600 B.R. 777
Bankr. W.D. Mich.2019Background
- Kevin M. Wigger, a state prisoner convicted of third‑degree criminal sexual conduct, filed a chapter 7 petition and an adversary complaint seeking to avoid liens on claimed exempt property.
- Michigan Treasurer obtained an SCFRA judgment in state court prepetition freezing a substantial portion of Wigger’s IRA (and initially half the net of a tort recovery against his son) as reimbursement for incarceration costs under the State Correctional Facility Reimbursement Act (SCFRA).
- Wigger claimed the IRA exempt under § 522 and sought to avoid the Treasurer’s interest under 11 U.S.C. § 522(f)(1)(A).
- The Treasurer moved to dismiss, arguing the Treasurer’s interest is a non‑avoidable statutory lien under § 101(53); Wigger argued it is a judicial lien subject to avoidance under § 522(f).
- The bankruptcy court directed supplemental briefing on whether the SCFRA interest is a “statutory lien” or a “judicial lien.”
- The court denied the Treasurer’s motion to dismiss, concluding the SCFRA interest is a judicial lien (not a statutory lien) and thus Wigger has a plausible § 522(f)(1)(A) avoidance claim as to the IRA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Nature of Treasurer’s interest in IRA: statutory lien vs. judicial lien | SCFRA interest is a judicial lien obtained by court order; therefore avoidable under 11 U.S.C. § 522(f)(1)(A) | SCFRA creates an inchoate statutory lien by operation of statute upon sentencing, so it is a statutory lien not subject to § 522(f) avoidance | The lien arises only upon state‑court order under SCFRA and thus is a judicial lien; denial of dismissal because Wigger plausibly alleges avoidable judicial lien |
| Whether lien qualifies as a "lien" under the Code | Wigger: SCFRA encumbrance is a charge/interest in property securing a reimbursement obligation and impairs exemption | Treasurer conceded the interest is a lien but characterized its origin as statutory | Court: both parties effectively agree it is a lien; court analyzes origin to classify it as judicial rather than statutory |
| Effect of SCFRA language requiring state action | Wigger: SCFRA conditions creation/effectiveness of lien on Attorney General investigation and circuit court order, so origin is judicial | Treasurer: SCFRA gives the State an inchoate lien under statute even if court action perfects or enforces it | Court: SCFRA does not create an automatic lien — assets become liable only upon court order — so origin is judicial |
| Pleading standard for motion to dismiss | Wigger: complaint pleads sufficient factual matter to state plausible avoidance claim under Iqbal/Twombly | Treasurer: argues claim fails because lien is statutory and not avoidable | Court: applying Iqbal/Twombly standards, Wigger’s complaint is plausible and survives dismissal |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard: claim must be plausible)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (pleading standard for plausibility)
- Doe v. Miami University, 882 F.3d 579 (6th Cir. standard on plausibility and pleading)
- Yarmouth Commons Ass'n v. Norwood, 299 F. Supp. 3d 862 (distinguishing statutory lien creation by statute from liens requiring judicial process)