In re Petersen, 561 B.R. 788

Debtors filed Chapter 13; plan confirmed; plan did not list avoidance of Cyprus Credit Union’s judgment lien on their homestead.
Cyprus obtained a prepetition state-court judgment and recorded a judicial lien against the Debtors’ residence; Debtors claimed a $60,000 Utah homestead exemption and sought to avoid the lien under 11 U.S.C. § 522(f).
Chapter 13 Trustee objected, arguing § 349(b)(1)(B) should limit the immediate effectiveness of § 522(f) avoidance so liens reattach if the case is dismissed before discharge; alternatively relied on court’s equitable powers under § 105(a).
Debtors argued § 522(f) permits immediate avoidance and the Trustee lacks standing to object.
Court held the Trustee has standing under § 1302(b) and that § 522(f) lien avoidance is effective immediately for plan-consummation purposes but that full, permanent avoidance occurs only upon completion and discharge; if the case is dismissed pre-discharge, § 349(b)(1)(B) reinstates the lien.

Issue	Debtors' Argument	Trustee's Argument	Held
Standing of Trustee to object to lien-avoidance motion	Trustee lacks explicit standing under § 1302	Trustee has standing under § 1302(b) and fiduciary duties to protect creditors	Trustee has standing under § 1302(b) and fiduciary role justifies objection
Timing/effect of § 522(f) lien avoidance in Chapter 13	§ 522(f) allows immediate avoidance; § 349(b)(1)(B) does not alter timing	§ 349(b)(1)(B) (and § 105) permit conditioning avoidance until plan completion/discharge to protect creditors	§ 522(f) avoidance effective immediately for plan purposes; permanent avoidance only upon plan completion/discharge; § 349(b)(1)(B) reinstates avoided transfer if case dismissed before completion

Law v. Siegel, 134 S. Ct. 1188 (U.S. 2014) (bankruptcy courts’ equitable powers must operate within the Bankruptcy Code; courts may not override statutory exemptions)
Tower Loan of Miss., Inc. v. Maddox, 15 F.3d 1347 (5th Cir. 1994) (chapter 13 trustee has standing to avoid liens impairing exemptions to prevent inequitable distributions)
Andrews v. Loheit (In re Andrews), 49 F.3d 1404 (9th Cir. 1995) (chapter 13 trustee’s broad powers under § 1302)
Overbaugh v. Household Bank, N.A. (In re Overbaugh), 559 F.3d 125 (2d Cir. 2009) (chapter 13 trustee’s primary role is serving interests of all creditors)
Miller (In re Miller), 299 F.3d 183 (3d Cir. 2002) (calculation and effect of lien-avoidance under § 522(f))
Lehman (In re Lehman), 205 F.3d 1255 (11th Cir. 2000) (approach to determining impairment under § 522(f))
Nelson v. Scala, 192 F.3d 32 (1st Cir. 1999) (application of § 522(f) to avoid judicial liens)
Zeigler v. Cozad (In re Cozad), 208 B.R. 495 (10th Cir. BAP 1997) (application of § 522(f) calculations and lien avoidance)
Woolsey (In re Woolsey), 696 F.3d 1266 (10th Cir. 2012) (district decision affirmed addressing conditioning lien avoidance; court discussed interplay of § 349 and lien avoidance)