1990 #05, Hoffman Farms, 3-6-90

In re: HOFFMAN FARMS, Bankr. No. 87-10275, Chapter 12

The Court has before it debtors' motion to satisfy judgments of record and the Chapter 12 trustee's objection thereto. A telephonic hearing on the motion was held December 19, 1989, with counsel directed to submit simultaneous letter briefs by January 19, 1990. After reviewing the record, the arguments of counsel and applicable authority, the Court hereby denies debtors' motion.

Debtors filed for relief under Chapter 12 on September 21, 1987. This Court ordered their cases consolidated on April 6, 1988. Their plan of reorganization was ordered confirmed on January 26, 1989.

Debtors seek an order from this Court directing the Edmunds County Clerk of Courts to satisfy nineteen judgment liens docketed in that office. The motion is based upon 11 U.S.C. § 227(c),which provides:

Except as provided section 1228(a) of this title and except as otherwise provided in the plan or any order confirming the plan, the property vesting in the debtor under subsection (d) of this section is free and clear of any claim or interest of any creditor provided for by the plan.

Trustee Pokela objects to the motion, claiming that such judgment liens may not be satisfied until a discharge is granted by this Court. The Trustee's argument is based upon § 524, which notes that a discharge under Title 11 serves to void any judgment at any time obtained. Under Chapter 12, such discharge may not be entered until all payments have been made under the plan or a hardship discharge is granted. See § 1228. The Trustee also advances a practical argument, namely that satisfying any judgment liens docketed against the debtor at this juncture would create problems in the public record if for some reason this case were to be dismissed rather than discharged.

The Court agrees with the Trustee's position. While no cases construing this issue under § 1227(c) have been published, it has been this Court's position that valid yet valueless liens against the debtors' property should remain docketed until a discharge is entered. The rationale behind this policy is to protect both those creditors who have reduced their claims to judgment and other unwary creditors who may rely upon the public record in making their lending decisions. If the debtors were allowed to have the judgment liens satisfied, then the position of the judgment creditors could be eroded in the event that this Court later granted a dismissal rather than a discharge. Likewise, future credit grantors could not rely on the public record if this Court allowed the judgment liens to be satisfied, only to have them resurrected at a later date.

It appears to the Court that the proper procedure under these circumstances would be to allow the judgment liens to remain docketed, although those liens may be of no value. By so doing, all interested parties would have notice of the existence of the liens and could factor in their existence when deciding whether to extend credit to the debtors. While this may impair the debtors' ability to receive credit to some degree, the Court believes it is better that all parties be aware of the actual circumstances surrounding the liens that do exist against the debtor and that could be enforced in the event of a dismissal of the debtors' bankruptcy. This policy of informing all interested parties of the existence of these liens also would prevent all parties from

needlessly diminishing their reliance on the accuracy of the public record.

For the foregoing reasons, debtors' motion for a satisfaction of judgments of record will be denied. However, the Court would entertain an order from the Debtors providing that the liens are void under §§ 1227(c) and 506(d)⁽¹⁾ , but are subject to reinstatement under § 349(b)(l)(c) in the event that this case is dismissed rather than discharged. The Court will enter an appropriate order.

1. Section 506(d) provides in salient part: "To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void[.]"