§ 49.3     Limitations on Lien Avoidance
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 49.3, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

Because § 522(f) applies in all bankruptcy cases, the limitations on lien avoidance in Chapter 13 cases are essentially the same as in bankruptcy cases under other chapters of the Code. For example, § 522(f) can be used to avoid a judicial lien1 but is not available to avoid a consensual lien or a statutory lien, such as an IRS lien.2 It has been held that the lien cannot be avoided under § 522(f) if the underlying claim is not dischargeable in the Chapter 13 case.3 Other courts have struggled to accommodate the lien avoidance power in § 522(f) with § 522(c), which provides that even exempt property remains “liable” during and after a Chapter 13 case for certain kinds of debts, some of which are nondischargeable in a Chapter 13 case.4

[2]

Section 522(f) itself contains exceptions including that lien avoidance does not apply “with respect to a judgment arising out of a mortgage foreclosure.”5 This exception is targeted to preclude avoidance of a judgment that became a lien during a prepetition foreclosure proceeding. Mortgage foreclosure laws in many states include entry of a judgment that becomes a lien with respect to real property. Interesting questions arise under the mortgage foreclosure exception in § 522(f) when state law permits the mortgage holder to sue on its debt and take a judgment that becomes a (nonconsensual) lien rather than foreclose the consensual lien of the mortgage itself.

[3]

For example, in Bache-Wiig v. Fournier (In re Bache-Wiig),6 the debtor contracted for home improvements and granted a mortgage to secure the contract price. A dispute arose about the work, and the contractor chose to sue on the note rather than foreclose the mortgage. A state court judgment was entered in the contractor’s favor, and a writ of execution was recorded that became a lien on the property. The debtor filed a Chapter 13 case and moved to avoid the contractor’s lien under § 522(f). The bankruptcy court held that the judgment lien was avoidable under § 522(f), but the contractor’s claim remained secured by its mortgage:

The general rule is that a mortgagee who has obtained a judgment on the mortgage note does not forgo his rights under the mortgage until the debt is satisfied. . . . Election of remedies will not preclude action by a mortgagee until the debt has been satisfied. . . . Thus, on the date of bankruptcy, the Defendant’s claim was secured by both the mortgage and the judgment lien. . . . [T]he judgment lien is avoidable; and, were it not for the mortgage, the Defendant’s claim would be entirely unsecured.7
[4]

The lienholder in Bache-Wiig lost its judicial lien under § 522(f) but salvaged a secured claim by virtue of its consensual mortgage. The contractor in Bache- Wiig never initiated a foreclosure and could not argue that its judicial lien was a judgment “arising out of a mortgage foreclosure” for purposes of the exclusion in § 522(f)(2)(C).

[5]

Not so for the lienholder in In re Linane.8 A creditor obtained foreclosure judgments on nonresidential property owned by the debtors before the Chapter 13 petition. The properties were sold at foreclosure sales, and deficiency judgments resulted that then became liens on the debtors’ residence. The debtors retreated to Chapter 13 and moved to avoid the mortgage deficiency judgment liens under § 522(f). The creditor defended that its liens arose from mortgage foreclosures and thus were excepted from avoidance by § 522(f)(2)(C). The bankruptcy court disagreed:

[M]ortgage deficiency judgments . . . are sufficiently distinct from mortgage foreclosure proceedings to be outside the purview of Section 522(f)(2)(C). . . . [U]nder Illinois law, deficiency judgments . . . are distinct from, and complementary to foreclosures, and arise out of the underlying obligation, not “out of a mortgage foreclosure” as required by Section 522(f)(2)(C).9
[6]

With respect to Chapter 13 cases filed after October 22, 1994, the Bankruptcy Reform Act of 1994 amended 11 U.S.C. § 522(f)(1) to clarify that a Chapter 13 debtor cannot avoid a judicial lien that secures a debt to a spouse, former spouse, or child of the debtor “for alimony to, maintenance for, or support of such spouse or child.” Because § 522(f) is available only to avoid non-purchase-money security interests, a Chapter 13 debtor was refused avoidance of a lien that retained its purchase money character under state law notwithstanding successive refinancings and the absence of an original signature by the debtor on one contract in the stream.10

[7]

The courts have reconciled § 522(f) with other sections of the Code that protect the rights of secured claim holders at confirmation. For example, in In re Berrong,11 the creditor defended a § 522(f) action in a Chapter 13 case on the ground that § 1325(a)(5)(B) required the plan to retain the creditor’s lien and pay the present value of the collateral to accomplish confirmation.12 The court held that a Chapter 13 debtor can use § 522(f) to avoid an otherwise secured claim holder’s lien because § 1325(a)(5) only protects liens at confirmation that could not be avoided under § 522(f).

[8]

Lien avoidance under § 522(f) works with but is also limited by other avoiding powers in the Bankruptcy Code. For example, under § 522(g), a Chapter 13 debtor can exempt property that the trustee recovers under the preference,13 fraudulent conveyance14 or strong-arm15 powers if the transfer the trustee avoids was either an involuntary transfer of property that the debtor did not conceal or a nonpossessory, non-purchase-money security interest that the debtor could have avoided under § 522(f)(1)(B).16 In In re Brennan,17 in two of several consolidated cases, the Chapter 13 trustee avoided unperfected liens in household goods under 11 U.S.C. § 544(a)(1), and the debtors then used § 522(g)(2) to exempt the recovered property because the avoided liens were nonpossessory, non-purchase-money security interests that could have been avoided by the debtor under § 522(f)(1)(B). In two other of the consolidated cases, the debtors avoided unperfected liens under § 544(a)(1) notwithstanding that the liens were voluntarily granted because the lienholders did not object to the debtor’s exemptions or use of § 522(f)(1)(B). In another of the consolidated cases, the trustee avoided an unperfected security interest in a car, but the debtor was not permitted to use § 522(g)(2) to exempt the avoided transfer because cars are not on the list of property with respect to which debtors can avoid nonpossessory, non-purchase-money security interests under § 522(f)(1)(B). Brennan is a study in how §§ 522(g) and 522(f) work together in a Chapter 13 case to allow a debtor to take advantage of transfers that are avoidable under other sections of the Code.

[9]

Limitations on exemptions under state law become very important in § 522(f) actions in Chapter 13 cases. For example, it was held that a Chapter 13 debtor could not use § 522(f) to avoid a judgment lien when the debtor failed to perfect a homestead exemption under state law, because avoidance of the lien would not resolve the impairment of an exemption.18 A Chapter 13 debtor cannot use § 522(f) to avoid a judgment lien that was recorded before the debtor acquired an interest in the property to which the lien then attached when under state law the lien preempted any interest of the debtor in the later-acquired property.19 A Chapter 13 debtor was refused avoidance of a judgment lien when state law protected the lien from exemption because the underlying debt was advanced as part of the purchase price of the homestead.20 Without regard to the exception in § 522(f)(1) for judicial liens that secure debts for alimony, maintenance or support,21 when state law provides that domestic relations liens attach to property that would otherwise be exempt homestead, the predicate for lien avoidance under § 522(f)(1)(A) is missing and the domestic relations judgment lien is not avoidable.22 A Chapter 13 debtor avoided a wage deduction lien under § 522(f), based on the finding that the prepetition garnishment did not completely divest the debtor of an interest in the garnished wages, and thus Illinois law permitted an exemption that could be protected in a Chapter 13 case.23 Applying Oklahoma exemption law, one court held that a computer and printer were household goods when three children used the computer for homework and entertainment and that thus the property could be exempted to support lien avoidance under § 522(f)(1)(B)(i).24 When the state legislature increased the homestead exemption before a creditor obtained a lien on the debtor’s property, the debtor was entitled to the higher homestead exemption for purposes of the lien avoidance calculation in § 522(f)(1)(B).25

[10]

A Chapter 13 debtor cannot use § 522(f) to avoid a consensual lien on a car because cars are not included in the list of property to which lien avoidance applies in § 522(f)(1)(B).26 On the other hand, once it appears that a 50-inch big-screen television can be exempted under state law, federal law determines whether a lien on the television is avoidable under § 522(f): one bankruptcy court held that a big-screen television is a “household good” for purposes of § 522(f)(1)(B)(I).27 One Chapter 13 debtor was judicially estopped to avoid a lien under § 522(f) because the debtor represented in an earlier zoning proceeding that there was no residence on the property that the debtor later claimed as a homestead.28

[11]

Not all exemption limitations under state law are appropriately read to limit the use of § 522(f) in Chapter 13 cases. For example, under Mississippi law, a judgment debtor’s right to exempt personal property is not available until the debtor identifies particular items of property that are exempt, and even then exemption is only available to the extent of equity in the property.29 Prior to the Supreme Court’s decision in Owen v. Owen,30 these provisions of Mississippi exemption law were read by the Fifth Circuit to prohibit debtors in bankruptcy from using § 522(f) to avoid liens on personal property in the absence of equity as defined by state law.31 In Owen, the Supreme Court held that § 522(f) avoided a nonpossessory, non-purchase-money lien on a condominium, notwithstanding that the lien at issue attached to the condominium before Florida enacted the law that enabled debtors to claim exemptions in condominiums. Justice Scalia reasoned that an exemption to which the debtor “would have been entitled” for purposes of § 522(f) must be determined hypothetically—not based on the actual exemptions to which the debtor was entitled under state law but based on exemptions to which the debtor would be entitled but for the lien at issue.32Owen was then interpreted by the Fifth Circuit to permit a Chapter 13 debtor in Mississippi to use § 522(f) to avoid a nonpossessory, non-purchase-money lien on personal property though the debtor had no equity in the property, and notwithstanding that the debtor had not selected the specific items of property that would be exempt from seizure under state law.33 As stated by the Fifth Circuit in Tower Loan of Mississippi, Inc. v. Maddox (In re Maddox): McManus and our subsequent opinions grounded in it have been overruled by Owen to the extent that those cases held lien avoidance under § 522(f) to be limited by state exceptions.”34

[12]

In contrast, prior to the 1994 amendments to § 522(f), the U.S. Court of Appeals for the Sixth Circuit held that state exemption law dramatically limits § 522(f) lien avoidance in Chapter 13 cases even after Owen. In RTC v. Moreland (In re Moreland),35 a Chapter 13 debtor in Ohio invoked § 522(f) to avoid a judgment lien on real property. Citing its earlier decision in Ford Motor Credit Co. v. Dixon (In re Dixon),36 the Sixth Circuit refused use of § 522(f) because under Ohio law a homestead exemption is only available upon sale or execution by a creditor; because no actual sale or execution was pending at the filing of the Chapter 13 case, the Sixth Circuit reasoned that no homestead exemption was available to the debtor, and thus § 522(f) lacked its predicate. As the Sixth Circuit explained:

[Owen v. Owen, 500 U.S. 305, 111 S. Ct. 1833, 114 L. Ed. 2d 350 (1991)] is not dispositive of the situation presented in [Ford Motor Credit Corp. v. Dixon (In re Dixon), 885 F.2d 327 (6th Cir. 1989)] and in the present case. Operation of the Florida laws involved in Owen would have completely denied the debtor his homestead exemption, thereby eliminating any opportunity for avoiding the judgment lien. In contrast, the result in Dixon does not deny a debtor the opportunity to claim its homestead exemption and avoid a creditor’s judgment lien; instead, Dixon defines the time at which such an exemption is available. Under Dixon, when a judicial sale is pending, the debtor can properly avail himself of the Ohio homestead exemption and seek to avoid a judicial lien that impairs that exemption. . . . Owen does not hold that the states may impose no limits on lien avoidance in the context of impaired exemptions. . . . Instead, Owen establishes an outer boundary defining the extent to which states can limit exemptions in the context of lien avoidance. . . . [I]t is clear that the RTC’s judgment lien on Moreland’s homestead property should not have been avoided. But for the RTC’s lien, Moreland still would not have been entitled to her claimed homestead exemption as there was no judicial sale or involuntary execution pending. However, this result does not impermissibly limit the avoidance power contained in the Bankruptcy Code because, upon a judicial sale, Moreland’s ability to assert her homestead exemption and to seek to avoid the RTC’s lien will be unrestricted by our holding in Dixon.37
[13]

The circuitous reasoning of the Sixth Circuit in Moreland was not as convincing as the straightforward analysis by the Fifth Circuit in Maddox. It is common for state statutes to define exemptions in terms such as “there shall be exempt from execution or sale . . . .” Such language, as interpreted by the Sixth Circuit in Moreland, rendered exemptions unavailable to Chapter 13 debtors—for any purpose, not just with respect to lien avoidance under § 522(f)—except in the unusual situation when there was an actual sale or execution pending at the moment of filing of the Chapter 13 petition. The Sixth Circuit’s reasoning that an exemption was not impaired unless sale or execution was actually pending produced exactly the effect the Supreme Court avoided in Owen—it read state law to neutralize the use of § 522(f) by debtors in bankruptcy. As Justice Scalia instructed in Owen, the Sixth Circuit should have interpreted § 522(f) to protect the homestead exemption to which the debtor “would have been entitled” at a hypothetical sale or execution under Ohio law.

[14]

The Bankruptcy Reform Act of 1994 clarified the rules for applying § 522(f) and overruled the Sixth Circuit’s decisions in Dixon and Moreland. Section 303 of the 1994 Act amended § 522(f) to provide a mathematical definition of when a lien “impair(s) an exemption.” As amended, § 522(f)(2)(A) provides that a lien “shall be considered to impair an exemption to the extent that the sum of—(i) the lien; (ii) all other liens on the property; and (iii) the amount of the exemption that the debtor could claim if there were no liens on the property; exceeds the value that the debtor’s interest in the property would have in the absence of any liens.”38 As explained by Congressman Brooks, this arithmetic test whether a lien impairs an exemption was intended to overrule several reported decisions in which debtors had been refused lien avoidance, including the Sixth Circuit’s Dixon:

The decisions that would be overruled involve several scenarios. The first is where the debtor has no equity in a property over and above a lien senior to the judicial lien the debtor is attempting to avoid, as in the case, for example, of a debtor with a home worth $40,000 and a $40,000 mortgage. Most courts and commentators had understood that in that situation, the debtor is entitled to . . . avoid a judicial lien or other lien of a type subject to avoidance, in any amount. . . . Otherwise, the creditor would retain the lien after bankruptcy and could threaten to deprive the debtor of the exemption Congress meant to protect. . . . Unfortunately, a minority of court decisions . . . have interpreted section 522(f) as not permitting avoidance of liens in this situation. The formula in the section would make clear that the liens are avoidable.
        The second situation is where the judicial lien the debtor seeks to avoid is partially secured. Again, in an example where the debtor has a $10,000 homestead exemption, a $50,000 house and a $40,000 first mortgage, most commentators and courts would have said that a judicial lien of $20,000 could be avoided in its entirety. Otherwise, the creditor would retain all or part of the lien and be able to threaten postbankruptcy execution against the debtor’s interest which, at the time of the bankruptcy is totally exempt. However, a few courts . . . held that the debtor could only avoid $10,000 of the judicial lien in this situation, leaving the creditor after bankruptcy with a $10,000 lien attached to the debtor’s exempt interest in property. This in turn will result, at a minimum, in any equity created by mortgage payments from the debtor’s postpetition income—income which the fresh start is supposed to protect—going to the benefit of the lienholder. It may also prevent the debtor from selling his or her home after bankruptcy without paying the lienholder, even if that payment must come from the debtor’s $10,000 exempt interest. The formula in the section would not permit this result.
        The third situation is in the Sixth Circuit, where the Court of Appeals in [Ford Motor Credit Corp. v. Dixon (In re Dixon), 885 F.2d 327 (6th Cir. 1989)], has ruled that the Ohio homestead exemption only applies in execution sale situations. Thus, the court ruled that the debtor’s exemption was never impaired in a bankruptcy and could never be avoided, totally eliminating the right to avoid liens. This leaves the debtor in the situation where, if he or she wishes to sell the house after bankruptcy, that can be done only by paying the lienholder out of equity that should have been protected as exempt property. By focusing on the dollar amount of the exemption and defining “impaired,” the amendment should correct this problem.39
[15]

The first and second situations discussed by Congressman Brooks had already produced decisions, especially in the Ninth Circuit, in which Chapter 13 debtors were refused the use of § 522(f) to avoid judicial liens on homestead property when the avoidable lien was wholly or partially unsecured at the filing of the Chapter 13 case.40 The 1994 amendment to § 522(f)(2)(A) should guarantee that Chapter 13 debtors can use § 522(f) to avoid a lien that has the mathematical effect of impairing an exemption.41

[16]

In 1998, in Holland v. Star Bank (In re Holland),42 the Sixth Circuit acknowledged that the new definition of impairment of an exemption in § 522(f)(2)(A) overruled Dixon and Moreland. The premise behind Dixon and Moreland—that if state law delays the availability of an exemption until some event that has not occurred at the filing of a bankruptcy case, then the exemption is not available to support the use of § 522(f)—is not relevant to the calculation whether a lien impairs an exemption under § 522(f)(2)(A), as amended. The mathematical test adopted in 1994 invalidates a lien on otherwise exemptible property notwithstanding that state law postpones enjoyment of the exemption until judicial sale or execution.

[17]

The mathematical test for impairment of an exemption in § 522(f)(2)(A) also defines a limitation on the use of § 522(f) by Chapter 13 debtors. Section 522(f)(2)(A) provides that a lien impairs an exemption “to the extent that” the sum of all liens and the exemption exceed the value of the debtor’s interest in the property.43 After doing the math, if the lien only partially impairs an exemption, then § 522(f)(2)(A) limits lien avoidance to the portion that actually impairs the exemption, and the balance of the lien remains in place.44

[18]

How do you apply the mathematical calculation for impairment when the debtor owns property jointly with a nondebtor? Remember that § 522(f) is a sort of exemption-creating statute available only in bankruptcy—the nonfiling, joint owner typically has no analogous power under state law to avoid liens that would otherwise impair an exemption. When only one owner is in a Chapter 13 case, a “literal” application of § 522(f)(2)(A) seems to allow the debtor to use the total outstanding liens against the whole property as one part of the equation and only the debtor’s interest in the property as the other part.

[19]

For example, if the debtor owns a one-half interest in property subject to liens that exceed one-half of the value of the property, § 522(f)(2)(A) finds exemption impairment to the extent the total debt exceeds one-half of the value of the property. To avoid this outcome, the U.S. Court of Appeals for the Third Circuit rejected a literal application of § 522(f)(2)(A) in a Chapter 13 case when the debtor was only a part owner of encumbered property:

[W]hat might be characterized as a literal application of section 522(f)(2)(A) . . . produces an illogical result where a debtor owns property jointly with a non-debtor. It is illogical to net the total outstanding secured debt balance attributable to both a debtor and his joint tenant against the debtor’s one-half interest in the property alone . . . . Such a mechanical application of section 522(f)(2)(A) would provide a windfall to the debtor at the expense of a secured creditor. . . . [T]he correct approach is to view the debtor as owning one half of the property to which one half of the mortgage debt is thus attributable.45
[20]

The mathematical test in the 1994 amendment to § 522(f) made the valuation of property outcome determinative of whether a lien is avoidable because it impairs an exemption. Discussed in much detail elsewhere,46 valuation of real and personal property in Chapter 13 cases is art, not science. Small changes in value can change “the extent that” a lien impairs an exemption under § 522(f)(2)(A). It has been held that the hypothetical costs of sale are excluded in determining the value available for liens and exemptions when performing the calculation in § 522(f)(2)(A).47

[21]

The timing of valuation also becomes important.48 In In re Vokac,49 the Chapter 13 petition was filed in January of 1998, and a motion to void a judicial lien under § 522(f) was filed in December of 2001. The value of the property subject to the judicial lien had changed significantly in the years between the petition and the motion. Reasoning that exemptions are fixed as of the petition in a Chapter 13 case,50 the bankruptcy court held that the value of property for purposes of § 522(f) was also determined as of the date of the petition.


 

1  See, e.g., In re Harpole, 260 B.R. 165 (Bankr. D. Mont. 2001) (Lien that arose from state court personal judgment against the debtor was a judicial lien that could be avoided under § 522(f).); Skinner v. First Union Nat’l Bank (In re Skinner), 213 B.R. 335 (Bankr. W.D. Tenn. 1997) (Lien arising on levy of execution by sheriff pursuant to a judgment is a judicial lien avoided by the debtor to the extent lien impairs exemption.).

 

2  In re Driscoll, 57 B.R. 322 (Bankr. W.D. Wis. 1986). Accord Thompson v. Unruh (In re Thompson), 240 B.R. 776 (B.A.P. 10th Cir. 1999) (Lien created by ante-nuptial agreement was a consensual lien not a judicial lien and was not avoidable by debtor under § 522(f).); Mozingo v. Pennsylvania Dep’t of Labor & Indus. Bureau of Unemployment Benefits & Allowances (In re Mozingo), 234 B.R. 867 (E.D. Pa. 1999) (Lien of Pennsylvania Department of Labor & Industry Bureau of Unemployment Benefits & Allowances for overpayments of unemployment benefits is a statutory lien that cannot be avoided under § 522(f).); In re Fennelly, 212 B.R. 61 (D.N.J. 1997) (Lien for surcharge imposed by New Jersey Division of Motor Vehicles was a statutory lien that could not be avoided under § 522(f) by the debtor through a confirmed plan.); In re Schick, 301 B.R. 170 (Bankr. D.N.J. 2003) (Lien of New Jersey Motor Vehicle Commission for unpaid surcharges and interest is a judicial lien that can be avoided under § 522(f), not a statutory lien.); Reece v. Parkview Villas of Scottsdale Owners’ Ass’n (In re Reece), 274 B.R. 515 (Bankr. D. Ariz. 2001) (Debtor cannot use § 522(f) to avoid condominium association’s statutory lien.); In re Harpole, 260 B.R. 165 (Bankr. D. Mont. 2001) (Construction lien on residence was a statutory lien, not a judicial lien, and could not be avoided under § 522(f).); In re Chu, 258 B.R. 206, 209 (Bankr. N.D. Cal. 2001) (Deed of trust on real property reduced to a state court judgment of foreclosure prior to the petition is not a judgment lien and cannot be avoided under § 522(f)(1)(A). Citing In re Johns, 37 F.3d 1021 (3d Cir. 1994), In re Deseno, 17 F.3d 642 (3d Cir. 1994), and First National Fidelity Corp. v. Perry, 945 F.2d 61 (3d Cir. 1991), “While 11 U.S.C. § 1322(b)(2) is not at issue here, the same reasoning applies. Section 522(f)(1)(A) permits a debtor to avoid only judicial liens, not liens created by agreement. It seems unlikely that Congress would wish to prohibit avoidance of consensual liens prior to issuance of a foreclosure judgment but to permit avoidance after issuance of such a judgment.”); Lee v. Bank One, N.A. (In re Lee), 249 B.R. 864 (Bankr. N.D. Ohio 2000) (Chapter 13 debtor cannot use § 522(f) to avoid a consensual lien on residential property.). See In re Hall, 118 B.R. 671 (Bankr. S.D. Ind. 1990) (Although Chapter 13 debtor can claim exemptions, IRS claim is secured to the extent of the value of collateral subject to its lien, notwithstanding the debtor’s claim of exemption in that property.).

 

3  Castle v. Parrish, 29 B.R. 869 (Bankr. S.D. Ohio 1983) (Where the debt secured by a judgment lien is not dischargeable in a Chapter 13 case, the lien itself cannot be avoided pursuant to § 522(f).). See also Nichols v. Robinson (In re Robinson), 276 B.R. 475 (Bankr. N.D. Miss. 2000) (Motion to avoid former boyfriend’s judicial lien is denied because debtor failed to schedule the debt, boyfriend took judgment by consent during the Chapter 13 case and claim arose from debtor’s fraudulent alteration of a check from the former boyfriend. Debtor’s bad faith during Chapter 13 case precludes discharge of boyfriend’s claim and precludes the use of § 522(f) to avoid the judicial lien that arose during the Chapter 13 case.).

 

4  See In re Slater, 188 B.R. 852, 857 (Bankr. E.D. Wash. 1995) (Citing § 522(b), (c) and (f), debtor cannot avoid judicial lien of ex-spouse’s attorneys’ fees because the judicial lien does not impair an exemption. “[B]ecause 11 U.S.C. 522(c) specifically enumerates certain non-dischargeable pre-petition debts for which exempt property is liable, Congress clearly intended the avoidance powers of 522(f) be used to avoid judicial liens on exempt property secured by non-dischargeable debts NOT specifically protected by section 522(c). . . . [T]he judicial lien of University Legal Assistance is for a non-dischargeable debt pursuant to 523(a)(5) and does not impair an exemption pursuant to 522(c).”); In re Evaul, 152 B.R. 31 (Bankr. W.D.N.Y. 1993) (Debtor can use § 522(f) to avoid the lien of the New Jersey Higher Education Assistance Authority, notwithstanding that the Authority’s student loan is nondischargeable under §§ 523(a)(8) and 1328(a)(2). “[B]ecause Section 522(c) specifically enumerates certain non-dischargeable pre-petition debts for which property is liable, Congress intended that Section 522(f) could be used to avoid judicial liens on exempt property secured by non-dischargeable debts not specifically protected by Section 522(c).”).

 

5  11 U.S.C. § 522(f)(2)(C).

 

6  299 B.R. 245 (Bankr. D. Me. 2003).

 

7  299 B.R. at 249–50.

 

8  291 B.R. 457 (Bankr. N.D. Ill. 2003).

 

9  291 B.R. at 460.

 

10  In re Leftwich, 174 B.R. 54 (Bankr. W.D. Va. 1994).

 

11  53 B.R. 640 (Bankr. D. Colo. 1985).

 

12  11 U.S.C. § 1325(a)(5)(B) is discussed in § 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA.

 

13  11 U.S.C. § 547. See §§ 53.1 [ Strong-Arm Powers, Statutory Liens, Preferences and Fraudulent Conveyances ] § 50.3  Strong-Arm Powers, Statutory Liens, Preferences and Fraudulent Conveyances and 60.1 [ Avoidance and Recovery Powers ] § 53.12  Avoidance and Recovery Powers.

 

14  11 U.S.C. § 548. See §§ 53.1 [ Strong-Arm Powers, Statutory Liens, Preferences and Fraudulent Conveyances ] § 50.3  Strong-Arm Powers, Statutory Liens, Preferences and Fraudulent Conveyances and 60.1 [ Avoidance and Recovery Powers ] § 53.12  Avoidance and Recovery Powers.

 

15  11 U.S.C. § 544. See §§ 53.1 [ Strong-Arm Powers, Statutory Liens, Preferences and Fraudulent Conveyances ] § 50.3  Strong-Arm Powers, Statutory Liens, Preferences and Fraudulent Conveyances and 60.1 [ Avoidance and Recovery Powers ] § 53.12  Avoidance and Recovery Powers.

 

16  11 U.S.C. § 522(g) provides:

Notwithstanding sections 550 and 551 of this title, the debtor may exempt under subsection (b) of this section property that the trustee recovers under section 510(c)(2), 542, 543, 550, 551, or 553 of this title, to the extent that the debtor could have exempted such property under subsection (b) of this section if such property had not been transferred, if—
(1)(A) such transfer was not a voluntary transfer of such property by the debtor; and
(B) the debtor did not conceal such property; or
(2) the debtor could have avoided such transfer under subsection (f)(2) [sic–(f)(1)(B) after renumbering by Bankruptcy Reform Act of 1994] of this section.

 

17  208 B.R. 448, 452 (Bankr. S.D. Ill. 1997).

 

18  Tarpley v. Housing & Urban Dev. (In re Tarpley), 123 B.R. 741 (Bankr. W.D. Va. 1991).

 

19  Weeks v. Pederson (In re Pederson), 230 B.R. 158, 163 (B.A.P. 9th Cir. 1999) (“Here, debtor never held her interest, and therefore never had a right to claim an exemption before the lien attached. We conclude that, as in [Farrey v. Sanderfoot, 500 U.S. 291, 111 S. Ct. 1825, 114 L. Ed. 2d 337 (1991)], the lien in this case attached to debtor’s interest in the property simultaneously with debtor’s acquisition of that interest, and therefore the lien did not fix on an interest of the debtor in property, as that phrase is interpreted by the Supreme Court.”); In re Tumminello, 288 B.R. 224 (Bankr. E.D. Mo. 2001) (Citing Farrey v. Sanderfoot, 500 U.S. 291, 111 S. Ct. 1825, 114 L. Ed. 2d 337 (1991), because ex-spouse’s judgment lien attached simultaneously with the debtor’s acquisition of residence, lien did not affix to the debtor’s interest in the property and is not avoidable under § 522(f)(1)(A).); In re MacGillivray, 285 B.R. 55, 57 (Bankr. S.D. Fla. 2002) (Because judgment lien was recorded before debtor acquired homestead property, lien did not attach to property in which the debtor had an interest and lien cannot be avoided under § 522(f). “[T]he creditor, like the debtor’s wife in [Owen v. Owen (In re Owen), 961 F.2d 170 (11th Cir. 1992)], obtained a judgment against the debtor and recorded its lien . . . nearly two years before the debtor obtained his homestead property . . . . Because the creditor’s judgment lien attached to the subject property at the same time the debtor acquired it, there was never a fixing of a lien on an interest of the debtor as required under section 522(f).”).

 

20  In re Liberman, 244 B.R. 557 (E.D.N.Y. 2000) (Section 522(f) is not available to avoid lien of foreclosure judgment because New York does not provide an exemption when the judgment lien results from a mortgage lender’s foreclosure on real property and § 522(f) does not apply to a judgment arising from a mortgage foreclosure.); Smith v. Household Fin. Realty Corp. of N.Y. (In re Smith), 262 B.R. 594 (Bankr. E.D.N.Y. 2001) (Debtor cannot use § 522(f) to avoid second mortgage lien because under New York law a homestead exemption does not trump a consensual lien.); In re Onyan, 163 B.R. 21 (Bankr. N.D.N.Y. 1993) (Debtor cannot use § 522(f) to avoid judgment of former father-in-law with respect to expenses of acquiring and setting up mobile home because homestead exemption under New York law does not apply to defeat a lien for the purchase price of a principal residence and the concept of “purchase” includes the costs of improvements to real property necessary to make a mobile home habitable as a principal residence. Since the judgment cannot be avoided under applicable state exemption law, § 522(f) is not available.).

 

21  See above in this section.

 

22  See, e.g., In re Devore, No. 01-03558, 2002 WL 970407, at *5 (Bankr. N.D. Iowa May 3, 2002) (unpublished) (“This Court has repeatedly held that liens created in dissolution proceedings . . . attach to a debtor’s homestead and are not avoidable in bankruptcy. . . . [A] debtor’s homestead is not exempt from liens granted in dissolution proceedings. Thus, the lien is not avoidable under § 522(f)(1)(A) because it does not impair an exemption.”).

 

23  GMAC v. Bates (In re Bates), 161 B.R. 965 (N.D. Ill. 1993).

 

24  In re Ratliff, 209 B.R. 534 (Bankr. E.D. Okla. 1997).

 

25  See In re Heretakis, 293 B.R. 82 (Bankr. D. Mass. 2003) (Debtor gets $300,000 homestead exemption increased by Massachusetts legislature in 2000 because writs of attachment were obtained after the effective date of the Act; second and third mortgages did not forfeit homestead exemption under Massachusetts law for purposes of lien avoidance with respect to subsequent judicial liens.).

 

26  See VanGorp v. Norwest Fin. Wyo., Inc. (In re VanGorp), 128 B.R. 579 (Bankr. D. Wyo. 1991) (Although $2,000 of the value in debtor’s car is exempt from execution under Wyoming law, debtor cannot use § 522(f) or § 506(d) to avoid a consensual lien on the car.).

 

27  In re Doss, 298 B.R. 866, 868 (Bankr. W.D. Tenn. 2003) (Fifty-inch big-screen television qualifies as a “household good” for purposes of lien avoidance under § 522(f). The TV was an item of personal property “‘typically found in or around the home and used by the debtor or his dependents to support and facilitate day to day living.’”).

 

28  In re Pich, 253 B.R. 562 (Bankr. D. Idaho 2000).

 

29  See Tower Loan of Miss., Inc. v. Maddox (In re Maddox), 15 F.3d 1347 (5th Cir. 1994).

 

30  500 U.S. 305, 111 S. Ct. 1833, 114 L. Ed. 2d 350 (1991).

 

31  See, e.g., McManus v. Avco Fin. Servs. of La., Inc. (In re McManus), 681 F.2d 353 (5th Cir. 1982).

 

32  500 U.S. at 311.

 

33  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 non-purchase-money lien on personal property notwithstanding the absence of equity in the property because Owen v. Owen, 500 U.S. 305, 111 S. Ct. 1833, 114 L. Ed. 2d 350 (1991), overrules the line of cases including McManus v. Avco Financial Services of Louisiana, Inc. (In re McManus), 681 F.2d 353 (5th Cir. 1982).).

 

34  15 F.3d at 1351.

 

35  21 F.3d 102 (6th Cir. 1994).

 

36  885 F.2d 327 (6th Cir. 1989).

 

37  21 F.3d at 106–07.

 

38  11 U.S.C. § 522(f)(2)(A), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 303, 108 Stat. 4106 (1994).

 

39  140 Cong. Rec. H10,769 (section-by-section analysis by Congressman Brooks).

 

40  See, e.g., In re Wilson, 167 B.R. 599, 600, 601 (Bankr. N.D. Cal. 1994) (Applying City National Bank v. Chabot (In re Chabot), 992 F.2d 891 (9th Cir. 1993), Chapter 13 debtor cannot avoid judicial lien on homestead where lien does not diminish the amount of the debtor’s homestead. The debtor owned an undivided one-half interest in a residence. The residence was subject to a first deed of trust in the amount of $14,067. The property was encumbered by a judgment in the amount of $14,548. “Debtor claims a $100,000 ‘automatic’ homestead exemption. . . . [T]he Property had a fair market value of $130,000 . . . debtor’s interest in the Property was worth $65,000. Thus, at the petition date, Wynn’s judgment lien had not attached to any non-exempt equity. . . . Under California law, debtor’s automatic homestead exemption is senior in priority to, and upon any judgment lien sale must be paid before, Wynn’s judgment lien. Wynn’s lien does not diminish the amount of, and consequently under Chabot does not ‘impair,’ debtor’s homestead exemption.”), aff’d, 90 F.3d 347 (9th Cir. 1996) (Applying City National Bank v. Chabot (In re Chabot), 992 F.2d 891 (9th Cir. 1993), in a Chapter 13 case filed before the effective date of newly enacted § 522(f)(2)(A), debtor cannot avoid $16,909 judicial lien on property worth $130,000 because under California law at a forced lien sale the debtor would receive his “automatic” statutory exemption in full, thus the lien does not impair the exemption. 1994 amendments to § 522(f) would change this result.).

 

41  See, e.g., In re Cisneros, 257 B.R. 332 (Bankr. D.N.M. 2000) (Although under New Mexico law, a homestead is “exempt from attachment” and thus a judicial lien does not attach to the homestead, cases decided under pre-1994 law holding that § 522(f) is superfluous are not controlling; a judicial lien “impairs” a homestead exemption and is avoidable under § 522(f) because it clouds title and obstructs the debtor’s realization of the exemption.).

 

42  151 F.3d 547 (6th Cir. 1998).

 

43  11 U.S.C. § 522(f)(2)(A), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 303, 108 Stat. 4106 (1994).

 

44  See 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 Richardson, 280 B.R. 717 (Bankr. S.D. Ala. 2001) (After performing the mathematical calculation in § 522(f)(2)(A) and excluding the hypothetical costs of sale, a portion of judgment lien remains secured after homestead exemption is fully protected.); In re Vokac, 273 B.R. 553 (Bankr. N.D. Ill. 2002) (Judicial lien is partially avoidable to extent that sum of lien, prior mortgage and homestead exemption exceeds value of property; balance of lien survives and is reduced by payments under the plan.); In re Murphy, 226 B.R. 601 (Bankr. M.D. Tenn. 1998) (Debtor can use § 522(f) to partially avoid a judgment lien on car to the extent lien impairs exemption.); Sheth v. Affiliated Realty & Management Co. (In re Sheth), 225 B.R. 913 (Bankr. N.D. Ill. 1998) (Debtors can use § 522(f) to partially avoid a judicial lien that impairs homestead exemption; to calculate extent of lien that can be avoided, closing costs are not deducted, but tax liens that would have priority over judicial lien are included.); Skinner v. First Union Nat’l Bank (In re Skinner), 213 B.R. 335 (Bankr. W.D. Tenn. 1997) (Lien arising on levy of execution by sheriff pursuant to a judgment is a judicial lien avoided by the debtor to the extent lien impairs exemption.). See also In re Groff, 223 B.R. 697 (Bankr. S.D. Ill. 1998) (Installment sale contract for land was a security device under Illinois law; debtors had equitable interests as purchasers that could be claimed as exempt and that were impaired by a judgment lien under the formula in § 522(f)(2)(A).).

 

45  Miller v. Sul, 299 F.3d 183, 186 (3d Cir. 2002).

 

46  See § 76.1  Valuation, Claim Splitting and Dewsnup, § 76.2  Is Claim Secured, and By What?§ 76.3  As of What Date Is Value Determined?§ 76.4  Valuation in Chapter 13 Cases before Rash§ 76.5  Rash and Valuation, § 76.6  Valuation after Rash, § 76.7  Valuation after BAPCPA and § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA.

 

47  In re Richardson, 280 B.R. 717 (Bankr. S.D. Ala. 2001) (Debtor cannot completely avoid judgment lien because when hypothetical costs of sale are excluded, a portion of the judgment lien remains secured after homestead exemption is fully protected.).

 

48  See § 107.1 [ As of What Date Is Value Determined? ] § 76.3  As of What Date Is Value Determined?.

 

49  273 B.R. 553 (Bankr. N.D. Ill. 2002).

 

50  See also § 49.2 [ Timing and Procedure ] § 48.4  Timing and Procedure.