Whether a debt is dischargeable or not depends on the type of debt it is, and how it was incurred.  For example, debts incurred through fraud are not dischargeable. Neither are certain tax debts or student loans. For more information on this, see http://www.bklaw.com/discharge.html

It is important to understand that a judgment and a lien are not the same thing. A judgment is a court order either fixing liability and an amount owed, or ordering someone to do something. A lien is the creation of a security interest against an asset or assets, giving the judgment creditor rights against that asset (such as real estate, or a bank account, or wage garnishment). How much of a right to collect depends on the equity in the asset and if any senior creditors (such as a mortgage holder on real estate) are present.

A judgment lien is not automatic.   First, the creditor must obtain a judgment from the court.  Then, to create a lien, it must be perfected under applicable non-bankruptcy law (usually the State or county in which the asset is located).  For real estate, this usually involves obtaining a certified abstract of the judgment from the court that issued it, and recording it with the county recorder’s office wherever the property is located that the creditor wants the lien to attach.

So, can one get rid of  (avoid) a judgment lien in a bankruptcy case? If certain requirements are met, yes. The bankruptcy code section that states this is 11 U.S.C. 522(f), which allows a lien to be removed to the extent that it impairs an exemption to which the debtor would have been entitled in the absence of the lien. This is basically a mathematical calculation, and depends of course on the value of the asset, the amount of any senior liens, and the amount of the available exemptions (usually governed by the laws of the State where the bankruptcy case is filed, but not always). To see more on exemptions, visit http://www.bklaw.com/exemptions.html.

The bottom line is that if you have a creditor who has obtained a judgment lien against you, be sure to tell your bankruptcy attorney so he/she can assess whether or not it can be removable in your case.    This can also be done after your bankruptcy case is over, but there are limits and it requires additional legal fees to reopen your bankruptcy case.

There is always significant misinformation floating around regarding the bankruptcy laws and what they can or cannot accomplish (see for example the new bankruptcy laws enacted in 2005 as an example where people still think that one cannot file Chapter 7 on credit card debts–a complete falsehood propagated by the media).   But the “new” bankruptcy laws are only 3-4 years old.   Debtor’s prisons were abolished 176 years ago.  I doubt any of my clients were born prior to then, and yet there is still a perception in our society that this law exists.

Prior to 1833 debtors were allowed out of prison if they gave up all of their assets.   Presently, creditors can undertake collection activities allowed under applicable state law, such as garnishing wages, seizing bank accounts, placing liens against real estate and other property, etc.   One can file a Chapter 7 or 13 bankruptcy case and get rid of most debts (i.e. discharge the debts) in return for giving up any NON-exempt assets they have (in Chapter 7) or paying out the equivalent value of said assets over time (in a Chapter 13).  Every state has exemptions which protect the value in various assets, so one is always allowed to retain some (and frequently ALL) of the their assets when filing for bankruptcy relief.

The Ninth Circuit Court of Appeals ruled today, in the case of In re Egebjerg, that 401k loans are not a debt as defined in the bankruptcy code and as such, the amount of any loan repayment cannot be considered in calculating a debtor’s budget/ability to repay his/her debts.

The basic rationale is that since a 401k loan is repaying funds to the owner of the 401k, it is not an actual debt, and the funds used to repay it are not a necessary living expense.

There are tax consequences for failure to repay a 401k loan, and these may be able to be argued as an offset, but the loan repayment itself cannot be used to determine eligibility to file a chapter 7 case.

A bankruptcy attorney is an attorney (or lawyer), licensed to practice in the courts of whatever jurisdiction he is practicing, who handles bankruptcy related cases. (click here for an explanation of the differences–if any–between an attorney and lawyer)

A debt relief agency is a made-up designation that our Congress created as part of the 2005 Bankruptcy Reform Act and is defined in 11 U.S.C. 101(12A). It includes “any person who provides any bankruptcy assistance to an ‘assisted person’ in return for the payment of money or other valuable consideration, or who is a bankruptcy petition preparer…”. Without getting too detailed about who an assisted person is and other nuances, this basically includes a very wide variety of “people”, including credit counselors, unlicensed petition preparers, and it can be argued that it can extend to accountants or anyone else who provides any assistance in connection to the filing or possible filing of a bankruptcy case or even giving financial advice. It may be even broader than that.

Subject ultimately to rulings by the appellate courts in this country, all bankruptcy attorneys are debt relief agencies (although this is being appealed in many different circuits at this time). However, as you can see above, not all debt relief agencies are bankruptcy attorneys.

It has been argued that one of the reasons Congress added this definition was to cause the precise confusion experienced by my client. It was implemented to add additional disclosure and paperwork requirements, to add costs to the bankruptcy process and to cause confusion between who is licensed to practice bankruptcy and who is not, and (it has been argued) it was designed to take business away from licensed attorneys as a result of this confusion.

In any event, in order to represent you in a bankruptcy case (or any other legal proceeding, for that matter) an attorney must be licensed to practice law in whatever state your case is in. Whether or not he/she is also a “debt relief agency” depends on the rulings of the courts in that jurisdiction. Perhaps more importantly, it is virtually meaningless.