MEMORANDUM OPINION ON PLAINTIFF’S MOTION TO DISMISS COUNTERCLAIM
Thе issue here is whether a chapter 7 debtor can force a creditor holding a mortgage on real property of the estate to accept less than the full balance owing when the debtor eventually sells the property after the case is closed. To our knowledge, this is the first Chapter 7 “strip down” ever attempted in this district.
Gregory and Diana Gaylor (“Debtors”) filed their joint voluntary petition for relief on March 23, 1990. First of America Bank (“Bank”) brought an action under 11 U.S.C. § 523(c) for a determination that a particular debt owed to it was nondischargeable. The Debtors filed a counterclaim аlleging that the value of a home in Clarkston, Michigan, which they formerly occupied, was worth $163,000. They further alleged the existence of a first mortgage on this property in the amount of $114,633; a second mortgage in the amount of $55,833; and a third mortgage to the Bank with a balance of $45,200. The Debtors requested that the Court “determine under 11 U.S.C. section 506 what portion of Plaintiff’s mortgage is secured.” The Bank responded with a motion to dismiss the counterclaim for failure to state a claim upon which relief can be granted. Bankruptcy Rule 7012(b), incorporating F.R.Civ.P. 12(b)(6).
Since determining the extent to which the Bank’s claim is secured by thе property’s value is, without more, a pointless endeavor, we assume that what the Debtors are really seeking is avoidance of the unsecured portion of the Bank’s lien pursuant to § 506(d). 1 As the district court clearly has jurisdiction over this dispute, 28 U.S.C. § 1334, which is a core proceeding, 28 U.S.C. § 157(b)(2)(A), (B), (K) and (O), and since the district court has referred its bankruptcy jurisdiction to the bankruptcy judges of this district, our conclusions of law pursuant to Bankruptcy Rule 7052 will result in an order dismissing the counterclaim. 28 U.S.C. § 157(a), (b)(1).
In deciding the Bank’s motion to dismiss, “we accept as true the factual allegations” contained in the Debtors’ counterclaim.
Anspec Company v. Johnson Controls,
Relying primarily on
In re Dewsnup,
With exceptions not relevant here, the filing of a petition in bankruptcy creates an estate consisting of “all legal or equitable interest of the debtor in property as of the commencement of the case.” 11 U.S.C. § 541(a)(1). Under the federal exemption scheme elected by the Debtors, however, a debtor may exempt from property of the estate his interest in property identified in § 522(d), subject to the maximum amounts specified therein. If no objection to the claimed exemption is made, then “the property claimed as exempt ... is exempt.” 11 U.S.C. § 522(l). Thus, property claimed as exempt originally comprises a part of the bankruptcy estate, but becomes “exempt” if a timely valid objection is not filed. In re Dembs, 757 F.2d 777 (6th Cir.1985).
In
Seifert v. Selby,
As with any issue involving statutory construction, we turn first to the wording of the statute in question.
See United States v. Ron Pair Enterprises,
It bears emphasizing that the foregoing statutory provisions speak in terms of the debtor’s “interest” in property which does not exceed a particular value. The statute therefore seems to contemplate that that portion of the debtor’s interest, if any, which exceeds the specified value cannot be claimed as exempt; indeed, to concludе otherwise would render meaningless the value limitations contained in the statute. Thus, the language of the statute itself supports the conclusion that the scope of the debt- or’s exemption is not necessarily coextensive with the full value of the property in question.
Similarly, the statute’s legislative history indicates that the debtor cannot in any event claim an exemption in property to the extent that it is subject to a security interest. The Senate Report explains that “[property may be exempted even if it is subject to a lien, but only the unencumbered portion of the property is tо be counted in computing the ‘value’ of the property for the purposes of the exemption.” ' S.Rep. No. 95-989, 95th Cong.2d Sess. 76 (1978), 5 U.S.Code Cong. & Admin. News 1978, 5787, 5861-62. The House Judiciary Report provides the following illustration:
Thus, for example, a residence worth $30,000 with a mortgage of $25,000 will *239 be exemptable [sic] to the extent of $5,000. This follows current law. The remaining value of the property will be dealt with in the bankruptcy case as is any interest in property that is subject to a lien.
H.Rep. No. 95-595, 95th Cong., 1st Sess. 360-61 (1977), 5 U.S.Code Cong. & Admin. News 1978, 6316.
3
The “current law” referred to in the House Report is exemplified by
In re Cummings,
Consistent with pre-Code cases such as
Cummings,
cases decided under the Code have likewise concluded that property cannot be exempted from the estate to the extent it is encumbered by a security interest.
In re Orecchio,
Courts have also consistently held that the debtor’s property remains property of the estate to the extent its value exceeds the statutory amount which the debtor is permitted to exempt.
In re Johnson,
In a case where the debtor opted for the applicable state law exemptions pursuant to § 522(b), the Sixth Circuit stated that under Ohio law the debtor may “exempt from the bankruptcy proceedings an interest in a residence
in an amount not to exceed $5,000.” In re Dixon,
Support for the conclusion that property in which the debtor properly claims an exemption is not necessarily fully exempted is also found in other provisions of the Code and cases decided thereunder. In construing § 522(f), which allows the debtor to avoid certain liens that impair exemptions to which hе would otherwise be entitled, cases hold that this right is available to the debtor only to the extent that he holds an interest in the property that is not subject to unavoidable liens.
See In re Simonson,
Also relevant is § 326(a), which grants trustees a right to a commission “upon all monies disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secured claims.” Except in the rare case of a surplus, a debtor is likely to receive money from a trustee only in exoneration of an exemption claimed in property liquidated by the trustee. If the debtor could in effect remove the property entirely from the estate, merely by claiming it as exempt, payments by the trustee to the debtor would be highly unusual, and the limitation contained in § 326(a) would appear to be pointless.
To summarize, we believe that the language of the statute, its legislative history, case law and the leading treatises support the conclusion that a debtor’s maximum allowable exemption undеr § 522(d) is his equity in the property or the applicable statutory ceiling, whichever is less, and that the property in which a debtor claims an exemption remains property of the estate to the extent its value exceeds the maximum allowable exemption.
Seifert
nevertheless held to the contrary, relying on
In re Rutherford,
In Snow,
a post-petition fire had destroyed household goods in which the debt- or had claimed an exemption in the amount of $1,500. The goods were insured, and the trustee argued that any insurance proceeds in excess of the exempted amount were property of the estate. The court ruled that the debtor was entitled to all insurаnce proceeds, based on its conclusion that “[ajssets properly exempted by a debt- or are withdrawn from the bankruptcy estate and title to those exempt assets is vested in the debtor to carry into his fresh start.”
The debtor in Snow opted for state law exemptions pursuant to § 522(b), and the court’s holding is therefore distinguishable to the extent that the applicable state exemption law differs from § 522(d). In any event, Snow relied on nothing more than its own conclusory statements in holding that the estate had no interest in the property exempted by the debtor. We therefore find neither Snow nor Rutherford, which relied on Snow, to be persuasive.
Although both Wiesner and Kretzer suggested that property in which аn exemption is claimed is entirely exempted, neither case offered any authority or rationale which support that proposition. 4 Moreover, the judge who authored the decision in Wiesner subsequently reversed his position in Wittenwyler, supra. With respect to Kretzer, it should also be noted that the issue in that case was whether a violation of the automatic stay had occurred; the *241 court was not directly confronted with a dispute over the estate’s interest in property whose value exceeded the amount which may be exempted under § 522(d). Wiesner and Kretzer are therefore unpersuasive.
For the foregoing reasons, it is our opinion that the estate continues to retain an interest in property claimed as exempt to the extent that the valuе of the property exceeds the amount properly claimed as exempt. Since Seifert held to the contrary, the issue now is whether that decision is binding on this court.
Several courts, including our own on two occasions, have concluded that bankruptcy courts are bound by the decisions of the district court in which they sit.
In re Michigan Real Estate Ins. Trust,
87 R.R. 447, 463 (E.D.Mich.1988) (adopting and incorporating verbatim the report and recommendation of this Court);
In re Moisson,
The fundamental premise underlying the belief that a district court decisiоn is necessarily binding on a bankruptcy court is that the latter court is inferior to the former.
See, e.g., V-M Corp.,
The hierarchical structure of the federal courts is explained as follows:
[Sjtare decisis applies not only to successive decisions in the same court, but also to decisions in courts owing obedience to that court. In this context, the principle of conformity is more rigid. All other American courts, state and federal, owe obedience to the decisions of the Supreme Court of the United States on questions of federal law, and a judgment of the Supreme Court provides the rule to be followed in all such courts until the Supreme Court sees, fit to reexamine it. In like fashion, the district courts in a circuit owe obedience to a decision of thе court of appeals in that circuit and must follow it until the court of appeals sees fit to overrule it. The court of appeals in one circuit owes no obedience to decisions of a court of appeals in another circuit.... This freedom of the circuits to come each to its own conclusion is not only tolerated, but is an important feature in the operation of the Supreme Court’s certiorari practice. The district courts, like the courts of appeals, owe no obedience to the decisions of their counterparts in other districts, nor to the decisions of the courts of appeals in other circuits.
Moore, 110.402[1], at 12, 14-16 (footnotes omitted). 5 The hierarchy therefore resembles a pyramid, with the most inferior level being the most populated and the most superior level being the least populated. Such a structure supports the goal of stability.
The “obedience” principle is tremendously important in the operation of our hierarchical court system, for unless the inferior courts make a good faith effort to follow the decisions of the courts with jurisdiction to review their judgments, appeals would be endless. It is of partic *242 ular importance at the Supreme Court level, for it sits primarily to settle the law, and if its decisions were not routinely followed, its docket would be wholly unmanageable.
Moore, 110.402[1] at 12 n. 15.
The objective cited in
Moore
of avoiding voluminous appeals is certainly valid. But because no judge within a multi-judge district is bound by the decision of other district judges,
Starbuck v. City and County of San Francisco,
More importantly, the notion that a bankruptcy judge is bound by the decisions of individual district judges sitting in a multi-judge district court raises insoluble practical problems. There are 94 federal judicial districts, each housing one district court, which comprise a total of 575 district judges. But there are only 291 bankruptcy judges nationwide. 6 For each bankruptcy judge in the United States, then, there are approximately two district judges. In the Eastern District of Michigan, there are presently 5 senior district judges, each of whom handles a reduced but not inconsiderable caseload, along with 15 district judges handling a full docket, 7 as opposed to only four bankruptcy judges. The goal of predictability is not well-served when one lower court judge must loоk to the decisions of two or, in our case, as many as twenty different higher courts. 8
As previously noted, an important aspect of the rule of stare decisis is that each court is bound to follow its own prior decisions. But we have also noted that the decision of any one district judge is not binding on other district judges. In order to reconcile these truisms, we believe it must be recognized that a decision rendered by an individual judge in a multi-judge district simply does not constitute a decision of the district court itself. 9 Absent a decision of the district court, as such, there is no basis for invoking the doctrine of stare decisis. Stated somewhat differently, a decision of the district court cannot be binding on the bankruptcy courts unlеss it is also binding on the district court as a whole.
In a recently published article on this subject, the authors reached essentially the same conclusion:
As a unit of the district court, the bankruptcy court is only bound by precedent binding on members of the district court. When a district court is composed of *243 more than one district judge, a decision of one judge does not speak for or bind the district as a whole. As a result, a bankruptcy judge, acting on behalf of the district court, is not bound to follow the decisions of any single member of the district court, since the decision may not represent the views of the district as а whole.
“Are BAP Decisions Binding on Any Court?’’, 18 Calif.Bankr.J. 189, 197-98 (1990). 10
The conclusion that bankruptcy courts are no more or less bound by opinions of the district court than are the district court judges themselves is consistent with the fact that the bankruptcy courts are, in a sense, indistinguishable from the district courts.
See
28 U.S.C. § 151 (providing that the bankruptcy courts “shall constitute a unit of the district court”); In
In re Frederick Petroleum Corp.,
We therefore believe that we are not bound by Seifert and, for the reasons previously stated, we hold that the estate continues to have an interest in the Clark-ston property. Accordingly, the principal argument of the bank, derived from Mait-land and Dewsnup, is unavailing here. In affirming the district court’s affirmance of the bankruptcy court’s decision in Dewsn-up, however, the Tenth Circuit did not rely solely on the bankruptcy court’s rationale that the asset was abandoned and therefore no longer property of the estate. Two other reasons underly the Court of Appeals’ analysis.
The court stated that its assessment that § 506(d) did not apply to the property in question was “bolstered further through review of the creditors [sic] rights provisions found in Chapters 12 and 13.”
The Tenth Circuit then turned its attention to § 722 of the Code, which permits individual debtors to redeem personal property under specific circumstances. The court held that this section
constitutes the only redemption provision provided for Chapter 7 debtors. Notably, it only pertains to personal property. In Maitland, the court correctly identified the problem when it stated: “In light of the exclusion of real property in § 722, and its express limitation to specific tangible personal property, it is obvious that Congress did not intend to permit a debtor to redeem his real property through the use of § 506(d).”61 B.R. at 135 .
Id. (emphasis added). The court concluded by stating: “Allowing lien avoidance under section 506(d), or in this case, complete redemption, gives debtors much more than the ‘fresh start’ to which they are entitled. We do not believe Congress intended such *244 a result when it enacted these Code provisions.” Id. at 593.
In a recent decision, the Ninth Circuit Bankruptcy Appellate Panel agreed with the Tenth Circuit. In
In re Lange,
a lien avoided under § 506(d) should be preserved for the benefit of the estate[,] not the debtor. Hence, if the lien is not disposed of, it is to be returned to the former lienholder pursuant to 11 U.S.C. § 725. Contrarily, § 722 constitutes the only redemption remedy Congress provided Chapter 7 debtors. See 11 U.S.C. § 722 (1987). Accordingly, we find it unlikely that Congress intended a liquidating debtor to remove, for his or her sole benefit, encumbrances in excess of thе value of the real property.
We are of course aware that this issue has been decided differently in other circuits,
Gaglia v. First Federal Sav. & Loan Ass’n,
Although not directly on point, two cases decided by the Sixth Circuit lend support for our conclusion. In
In re Bell,
Bell
also noted the practical difficulty bankruptcy courts would have enforcing an order for installment redemption, particularly after the discharge had been entered and the case closed.
The other Sixth Circuit case relevant to this issue is
In re Glenn,
Based on the foregoing, we conclude that the Debtors’ counterclaim fails to state a claim upon which relief can be granted and we will therefore enter an order contemporaneously herewith granting the Bank’s motion to dismiss pursuant to Bankruptcy Rule 7012(b).
Notes
. The fact that the Debtors’ legal theory may have been mischaracterized is not sufficient to support dismissal under F.R.Civ.P. 12(b)(6).
Dussouy v. Gulf Coast Inv. Corp.,
. In Seifert, the debtors claimed as exempt the maximum allowed under § 522(d)(5) ([$3,750 + $400] x 2 = $8,300) pertaining to their interest in real estate which they were purchasing on land contract. No party filed a timely objection to the exemption. The trustee subsequently obtained an order from the bankruptcy court authorizing him to sell the properly for an amount sufficient to pay the balance due the land contract vendors and satisfy the debtors’ exemption, with a small surplus for the estate. The debtors appealed the order, and the district court reversed, holding that the entire asset was exempt, not just the amount claimed as exempt.
. A similar example is found elsewhere in the same report. See H.Rep. No. 95-595, 95th Cong. 1st Sess. 381 (1977); 5 U.S.Code Cong. & Admin.News 1978, 6337 ("[I]f a debtor owned a $2,000 car, subject to a $1,200 lien, the debtor could exempt his $800 interest in the car.’’)
. Many cases, including some of the cases cited by Kretzer, state to the effect that property which is properly exempted by the debtor re-vests in the debtor. This reference to "exempted property” tracks the introductory clause in § 522(d), which states that "[t]he following property may be exempted_” See also § 522(1) ("Unless a party in interest objects, the property claimed as exempt ... is exempt.”) But the vague reference in § 522(d) to "property” is qualified by the more precise statutory language which follows the introductory clause. Similarly, cases which speak of exempted "property” revesting in the debtor should be understood as using a shorthand reference to interests in рroperty, as defined (and limited) by the relevant subsections of § 522(d).
. Bankruptcy courts do not appear in Moore’s discussion of the federal court hierarchy.
. These statistics are as of November 30, 1990 and reflect, as accurately as possible, the number of authorized positions (filled and vacant) at that time. The figures do not include the new judicial positions created by P.L. 101-650; 104 Stat. 5089 (generally eff. Dec. 1, 1990), which increased the number of district judges to 649, nor do they include district court judges on senior status.
. One position is currently vacant.
. The problem which this poses for the bankruptcy court is particularly acute where, as here, the purportedly binding opinion is unpublished. In order to ascertain whether an unpublished district court decision is "gоod" law, we presumably must canvas the chambers of the other 19 judges to determine if they have reached a contrary conclusion regarding the issue in question. The administration of justice should not entail such an unwieldy and haphazard process.
See In re The Vogue,
.Of course, an en banc decision of the district court should be binding on each judge in the district. See generally Bartels, United States District Courts En Banc — Resolving the Ambiguities, 73 Judicature 40, 42 (1989). Several courts have promulgated rules which explicitly provide for such a procedure. See, e.g., Local Rule 18(B) of the Western District of Oklahoma, Rule 18(b) of the Eastern District of Oklahoma ("In non-jury cases of great public interest or first impression, the Court may sit and consider same en banc’’)-, see abo Rule 18 B of the Northern District of Oklahoma.
. Hon. Joseph L. Cosetti, Chief Bankruptcy Judge of the Western District of Pennsylvania, and president of the National Conference of Bankruptcy Judges, also expressed doubts about the precedential value of district judge opinions in multi-judge districts:
In many places, the district court is larger than the bankruptcy court.... [W]hen the appellate court consists of one district judge, that judge’s ruling is not binding on other district judges. The present system does not create a clear precedent to guide the bankruptcy court.
20 BCD News and Comment, Issue 19, p. A7 (LRP Publications, Nov. 8, 1990).
. Both the Debtors and the Bank cited
In re Lindsey,
The Lindsey Court seems to assume that debtors in a Chapter 7 context may employ § 506, at least in a case where the only creditors in the picture are secured creditors. It appears, however, that the Court would not permit the use of § 506 by debtors for the purpose of retaining property which would otherwise be liquidated, with no benefit to unsecured or other creditors.
"Section 506(d)
— A
Chapter
7
Debtor's Secret Weapon?,"
Norton Bankr. L. Advisor, Oct. 1990, p. 2.
See also Dewsnup,
. Nonetheless, cases are now appearing where this form of relief has been granted to some extent.
See In re Hayes,
. The court in
Lindsey
also recognized the incongruity of permitting installment redemption in the context of a liquidation proceeding. The debtors in that case asked the bankruptcy court to fashion a new payment schedule for the stripped-down mortgage. The Seventh Circuit agreed with the lower courts that such relief was not permissible.