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New Jersey - Long story short. Closed business. 1M loan (commercial).

Paid 500K against loan with...
New Jersey - Long story short. Closed business. 1M loan (commercial). Paid 500K against loan with liquidation of business.. Still owe 500K. Bank got 500k judgment. Bank foreclosed on commercial property (value 250k. not sold by bank yet)Filed personal Bankruptcy. Bank has personal residence as security for loan (250k value). Bank filed adversary proceeding (bankruptcy court), trying to get 500K balance as judgment and the judge gave them a judgment for 50K that was used improperly. My home is free and clear and worth 250K. My question is, after foreclosure and sale of the home, how do the proceeds apply? (The 50K is part of the 500K owed, but I don't understand how either is addressed upon sale of the properties) If they sell the home for 250K & the commercial property for 250k, is everything clear? or if they sell the properties for $475K, the judgment still allows them to pursue me for 25K?
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5/13/2013
socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 39,498
Experience: Attorney and Real Estate Broker -- Retired
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If the bankruptcy court gave a judgment for $50K, then that is the maximum amount that can be satisfied from the bankruptcy estate. If your home is worth $250K and the bank has a security interest/mortgage for $250K, then the bank can get $250K from the foreclosure, and the remaining $50K would have to be satisfied from your bankruptcy estate as unsecured debt -- which dependent upon the amount of assets which may be liquidated in bankruptcy may be $50K or $0. And, the bank must share the value of the liquidated assets with all of the other creditors. The bank cannot come after you for any postbankruptcy assets or income that you may later accrue.

Hope this helps.
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Customer reply replied 4 years ago

Clarification. I thought the judgment (50K) from an adversary proceeding in bankruptcy court was enforceable after bankruptcy as a debt. ($0 assets left) this debt could be used to garnish wages etc...


 


But what your saying is, the judgment only applies to bankruptcy assets?

If I'm understanding your facts correctly, there is a secured lien for $250K, and a separate $50K judgment.

If the $50K judgment was given to the creditor by the bankruptcy court because you committed a fraud or defalcation/misappropriation of assets from your business, then that would be nondischargeable (Bankr. Code 523(a)), and the creditor could continue to pursue you after bankruptcy. Otherwise, the debt is dischargeable along with your other unsecured debts.

Assuming a nondischargeable debt, then if the sale of the personal residence and business property yields more than the value of the liens against those properties, then the additional proceeds could be seized by the sheriff to satisfy the bank's judgment. If the proceeds of sale is less than the amount of the liens, then you would remain liable for the $50K.

The key to interpreting your liability is determining whether or not the judgment was given based upon your fraud or misappropriation of assets. If yes, then you're still on the hook for the $50K. Otherwise, not.

Hope this helps.
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Customer reply replied 4 years ago

Ok. That sound right. (the 50K is nonchargeable) This protects the bank if they get less then the liens on the property. But I'm a little confused on the fact that they could enforce the judgment beyond the value of the lien ('then the additional proceeds could be seized by the sheriff to satisfy the bank's judgment'), since the 50k is basically part of the 500k owed?

The bank has a consensual lien for $250K on a commercial property, and a consensual lien for $250K on a personal residence. You filed personal bankruptcy, which leaves the bank with those liens as its only recourse to recover for its $500K. If the properties sell for $475, then the bank is SOL for the $25K, because you were discharged from any personal liability for that $500K. If the properties sell for more than $500K, then the bank can seek to seize the additional proceeds to satisfy the judgment given by the bankruptcy court.

The bankruptcy court has awarded the bank with an additional judgment for $50K. This is a separate, unsecured judgment. It has nothing to do with the preexisting consensual liens. However, apparently the judgment is nondischargeable, per Bankr. Code 523(a)(2) or (a)(4).

Saying that the judgment is "basically" part of the $500K, doesn't make it legally so. Were the judgment to attach as part of the existing liens, the judgment would be moot, because the lien is only for $500K. So, unless the judgment expressly declares that the bank's lien is increased to $550K, then the judgment must be entirely separate, and my analysis in the first paragraph above must be the correct interpretation.

Hope this explains things better.
socrateaser
socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 39,498
Experience: Attorney and Real Estate Broker -- Retired
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