The Virtual Clerk's Office: A Proposed Model Judgment Lien Act for the Computer Age
Charles B. Shafer
University of Baltimore - School of Law
Journal of Law and Commerce, Vol. 15, No. 1, 1995
This article addresses one aspect of the law regarding the satisfaction of judgments: when a creditor is determined to have a lien on property of the debtor. The unnecessary cumbersomeness of the present system, which limits the ability of creditors to promptly obtain a legally cognizable interest in specific property, hampers creditors in preventing the debtor's use, sale, or hypothecation of property that could be used to satisfy their debts. This is particularly true of intangible property and property where federal law or the law of sister states controls transfers. Not only do judgment creditors face the risk that the debtor will voluntarily dissipate or transfer assets, but also the risk that they will be defeated by subsequent parties who deal with the debtor, become creditors, and are able to find assets. Possibly the most pernicious of those subsequent creditors are the federal and state taxing authorities. The tax lien, once filed, locks in all personal and real property of the debtor. Bankruptcy also presents a serious difficulty for the judgment creditor. If the debtor files for bankruptcy before the creditor can locate personal property of the debtor, the creditor (despite having obtained a judgment) has no greater priority than all of the unsecured creditors of the debtor. If the judgment creditor locates personal property and obtains a lien on that property shortly before the date that the debtor files a Bankruptcy petition, the creditor's lien can be avoided as a preference. Even where a debtor files a Chapter 11 petition and maintains control of the business as a debtor in possession, the debtor can still use the preference section to avoid the creditor's lien.
This article proposes that the computer systems currently being introduced to automate court systems around the country serve as the vehicle for the implementation of major reforms in the substantive and procedural law regarding judicial liens. The most significant change would involve the creation of statewide judgment liens on virtually all of the property of the debtor. This article will explore how the proposed system might deal with various types of property and particular third parties, and how to solve some of the transitional problems involved in adopting such a system. The changes proposed are incorporated in a Model Judgment Lien Act (MJLA) which is set forth in the Appendix of this article. It is hoped that the MJLA makes clear precisely how the rules discussed in the article would operate.
Number of Pages in PDF File: 40
Keywords: judgments, creditors, judgment liens, property, debts, transfer of assets, tax liens, bankruptcy, Chapter 11, judicial liens, third parties, Model Judgment Lien Act, MJLA
JEL Classification: K11, K19, K29, K39, K49
Date posted: August 13, 2009