HALL, Bankruptcy Judge
Although a trustee cannot have judgment liens obtained subsequent to the filing of a Chapter XI case declared null and void under Section 67(a)(1) of the Bankruptcy Act, he is entitled to relief under Rule 11-44(a) since liens obtained in contravention of the automatic stay provisions of this Rule are void. See Sec. 67a(1) at ¶ 2638 and Rule 11-44(a) at ¶ 20,744.
Former Bankruptcy Act — Title to Property — Discharge — Void Liens
Two creditors who obtained judgments against the debtor subsequent to his filing in Chapter XI, had their debts discharged under Section 70a of the Bankruptcy Act since title to the real property at the time the lien attached was in the trustee. A judgment cannot be a charge on property that the debtor does not own. Sec. Sec. 70a at ¶ 2679 and Sec. 541(a) at ¶ 9501.
Former Bankruptcy Act — Liens — Insolvent Debtors — Time of Obtaining Judgment
Judgment liens obtained against insolvent debtors within four months of the filing of the Chapter XI petition were null and void in accordance with Section 67a(1) of The Bankruptcy Act. See Sec. 67a(1) at ¶ 2638.
[Digest of Opinion]
The trustee commenced this action seeking an order declaring certain judgment liens null and void. The judgments were divided into two groups: first, judgment liens obtained within four months of the filing of the Chapter XI petitions; and second, judgment liens obtained after the filing.
The first group was found to be void, since within the meaning of Section 67a (1) of the Bankruptcy Act, (a) the judgment liens were obtained within four months before the filing of the Chapter XI petitions; and (b) the debtors were insolvent at the time the judgment liens were obtained. As to the second group, two creditors, who obtained judgment liens subsequent to the filing of the Chapter XI petitions, argued that since they were not listed in the debtor's schedule of creditors, their debts were non-dischargeable, and thus the liens obtained subsequent to the Chapter XI petitions could not be voided.
The trustee had no cause of action under Bankruptcy Act section 67(a)(1). The court found that this section only had application to judgment liens obtained "within four months before the filing of the petition." However, the trustee was entitled to the relief he requested on other grounds. By obtaining judgment liens after the filing of the Chapter XI petition, the purported judgment lien creditors violated the automatic stay provisions of Bankruptcy Rule 11-44. Hence, judgments and judgment liens obtained in violation of the automatic stay provisions of the Bankruptcy Rules were null and void. Further, whether or nor founded on dischargeable claims, Bankruptcy Rule 11-44(a) stays the commencement or continuation of any court or other proceeding against the debtor. Therefore, the court found no merit in the creditors' contention that the trustee may not void their lien because the underlying indebtedness was non-dischargeable.
The court further discussed the application of Section 70(a). This section provides that the trustee is vested by operation of law with the title to the bankrupt's non-exempt property as of the date of the filing of the petition initiating a proceeding under the Bankruptcy Act. When the creditors obtained judgments against the debtor, they docketed those judgments against property "owned" by the trustee. It is axiomatic, the court said, that a judgment cannot be a charge on property that the debtor does not own. Accordingly, the court held that the purported judgment liens should be discharged.
Under Section 70c, the trustee, as an ideal hypothetical lien creditor, was deemed to have docketed a judgment against the real property on the date that the Chapter XI petitions were filed. Accordingly, all creditors who docketed their liens subsequent to the filing of the Chapter XI petitions were subordinated to the trustee's lien.