1998 #03, Jensen, 3-13-98

In re: LYLE A. JENSEN and CONNIE J. JENSEN, Debtors, Case No. 96-40800, Chapter 7

MEMORANDUM OF DECISION RE: DEBTORS' MOTION TO DISCHARGE JUDGMENTS DISCHARGED IN BANKRUPTCY

The matter before the Court is the Motion for Order Directing Clerk of Court to Discharge Judgments Discharged and Debts Discharged in Bankruptcy filed by Debtors on March 4, 1998 and the response thereto filed by Dakota Animal Clinic through Dr. G.R. Kluck on March 11, 1998. This is a core proceeding under 28 U.S.C. § 157(b)(2). This Memorandum of Decision and subsequent order shall constitute the Court's findings and conclusions as required by F.R.Bankr.P. 7052. No hearing was held because only a question of law was presented by the objection. As set forth below, the Court concludes that the pre-petition judgment held by Dakota Animal Clinic must be discharged because Debtors did not have any non exempt real property on the date the petition in bankruptcy was filed.

I.

Lyle A. and Connie J. Jensen (Debtors) filed a Chapter 7 petition on October 17, 1996. Included in Debtors' schedule of unsecured claim holders was Dakota Animal Clinic for $870.98. In their schedule of assets, Debtors listed a one-half interest in some real property in Estelline, South Dakota. The other half was owned by Debtor Connie Jensen's mother. Debtors declared this one-half interest exempt. No creditor or other party in interest timely objected to this exemption claim and the exempt property was removed from the bankruptcy estate on December 16, 1996 pursuant to 11 U.S.C. § 522(b)(2).

No timely complaints seeking a denial of Debtors' discharge were filed. An order discharging debts was entered January 15, 1997.

On March 4, 1998, Debtors filed a Motion for Order Directing Clerk of Court to Discharge Judgments Discharged and Debts Discharged in Bankruptcy. Therein, Debtors requested that certain judgments that were discharged by the Bankruptcy Court be discharged by the county clerk of court.⁽¹⁾ The notice period was shortened due to a pending transaction involving Debtors. Dr. G.R. Kluck for Dakota Animal Clinic filed an objection on March 11, 1998 on the grounds that Debtors had real property that should be sold to pay the claim.

II.

Section 524(a)(1) of the Bankruptcy Code provides:

(a) A discharge in a case under this title --

(1) 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 under section 727, 944, 1141, 1228, or 1328 of this title, whether or not discharge of such debt is waived[.]

It is a key part of a debtor's discharge and clearly discharges a debtor's personal liability under a judgment against him.

Section 15-16-20 of the South Dakota Code establishes the procedure for removing a judgment from the records of a county clerk of court. Once a bankruptcy debtor receives a discharge, he must file a motion before the Bankruptcy Court and get an order that lists the judgments to be discharged. When the clerk of court receives that order, she must indicate on her records that the judgment is deemed discharged or satisfied. Once a judgment is deemed discharged or satisfied on the county's records, the creditor no longer can obtain a judgment lien on the debtor's non exempt real property to enforce the judgment.

Under South Dakota law, S.D.C.L. §§ 15-16-7 and 15-16-35, a judgment lien attaches only to non exempt real property. If the debtor owned non exempt (that is, non homestead) real property when he filed his petition in bankruptcy, the judgment creditor has a lien on that real property based on the judgment. That judgment creditor's claim would then be paid from the sale proceeds when the land is sold by the bankruptcy case trustee. If the trustee abandons the land (rather than selling it), the judgment creditor's lien survives the debtor's bankruptcy and the judgment creditor may enforce the judgment lien later.

If the debtor did not have any non exempt real property when he filed his bankruptcy petition, however, there was no real property to which the judgment creditor's judgment lien could attach and become enforceable. Further, since the judgment is discharged in the bankruptcy case, the creditor no longer has a judgment that can become a lien on any real property the debtor may acquire after the bankruptcy.

III.

Based on the law recited above, Dakota Animal Clinic's judgment must be discharged by the county clerk of court under S.D.C.L. § 15-16-20. Debtors had only exempt real property on the petition date. The underlying debt of Dakota Animal Clinic was discharged in bankruptcy on January 15, 1997. Accordingly, all the conditions required by § 15-16-20 have been met. Dakota Animal Clinic no longer has an enforceable judgment or lien and the judgment should be removed from the county clerk of court's records.

Debtors shall prepare an order directing the clerk of court to discharge the judgments listed on Exhibit A to their March 4, 1998 Motion for Order Directing Clerk of Court to Discharge Judgments Discharged and Debts Discharged in Bankruptcy.

Dated this 13th day of March 1998.

1. Debtors also sought the discharge of several unscheduled debts. That portion of the Motion was denied by a separate Order because the relief requested could only be obtained through an adversary proceeding.