Sometimes a bankruptcy is filed after a judgement has already been entered. If the debtor owns real estate then the judgement will be a lien on the real estate. If there is not excess equity and the equity is claimed as exempt, then the judgement can be voided during the bankruptcy. But what if no action is taken to void the lien during the bankruptcy. That is where NJSA 2A:16-49.1 comes into play.
This New Jersey statute can be used to eliminate a judgment that could have been removed in the bankruptcy but was not. Bankruptcy relieves a debtor from debts but does not automatically cancel liens against property of the debtor. In the event a debtor wishes to cancel a creditor’s lien against real property the debtor may use New Jersey Statute 2A:16-49.1 in certain situations. More than one year must pass from the time the bankruptcy discharge was entered. In addition, N.J.A. 2A:16-49.1 permits the debtor to cancel the lien in the event it could have been canceled in bankruptcy. In other words, if the available equity in the real estate was exempted in the bankruptcy and the lien would therefore have been dischargeable in the bankruptcy, it is dischargeable in the state court. A motion is filed in the state court, asserting the relevant facts such as the value of the home as stated in the bankruptcy, the amount owed on the mortgage and the exemptions claimed. The state court will then enter an order voiding the judgment.