What Makes a Lien “Judicial”?

Posted by NCBRC - August 7, 2017

Where the debtor has a right to due process prior to the fixing of a debt, the lien acquired by the clerk of court’s filing the certificate of the debt is a judicial lien subject to avoidance in bankruptcy. Arkansas Dept. of Workforce Serv. v. Leaks, No. 16-8036 (E.D. Ark. June 14, 2017).

Tilda Marie Chambers Leaks received two overpayments of unemployment benefits. The Arkansas Department of Workforce Service (ADWS) concluded that the overpayments were due to fraud. It filed with the county clerk’s office Certificates of Overpayments of Unemployment Benefits and certified that all appeal rights had been exhausted. When the clerk filed the certificates of debt, liens against Ms. Leaks’ property were automatically created. In her chapter 13 bankruptcy, Ms. Leaks sought to avoid both liens as judicial liens impairing an exemption under section 522(f). The bankruptcy court granted the motion.

On appeal to the district court, the ADWS argued that the liens were statutory liens under section 522(c)(2)(A), rather than judicial liens, and therefore were not subject to avoidance under section 522(f). Pursuant to section 101(36) a judicial lien is “obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.” A statutory lien, on the other hand, is defined in section 101(53) as arising “solely by force of a statute on specified circumstances or conditions.”

In addressing the issue of whether a lien is judicial, the court discussed In re Schick, 418 F.3d 321 (3d Cir. 2005). In that case, the Third Circuit court found that when a lien is the automatic result of the mere docketing of a debt by the clerk of courts there is insufficient judicial involvement to make the lien a “judicial lien.”

In contrast to Schick, in this case, Arkansas law provides for a “quasi-judicial” process involving a multi-tiered appeal process before an ADWS determination of overpayment can be filed and recorded as a lien by the clerk of courts. The court rejected the ADWS’s argument that its liens were statutory because the filing of the certificate of debt was merely ministerial and required no judicial process. Rather, the court found that because the ADWS was required to aver that the appeals process had been exhausted before filing the certificate of debt, judicial process was a prerequisite to acquisition of the lien.

The court also rejected the ADWS’s attempt to characterize the quasi-judicial process as fulfillment of a “condition” necessary for acquisition of a statutory lien and held, instead, that where one of the “conditions” for acquisition of the lien is judicial process it is not a statutory lien.

Leaks ED Ark opinion June 2017

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