies such as garnishment, attachment, execution, and levy. In addition, taxing authorities have many of the same modes of collection available to them with no requirement for antecedent judicial involvement. It is frequently the threat of garnishment of wages or funds held in deposit accounts at financial institutions that motivates the debtor to seek bankruptcy protection.

One remedy available to judgment creditors is the attachment of the judgment to certain property of the debtor, commonly a judgment lien on real property titled to the debtor. Many debtors—and more than a few attorneys—imagine that bankruptcy can transport the debtor back in time so as to remove such liens. This belief is unfounded and contrary to settled law.


Federal Bankruptcy Law


Liens Pass Through Bankruptcy Unaffected . . . Except That Most of the Time They Can’t Be Enforced


A fundamental mischaracterization of the nature of a bankruptcy discharge pervades the bankruptcy bar. Rather than eliminating debts per se, a discharge merely eliminates a bankrupt’s personal liability for discharged obligations. A bankruptcy discharge extinguishes a bankrupt’s in personam liability only; in rem liability remains.[2]  Therefore, a creditor’s remedy to bring an action in rem against property of the debtor survives the debtor’s bankruptcy, subject to the automatic stay during the pendency of the case.[3]

Accordingly, it is settled law that a preexisting lien against property of the debtor passes through bankruptcy unaffected. “It is hornbook law that a valid lien survives a discharge in bankruptcy unless it is avoidable and the debtor takes the proper steps to avoid it.”[4] Thus, “a creditor’s right to foreclose . . . survives or passes through the bankruptcy,” [5] except when it doesn’t.


Bankruptcy Discharge Under § 524 Voids Judgments to the Extent That Enforcement Is Predicated Solely on the Debtor’s Personal (In Personam) Liability


Section 524 of the Bankruptcy Code reads in pertinent part:


A discharge in a case under this title . . . voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged [pursuant to chapters 7, 9, 11, 12, and 13], whether or not discharge of such debt is waived[.][6]


The effect of a discharge is to void any judgment determinative of a debtor’s personal liability. This codifies the rule in Long v. Bullard, 117 U.S. 617 (1886).[7]  Thus, prepetition judgments cannot be enforced post-petition against property of the debtor (the automatic stay operates to prevent post-petition but pre-discharge attachment). Such judgments do not survive discharge and are void by operation of law, rather than merely voidable.


Exempt Property Is Not Subject to Post-Petition Enforcement of Pre-Petition Debts (With Exceptions, Naturally)  


Section 522(c) reads in pertinent part:


Unless the case is dismissed, [exempt] property is not liable during or after the case for any debt of the debtor that arose . . . before the commencement of the case, except—

  1. for [certain taxes and custom duties and for domestic support obligations];
  2. [for] a debt secured by a lien that is [not avoided by the debtor as impairing an exempt property interest of the debtor; not avoided by the trustee exercising certain statutory powers; and not void as securing a debt that is not an “allowed secured claim”];
  3. [for certain debts related to misconduct by a financial institution]; or
  4. [for certain fraudulent educational debts].[8]


Thus, except for certain kinds of debts, a creditor may not enforce a pre-petition lien in rem against property of the debtor unless the debtor or trustee has failed procedurally to avoid the lien or the lien is of a kind that the debtor or trustee may not avoid.

Unless state law prohibits it,[9] the debtor may generally avoid any lien on otherwise-exempt property of the debtor,[10] notwithstanding any putative contractual waiver given by the debtor to the contrary. This rule applies both to judicial liens—except those enforcing a “domestic support obligation”—and to nonpossessory, nonpurchase-money security interests in household goods,[11] tools of the trade, prescribed health aids, and other property ordinarily exempt under state law.[12] 

An important limitation is that a debtor may not avoid a mortgage, since it does not fall within any of the applicable categories of liens subject to avoidance.[13]  Nor may a debtor avoid the fixing of a lien in connection with a “judgment arising out of a mortgage foreclosure.”[14]


You Might Not Know When You’re Impaired


Ideally a debtor would know a priori when a lien “impairs an exemption to which the debtor would have been entitled under subsection (b),”[15] but counsel must carefully read the Code’s definition in section 522(f)(2). A lien impairs an exemption to the extent that the sum of (1) the lien, (2) all other liens on the property that have not been avoided, and (3) “the amount of the exemption that the debtor could claim if there were no liens on the property,” “exceeds the value that the debtor’s interest in the property would have in the absence of any liens.”[16] 

This gives rise to three possible scenarios:









(1) + (2) + (3) < value


Cannot avoid the lien.


(2) + (3) < value < (1) + (2) + (3)


Lien partially avoidable.


value < (2) + (3)


Lien entirely avoidable.



One might find the following simple graphic helpful:









If one views these elements as building blocks, which might be rearranged, it is easy to see that if (1) is added, it might exceed the value of the debtor’s interest in the property in the absence of any liens, causing impairment. We can also see that if the debtor has no equity beyond unavoidable liens and the exemption, then the lien is avoidable in its entirety.

In the first scenario, the “value that the debtor’s interest in the property would have in the absence of any liens” exceeds all other liens not previously avoided. The debtor may apply the entire exemption to the debtor’s equity in the property without any impairment, and thus cannot avoid any portion of the lien.

In the second scenario, the value of the debtor’s interest in the property is such that the debtor cannot apply the maximum available exemption to the debtor’s equity in the property because the lien is diminishing the debtor’s equity. Thus, to the extent that the debtor’s access to the maximum available exemption has been impaired, the lien may be avoided.

In the final scenario, the debtor has no equity in the property to which to apply any available exemption. The lien may be avoided in its entirety, even though the debtor has no equity and ostensibly suffers no “impair[ment] of an[y] exemption to which the debtor would have been entitled[.]”[17]


I Don’t Always Choose Minnesota Exemptions, But When I Do, I Prefer to Avoid Liens


Now, what if we could change some numbers in the foregoing examples to be more favorable to us—thereby changing the results?  Well, it turns out that we can, at least here in Minnesota. If we elect the Minnesota exemptions, we have to be consistent and apply them to all assets of the debtor, so there is some calculus here—there may be tradeoffs between what may gained and what may be lost. But the debtor can unquestionably elect to use the Minnesota homestead exemption—currently $390,000 for non-agricultural land[18]—to make the exemption number much larger and avoid almost any judicial lien as described supra.[19] 


What If I Have Avoidance Issues?


If a debtor having statutory authorization to avoid the fixing of a lien, nonetheless fails to take the proper steps to do so, then the lien is not avoided.[20]  A debtor can avoid a lien only by court order, and avoidance is therefore properly done by motion of the debtor.[21]


Minnesota Law


When a State-Court Judgment Becomes a Lien Against Real Property of the Judgment Debtor


Minnesota law provides that, except for certain judgments relating to domestic support obligations, which are not subject to avoidance under bankruptcy law in any event, “[e]very judgment requiring the payment of money shall be entered by the court administrator when ordered by the court and will be docketed by the court administrator upon the filing of” the judgment creditor’s affidavit “stating the full name, occupation, place of residence, and post office address of the judgment debtor.”[22]  Taxing authorities are exempt from the affidavit requirement.[23]  “From the time of docketing the judgment is a lien, in the amount unpaid, upon all real property in the county then or thereafter owned by the judgment debtor, but it is not a lien upon [Torrens] land[24] unless it is also recorded . . . . The judgment survives, and the lien continues, for ten years after its entry.”[25]

Thus, a judgment lien is created by operation of law upon all real property of the debtor in the county where docketed, including after-acquired real property in such county, except that Torrens—rather than “abstract”—land is subject to a recordation requirement. Since most real property in Minnesota is under the abstract system, this means that most money judgments give rise to a judgment lien by operation of law upon all current or after-acquired real property in which the debtor has an interest. Additionally, the judgment lien survives for ten years after entry; when the judgment expires, the associated judgment lien also expires.


When a State-Court Judgment Is Subject to “Discharge” Under State Law: Section 548.181 and the Rule in Triangle Refineries


Enter section 548.181 of the Minnesota Statutes, which directs the court administrator to discharge “all judgments entered in [state] court against the judgment debtor that were ordered discharged by the bankruptcy discharge.”[26]   The term “discharge” as used therein to refer to the effect of state-court actions is an unfortunate coincidence, since “discharge” is a bankruptcy term of art having a very specific meaning and implications. Nevertheless, section 548.15 of the Minnesota Statutes describes the effect of a state-court discharge within the meaning of section 548.181. Essentially, it is just a judicial decree directing the court administrator to record the judgment as satisfied.[27]

In Triangle Refineries, Inc. v. Brua, 364 N.W.2d 863 (Minn. Ct. App. 1985), the Minnesota Court of Appeals interpreted the predecessor[28] to section 548.181 as limited in its application only to those judgments not reduced to a lien. Quoting the Minnesota Supreme Court, the Court of Appeals observed that


[r]eading the statute literally, it might seem to authorize the court to order satisfaction of the judgment absolutely, without regard to its being a lien; but it cannot be given such broad construction, for . . . the effect would be to destroy a vested property right in no wise affected by the bankruptcy act, or, we may add, if the statute be taken as authorizing an order for absolute discharge which is to be construed less comprehensively than its terms imply and as not affecting vested rights or liens, then the judgment record would be left ambiguous and misleading—an unnecessary and undesirable result, manifestly contrary to the statutory intent. Olsen v. Nelson, 146 N.W. 1097, 1099 (Minn. 1914).


In 1987, the Minnesota legislature repealed section 548.18 and enacted section 548.181 in its stead, codifying the rule in Triangle Refineries to limit its application to “judgments entered in that court against the judgment debtor that were ordered discharged by the bankruptcy discharge”[29] and specifically excluding any “judgment [that] was an enforceable lien on real property when the bankruptcy discharge was entered.”[30]

Still, there is glaring tension between the language of subdivision 1 (limiting application to judgments “that were ordered discharged by the bankruptcy discharge”)[31] on the one hand, and that of both subdivision 3 (“[t]he court administrator, without further notice or hearing, shall discharge each judgment except a judgment in favor of a judgment creditor who has filed an objection to discharge of the judgment”)[32] and subdivision 4 (“[i]f a judgment creditor objects . . . the court shall order the judgment discharged except to the extent that . . . the judgment was an enforceable lien on real property when the bankruptcy discharge was entered”) on the other hand. Thus, it appears to be an open question as to whether the creditor must object to discharge within the meaning of section 548.181 to preserve its lien. There are excellent arguments on either side, and how a court would rule is, of course, unknown.


State-Court Procedure


The application by a judgment debtor or party in interest[33] to the court is simple and straightforward. The district court’s Website contains a link[34] to a one-page fill-in form entitled Application for Discharge of Judgment(s) (Minn. Stat. § 548.181) that most debtors could probably complete pro se. But the court’s determination of the issue depends both on state law and federal law.




In sum, the answer to the question of whether a debtor can remove a state-court judgment after bankruptcy is, as if often the case with the law, maybe. Each debtor should consult competent counsel, because the analysis is not straightforward.


[1] Mr. Cobb graduated from the University of Minnesota Law School in 2001, where he was an editor for the Minnesota Journal of Law, Science & Technology and named to the dean’s list. He earned a bachelor of science in chemical engineering from the University of Michigan, Ann Arbor, cum laude, in 1995. He was a Regents-Alumni Scholar and earned Class Honors. He is a principal at Judson Cobb LLC and devotes a large portion of his practice to bankruptcy.

[2] 11 U.S.C. § 524(a)(1) (2006); Johnson v. Home State Bank, 501 U.S. 78, 84 (1991) (“Rather, a bankruptcy discharge extinguishes only one mode of enforcing a claim—namely, an action against the debtor in personam—while leaving intact another—namely, an action against the debtor in rem.”).

[3] 11 U.S.C. § 362 (2006).

[4] Arruda v. Sears, Roebuck & Co., 310 F.3d 13, 21 (1st Cir. 2002).

[5] Johnson, 501 U.S. at 83 (citing Long v. Bullard, 117 U.S. 617 (1886) (“The setting apart of the homestead to the bankrupt under . . . did not relieve the property from the operation of liens created by contract before the bankruptcy.”), 11 U.S.C. § 522(c)(2) (2006), and H.R. Rep. No. 95-595 (1977)). The rule in fact, goes back even further.

[6] 11 U.S.C. § 524(a)(1).

[7] Johnson, 501 U.S. at 83.

[8] 11 U.S.C. § 522(c).

[9] Id. § 522(f)(3).

[10] Exempt under id. § 522, that is.

[11] “Household goods” is defined in id. § 522(f)(4).

[12] For example, compare Minnesota’s exemptions in Minn. Stat. § 550.37 (2012).

[13] 11 U.S.C. § 522(f)(1).

[14] Id. § 522(f)(2)(C).

[15] Id. § 522(f)(1).

[16] Id. § 522(f)(2). Please note that courts have adopted two approaches when interpreting this statute. Most courts, including those in Minnesota at the time of this article (see, e.g., Kolich v. Antioch Laurel Veterinary Hospital, 328 F.3d 406 (8th Cir. 2003)), follow the “full avoidance” approach, herein described. Other courts, however, follow the “entire lien avoidance” approach and hold that the lien may not be partially avoided. If it would otherwise be partially avoided under the full avoidance approach, courts adhering to the entire lien avoidance approach hold that the lien is avoided in its entirety. See generally, Mary-Alice Brady, Balancing the Rights of Debtors and Creditors: § 522(f)(1) of the Bankruptcy Code, 39 B.C. L. Rev. 1215 (1998).

[17] The late Judge Dreher, writing for the majority, expressly rejected this argument in Kolich v. Antioch Laurel Veterinary Hospital, Inc., 273 B.R. 199 (8th Cir. B.A.P. 2002), aff’d, 328 F.3d 406 (8th Cir. 2003), and applied the Bankruptcy Code’s explicit mathematical formula outlined supra.

[18] Minn. Stat. § 510.02, subd. 1 (2012). See for current figures; the next adjustment is scheduled to take effect July 1, 2014. Unlike the federal exemptions, for joint petitioners, this exemption applies only once. It is not additive.

[19] Please note that the limitation of 11 U.S.C. § 522(f)(3) does not generally apply under current Minnesota law.

[20] Arruda v. Sears, Roebuck & Co., 310 F.3d 13, 21 (1st Cir. 2002).

[21] Fed. R. Bankr. P. 9013 (“[a] request for an order shall be by written motion”).

[22] Minn. Stat. § 548.09 (2012).

[23] Id.

[24] Minn. Stat. §§ 508.01 (2012), 508A.01 (2012); Minn. Gen. R. Prac. 201-222 (2012). Torrens land in Minnesota is less common than abstract land.

[25] Minn. Stat. § 548.09 (emphasis added).

[26] Id. § 548.181, subd. 1.

[27] Id. § 548.15, subd. 1.

[28] Id. § 548.18 (1982) (repealed 1987).

[29] Id. § 548.181, subd. 1.

[30] Id. § 548.181, subd. 4.

[31] Id. § 548.181, subd. 1.

[32] Id. § 548.181, subd. 3 (emphasis added).

[33] Id. § 548.181, subd. 1.

[34] See


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