Cite as: Keith M. Lundin, Lundin On Chapter 13, § 49.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
Lien avoidance under 11 U.S.C. § 522(f) is available in Chapter 13 cases.1 The gist of § 522(f) is that debtors in bankruptcy cases have a special power to avoid a narrow class of liens on certain kinds of property if the lien impairs an exemption to which the debtor would have been entitled but for the lien. Section 522(f) is a congressional statement that a debtor’s fresh start in bankruptcy includes freeing minimal basic property from liens otherwise enforceable under state law when the debtor has unused exemptions.
If the debtor’s property is subject to a judicial lien2 or a nonpossessory, non-purchase-money security interest in household goods or tools of the trade that would otherwise be exempt property, counsel has an obligation to seek lien avoidance. Lien avoidance almost always benefits a Chapter 13 debtor. Avoiding a lien under § 522(f) has the effect of unencumbering exempt property that would rarely be available to the debtor under nonbankruptcy law.
Lien avoidance is an important predicate to construction of the Chapter 13 plan. If a lien can be avoided, the claim becomes an unsecured claim.3 Shifting a claim from secured to unsecured status through lien avoidance eliminates a claim that typically would have to be paid in full to accomplish confirmation, may change the monthly payments required to fund the plan, and may change the percentage of payment to unsecured claim holders.
1 Tower Loan of Miss., Inc. v. Maddox (In re Maddox), 15 F.3d 1347 (5th Cir. 1994) (Chapter 13 debtor can use § 522(f) to avoid a nonpossessory, non-purchase-money lien on personal property.). Accord Finance One v. Bland, 760 F.2d 1252 (11th Cir. 1985); Hall v. Finance One of Ga., Inc., 752 F.2d 582 (11th Cir. 1985); In re Hager, 90 B.R. 584 (W.D.N.Y. 1988); In re Steck, 298 B.R. 244, 249 (Bankr. D.N.J. 2003) (Chapter 13 debtor can use § 522(f) to avoid a judicial lien to the extent it impairs the debtor’s homestead exemption; calculation under § 522(f)(2)(A) results in partial avoidance of judicial lien.); In re Huffman, No. 5:01-BK-51707E, 2002 WL 32116805 (Bankr. E.D. Ark. June 20, 2002) (unpublished) (Chapter 13 debtor can avoid judicial lien that impairs exemption in pickup truck.); In re Daraee, 279 B.R. 853 (Bankr. D. Or. 2002) (Judgment lien can be avoided in part under § 522(f) because mortgagee elected under Oregon law to sue on its note rather than foreclose its deed of trust and resulting judgment lien impairs exemption.); Rodriguez v. First Am. Bank (In re Rodriguez), 278 B.R. 749 (Bankr. N.D. Tex. 2002) (Texas Chapter 13 debtor can use § 522(f) to avoid a garnishment lien that impairs an exemption in the garnished funds.); In re Johnson, 262 B.R. 831, 844 (Bankr. D. Idaho 2001) (Debtors can avoid judicial lien on homestead under § 522(f) because debtors have a $50,000 exemption under Idaho law and at most $24,000 equity after a deed of trust and a tax lien. “Creditors’ judicial lien obviously impairs Debtors’ homestead exemption.”); In re Underwood, 103 B.R. 849 (Bankr. E.D. Mich. 1989); In re Tash, 80 B.R. 304 (Bankr. D.N.J. 1987) (Debtor can use § 522(f)(1) to avoid a judicial lien to the extent that it impairs exemptions notwithstanding that the judicial lien would not be subject to attack by a trustee under § 544.); In re Dykstra, 80 B.R. 128 (Bankr. N.D. Iowa 1987); In re Thompson, 59 B.R. 690 (Bankr. W.D. Tex. 1986); In re Schyma, 68 B.R. 52 (Bankr. D. Minn. 1985); In re Jackson, 55 B.R. 343 (Bankr. M.D.N.C. 1985), rev’g, Sands v. Blazer Fin. Servs., Inc., 15 B.R. 563 (Bankr. M.D.N.C. 1981); Einoder v. Mount Greenwood Bank, 55 B.R. 319 (Bankr. N.D. Ill. 1985); In re Berrong, 53 B.R. 640 (Bankr. D. Colo. 1985); In re Allred, 45 B.R. 676 (Bankr. E.D.N.C. 1985); In re Velasquez, 44 B.R. 1021 (Bankr. D. Idaho 1984); In re Cowart, 43 B.R. 110 (Bankr. M.D. Fla. 1984); Associates Fin. Servs. of Tenn., Inc. v. Williams, 39 B.R. 944 (Bankr. W.D. Va. 1984); Quidley v. Small Bus. Admin., 39 B.R. 362 (Bankr. E.D. Va. 1984); Blake v. Ledan, 38 B.R. 604 (Bankr. E.D.N.Y. 1984); Schneider v. Fidelity Nat’l Bank, 37 B.R. 747 (Bankr. N.D. Ga. 1984); Fisk v. Allis Chalmers Credit Corp., 36 B.R. 924 (Bankr. W.D. Mich. 1984); Rasmus v. Associates Fin. Servs. Co., 34 B.R. 9 (Bankr. M.D. Fla. 1983); Lincoln v. Cherry Creek Homeowners Ass’n, 30 B.R. 905 (Bankr. D. Colo. 1983); Slykerman v. Associates Fin. Servs., 29 B.R. 82 (Bankr. E.D. Mich. 1983); Public Consumer Discount Co. v. Leecan, 27 B.R. 907 (Bankr. E.D. Pa. 1983); Associates Fin. Servs. Co. of Fla. v. Babineau, 22 B.R. 936 (Bankr. M.D. Fla. 1982); In re Bowles, 8 B.R. 394 (Bankr. S.D. Ohio 1981); Household Fin. Corp. v. Snow, 8 B.R. 113 (Bankr. S.D. Ohio 1980); Household Fin. Corp. v. Brahm, 7 B.R. 253 (Bankr. S.D. Ohio 1980); Public Fin. Corp. v. Lantz, 7 B.R. 77 (Bankr. S.D. Ohio 1980); Associates Fin. Servs. Co. v. Ohnstad, 6 Bankr. Ct. Dec. (CRR) 6 (Bankr. D.S.D. 1980); Jordan v. Borda, 5 B.R. 59 (Bankr. D.N.J. 1980); In re Saberman, 3 B.R. 316 (Bankr. N.D. Ill. 1980).
2 Other than a lien in favor of a spouse, former spouse, or child. See 11 U.S.C. § 522(f)(1)(A).
3 See 11 U.S.C. § 506. See, e.g., In re Harris, 120 B.R. 142 (Bankr. S.D. Cal. 1990) (Under California law, a home improvement lender that elects to obtain a judicial lien based on a money judgment against the debtor loses its security interest in the home improvements, and the resulting judicial lien can be avoided under § 522(f). The lender becomes an unsecured claim holder in the Chapter 13 case.).