When A State-Court Judgment Is Subject to “Discharge" Under State Law: Section 548.181 and the Rule in Triangle Refineries

Enter section 548.181 of the Minnesota Statutes, which directs the court administrator to discharge “all judgments entered in [state] court against the judgment debtor that were ordered discharged by the bankruptcy discharge." [1] The term “discharge" as used therein to refer to the effect of state-court actions is an unfortunate coincidence, since “discharge" is a bankruptcy term of art having a very specific meaning and implications. Nevertheless, section 548.15 of the Minnesota Statutes describes the effect of a state-court discharge within the meaning of section 548.181. Essentially, it is just a judicial decree directing the court administrator to record the judgment as satisfied. [2]

In Triangle Refineries, Inc. v. Brua, 364 N.W.2d 863 (Minn. App. 1985), the Minnesota Court of Appeals interpreted the predecessor [3] to section 548.181 as limited in its application only to those judgments not reduced to a lien. Quoting the Minnesota Supreme Court, the Court of Appeals observed that

[r]eading the statute literally, it might seem to authorize the court to order satisfaction of the judgment absolutely, without regard to its being a lien; but it cannot be given such broad construction, for . . . the effect would be to destroy a vested property right in no wise affected by the bankruptcy act, or, we may add, if the statute be taken as authorizing an order for absolute discharge which is to be construed less comprehensively than its terms imply and as not affecting vested rights or liens, then the judgment record would be left ambiguous and misleading—an unnecessary and undesirable result, manifestly contrary to the statutory intent. Olsen v. Nelson, 146 N.W. 1097, 1099 (Minn. 1914).

In 1987, the Minnesota legislature repealed section 548.18 and enacted section 548.181 in its stead, codifying the rule in Triangle Refineries to limit its application to “judgments entered in that court against the judgment debtor that were ordered discharged by the bankruptcy discharge" [4] and specifically excluding any “judgment [that] was an enforceable lien on real property when the bankruptcy discharge was entered." [5]

Still, there is glaring tension between the language of subdivision 1 (limiting application to judgments “that were ordered discharged by the bankruptcy discharge") [6] on the one hand, and that of both subdivision 3 (“[t]he court administrator, without further notice or hearing, shall discharge each judgment except a judgment in favor of a judgment creditor who has filed an objection to discharge of the judgment") [7] and subdivision 4 (“[i]f a judgment creditor objects . . . the court shall order the judgment discharged except to the extent that . . . the judgment was an enforceable lien on real property when the bankruptcy discharge was entered") on the other hand. Thus, it appears to be an open question as to whether the creditor must object to discharge within the meaning of section 548.181 to preserve its lien. There are excellent arguments on either side, and how a court would rule is, of course, unknown.

State-Court Procedure

The application by a judgment debtor or party in interest [8] to the court is simple and straightforward. The district court’s Website contains a link [9] to a one-page fill-in form entitled Application for Discharge of Judgment(s) (Minn. Stat. § 548.181) that most debtors could probably complete pro se.

But the court’s determination of the issue depends both on state law and federal law.

Conclusion

In sum, the answer to the question of whether a debtor can remove a state-court judgment after bankruptcy is, as if often the case with the law, maybe. Each debtor should consult competent counsel, because the analysis is not straightforward.

[1] Id. § 548.181, subd. 1.

[2] Id. § 548.15, subd. 1.

[3] Id. § 548.18 (1982) (repealed 1987).

[4] Id. § 548.181, subd. 1.

[5] Id. § 548.181, subd. 4.

[6] Id. § 548.181, subd. 1.

[7] Id. § 548.181, subd. 3 (emphasis added).

[8] Id. § 548.181, subd. 1.

[9] See http://www.mncourts.gov/default.aspx?page=513&item=140&itemType=packetDetails.