In re Cunningham, 478 B.R. 346

Chapter 13 case filed June 27, 2011 by Corey and Susan Cunningham seeking to avoid a Timber Ridge mechanic’s lien on their Crown Point residence.
Timber Ridge filed a Notice of intent to hold a mechanic’s lien in Indiana; subsequently Timber Ridge foreclosed the lien in state court and obtained a foreclosure judgment.
Debtors argued the Indiana mechanic’s lien became a judicial lien by merger upon foreclosure, making it avoidable under 11 U.S.C. § 522(f).
Court analyzes whether Indiana mechanic’s lien is a statutory lien or a judicial lien for § 522(f) purposes and whether foreclosure converts the lien’s character.
Indiana creates a two-step mechanic’s lien process: record notice to create a statutory lien, then foreclosure enforcement; the lien arises by statute and may be enforced judicially without changing its statutory nature.
Court concludes Timber Ridge’s lien is a statutory lien and foreclosure does not transform it into a judicial lien that § 522(f) can avoid.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether a state mechanic’s lien is a judicial lien under § 522(f).	Cunningham contends foreclosure converts the lien into a judicial lien.	Timber Ridge maintains the lien arises by statute (statutory lien) and foreclosure does not alter that nature.	Statutory lien; § 522(f) does not apply.
Whether foreclosure and judgment merge the statutory lien into a judicial lien for § 522(f) purposes.	Foreclosure merges the lien into a judicial instrument subject to avoidance.	Merger does not alter the lien’s statutory origin.	Foreclosure does not convert the lien to a judicial lien; § 522(f) not applicable.

In re Wisner, 77 B.R. 395 (Bankr.N.D.N.Y.1987) (statutory lien treatment for mechanics’ liens not subject to § 522(f))
In re Piambino, 45 B.R. 243 (Bankr.S.D.Fla.1984) (mechanics’ liens deemed statutory, not avoidable under § 522(f))
In re Ramsey, 89 B.R. 680 (Bankr.S.D.Ohio 1988) (mechanic’s lien treated as statutory lien under Bankruptcy Code)