Flick v. United States Through Farmers Home Admin.Flick v. United States Through Farmers Home Admin.
MEMORANDUM OPINION
This is аn appeal from the Bankruptcy Court of the Western District of Pennsylvania. Pursuant to § 522 of the Bankruptcy Code, 11 U.S.C. § 522; the court below avoided certain government liens constituting non-possessory, non-purchase money security interests in the property of the debtors, John and Sindy Flick. The government contends on appеal that § 522 is inapplicable to liens held by the United States. The government further asserts that the bankruptcy court erred by allowing the debtors to avoid liens in their farm tools and implements under § 522 because debtors did not meet the definition of “farmer” set forth in § 101(17) of the Bankruptcy Code, 11 U.S.C. § 101(17).
On May 31, 1979 the Farmers Home Administration loaned $19,300 to the debtors who needed funds to continue to operate their farm. The loan was evidenced by a promissory note and a security agreement of the sаme date. The security agreement-granted the FmHA a security interest in all crops, equipment and livestock presently owned and to be acquired thereafter. The FmHA perfected its security interest by filing a financing statement on May 9, 1979. The debtors filed for bankruptcy on November 2, 1981 and brought the present action to avоid the governmental liens on February 18, 1982.
I. Applicability of Section 522(f) to the United States as Creditor
Section 522(f) authorizes the avoidance of judicial liens and non-possessory non-purchase money security interests in certain property exempted under §§ 522(b) and (d). The FmHA asserts that § 522 should not apply to liens held by the govеrnment be *442 cause § 522 does not specifically divest the government’s rights, because the government cannot be an “over-reaching” creditor, who is allegedly the target of § 522(f), and because the government never waived sovereign immunity with regard to actions seeking avoidance of liens under § 522(f). We agree with the bankruptcy court that the government, as any secured party, is subject to the avoidance of liens under § 522.
The government contends that § 106 of the Bankruptcy Code, 11 U.S.C. § 106, sets forth the sole conditions for waiver of sovereign immunity in bankruptcy proceedings. Section 106(c) provides as follows:
(c) Except as provided in subsectiоns (a) and (b) of this section and notwithstanding any assertion of sovereign immunity—
(1) a provision of this title that contains “creditor”, “entity”, or “governmental unit” applies to govеrnmental units; and
(2) a determination by the court of an issue arising under such a provision binds governmental units.
Since none of the three enumerated phrases are employed in § 522, the government argues that § 106 is inapplicable and thus no sovereign immunity is waived with regard to § 522.
The Court of Appeals considered and rejected this argument in
Gardner v. Commonwealth of Pennsylvania, Department of Public Welfare,
DPW makes the ingenious but unpersuasive argument that because § 522(f) does not contain the spеcific words “creditor”, “entity”, or “governmental unit”, it cannot have been intended to apply to the states. The legislative history of section 522(f) suggests, however, thаt for purposes of lien avoidance no distinction was intended between governmental and nongovernmental entities, [cites omitted] Governmental creditors are for most purposes treated like other creditors, and there is no suggestion that the exemption provisions in section 522 are to apply to such creditors differently.
Id.
at 108. Moreover, the court cited with approval
In re Neavear,
II. Classification of Debtor as a Farmer
Section 522(f)(2)(B) allows a debtor tо avoid non-possessory, non-purchase money security interests in tools of the trade to the extent of the $750 dollar exemption for such items provided in § 522(d)(6). Specifically, the debtors seek to avoid liens on their farming tools and implements, which include a corn planter, two wagons, a hay-bine, a silo and a barn сleaner. The government contends that § 522(f)(2)(B) is not available because the debtors do not meet the definition of “farmer” set forth in § 101(17) of the Bankruptcy Code. 11 U.S.C. § 101(17). Sеction 101(17) provides:
“[F]armer” means person that received more than 80 percent of such person’s gross income during the taxable year of such pеrson immediately preceding the taxable year of such person during which the case under this title concerning such person was commenced from a fаrming *443 operation owned or operated by such person.
Both parties agree that the debtors fail to meet this test. However, the bankruptcy court found that the definition in § 101(17) was inapplicable and permitted the dеbtors to avoid the government’s lien in the farm equipment as tools of the trade.
We will affirm the bankruptcy court’s holding that the definition of “farmer” in § 101(17) is not controlling for рurposes of the “tools of the trade” avoidance provision. 11 U.S.C. § 522(f)(2)(B). The court below followed its previous opinion in
In re Yoder,
Contrary to the assertion of the government, the Court of Appeals in
Augustine v. United States,
However, in order to avoid liens attached to “tools of the trade” pursuant to § 522(f)(2)(B), a debtor must prove that he is “legitimately engaged in a trade which regularly uses the specific tools or implements being exempted,” as the bankruptcy judge has previоusly stated.
Yoder, supra,
The bankruptcy judge made no findings of fact concerning whether the instant debtors were “legitimately еngaged” in farming. Because the government appears to contend that the debtors sold all of their livestock and had permanently abandoned farming аt the time of the petition, we will remand to the bankruptcy court for further findings. If the facts establish that the debtors were legitimate farmers under the precepts rehearsed above, each debtor is entitled to avoid the FmHA liens on the farm tools and implements to the extent of $750. 11 U.S.C. §§ 522(b)(1), 522(d)(6), 522(f)(2)(B). The bankruptcy judge should then reinstate thе prior ruling. If the facts are otherwise, the “tools of the trade” lien avoidance must be disallowed. We note for the benefit of the parties that the findings of fаct of the able bankruptcy judge on remand are reversible only if “clearly erroneous.” Rule of Bankr.Proc. 8013.
A written order will follow remanding the case to the bankruptcy court for further proceedings in accordance with this opinion.