Summary of a Recent
Judicial Development in
Bankruptcy

Property Judgments Need Not Specifically Impose a
Lien for a Judgment to Be Secured

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In In re Torline, 357 B.R. 856 (Bankr. D. Kan. 2006), the United States Bankruptcy Court for the District of Kansas denied a debtor's plan confirmation because it failed to provide for payment of his former spouse's secured claim.

Background

Debtor and his ex-wife divorced in 2002. Id. at 859. As part of the divorce, the state court entered a property judgment under which Debtor assumed several obligations, including a note executed by his ex-wife in favor of her father. Id. The state court ordered a sale of property in March 2005, and Debtor filed his Chapter 12 petition in April 2005, before the sale was held. Id. at 860. The property judgment was confirmed during the pendency of the bankruptcy case. Id. Debtor's ex-wife filed a proof of claim based on the property judgment. Id. Debtor's plan did not provide for payment of the promissory note as ordered in the property judgment, and so his former spouse objected to confirmation of the plan. Id. at 861.

Arguments

Debtor argued that the promissory note obligation was not a judgment lien because the property settlement order did not specifically impose a lien. Id. at 865. Debtor alternatively argued the judgment lien did not attach because the Debtor's obligations were contingent. Id.

Creditor/ex-spouse argued that her claim was secured, and that it was irrelevant that the obligation was unmatured. Id. at 861, 863.

Analysis and Holdings

The issue before the court was whether the promissory note obligation was a judgment lien when Debtor's Chapter 12 plan was submitted for confirmation. Id. at 864. The court held that the property judgment granted the ex-wife a judgment against Debtor for the amount of her father's note, and that the judgment was secured by a judgment lien under Kan. Stat. Ann. § 60-2202(a), which provides that "any judgment rendered by a district court under Chapter 60 shall be a lien on the real estate of the debtor in the county where the judgment is rendered." Id. at 864-65. The court rejected Debtor's argument that the property judgment did not specifically impose a lien, because they found no indication that Kansas courts would require a specific finding that the judgment impose a lien in order for K.S.A. 60-2202(a) to have effect. Id. at 865. In support of his alternative argument that the lien did not attach because the obligation was contingent, the Debtor cited Kansas cases holding that judgments for periodic payments for alimony and child support have been held not to be secured by liens until past due. Id. The court also rejected this argument, because here the judgment was for property division, not alimony, and not subject to modification. Id. The court thereby concluded that Debtor's plan did not satisfy 11 U.S.C. § 1225(a)(5) because it provided no payment with respect to his former spouse's secured claim. Id. at 867.

The case was decided on December 22, 2006.