494 B.R. 783
Bankr. D. Conn.2013Background
- Debtor sought to avoid judicial liens on her half-interest in a jointly owned homestead (36 Reilly Road, Hampton, CT) under 11 U.S.C. § 522(f).
- Schedule A listed the property's fair market value at $212,000 based on a comparative market analysis.
- Debtor’s motion calculated value for § 522(f) purposes by subtracting a hypothetical 8% liquidation cost ($16,960), yielding a “net equity value” of $195,040, and sought lien avoidance based on that reduced figure.
- No party filed a written objection by the bar date; the Court nevertheless scheduled a hearing and raised the valuation issue sua sponte.
- The sole contested legal question at the hearing was whether hypothetical liquidation costs may be deducted from fair market value when determining impairment under § 522(f).
Issues
| Issue | Debtor's Argument | Court/Opposing Position | Held |
|---|---|---|---|
| Whether § 522(f) valuation may be reduced by hypothetical liquidation costs | Deduct 8% liquidation/transaction costs from FMV to reflect recoverable estate value | § 522(f) requires fair market value; liquidation costs should not be deducted | Deduction of hypothetical liquidation costs from FMV is not permitted for § 522(f) lien-avoidance calculus |
Key Cases Cited
- In re Walsh, 5 B.R. 239 (Bankr. D.C. 1980) (held liquidation costs could be deducted from FMV for § 522(f) valuation)
- In re Nellis, 12 B.R. 770 (Bankr. D. Conn. 1981) (rejected Walsh; held FMV is the correct § 522(f) standard without reductions for sale costs)
- In re Sheth, 225 B.R. 913 (Bankr. N.D. Ill. 1998) (adopted majority view that liquidation costs are not deductible from FMV under § 522)
- In re Richardson, 280 B.R. 717 (Bankr. S.D. Ala. 2001) (cited cases rejecting deduction of liquidation costs)
- In re Barrett, 370 B.R. 1 (Bankr. D. Me. 2007) (noting multiple courts refuse to include hypothetical sales costs in § 522 valuation)
- In re Sumerell, 194 B.R. 818 (Bankr. E.D. Tenn. 1996) (rejected Walsh and endorsed FMV standard)