*449 OPINION
I
We are asked whether 11 U.S.C. § 522(f)(1) may be employed to avoid the unsecured portion of a judicial lien. We AFFIRM in part and REVERSE in part.
II
FACTS
Nash and Wendy Galvan (“Debtors”) filed a joint petition under Chapter 13 of the Bankruptcy Code. The residence in which they held title at the time had a fair market value of $94,500 and was encumbered by an $82,207 senior trust deed and a $32,182 judicial lien, the latter having been fixed upon the property by Nash Galvan’s parents (“Parents”). The Debtors sought to remove the judicial lien. They filed a motion to have it avoided pursuant to Section 522(f)(1), urging that it impaired a $45,000 state homestead exemption to which they were entitled. The trial court permitted the lien to be avoided to the extent of $12,293 — an amount equal to the value of the residence less the trust deed— and classified the remainder of the lien as a secured claim to be paid in full under the Debtors’ Chapter 13 plan.
III
DISCUSSION
The Debtors challenge the order of the trial court to the extent that it categorizes the Parents’ judicial lien as a secured claim. They urge that the entire lien is avoidable under Section 522(f)(1), and, if not, that it is otherwise unsecured under Section 506.
The property of the bankruptcy estate includes, among other things, all the legal and equitable interests of the debtor as of the commencement of the bankruptcy case. 11 U.S.C. § 541(a)(1);
United States v. Whiting Pools, Inc.,
The requirement that the debtor possess equity in the property sought to be exempted ordinarily precludes the debtor from claiming exemptions in property which is fully encumbered at the petition date. Section 522(f)(1) eases this restriction by permitting the debtor to
create
equity in limited circumstances and then use the equity created to claim exemptions that would have otherwise been unavailable.
In re Simonson,
Section 522(f)(1) provides that the debtor may avoid the fixing of a judicial lien on an interest of the debtor in property to the extent that the lien impairs an exemption to which the debtor would otherwise have been entitled.
In re Commercial Western Finance Corp.,
A. The Determination of the Available Exemption
The first step in establishing whether a particular judicial lien is avoidable under Section 522(f)(1) is to determine whether the debtor would have been entitled to claim an exemption in the absence of the lien. H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 362 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 76 (1978). Because exemptions are available only to the extent that the debtor possesses equity in the property sought to be exempted, the fact finder must calculate the extent to which the debtor would possess such equity in the absence of the judicial lien at issue.
Equity in this sense is found by deducting the security interests in the property sought to be exempted — exclusive of the judicial lien at issue and the unsecured interests, if any, which are junior in priority to the judicial lien — from the value of such property'. The exemption available for use by the debtor in terms of Section 522(f)(1), what we will refer to as the debt- or’s available exemption, is equal to the lesser of (1) the equity of the debtor in the property sought to be exempted or (2) the maximum value of the exemption claimed.
B. The Determination of Impairment
The second step in establishing whether a particular judicial lien is avoidable under Section 522(f)(1) is to determine the extent to which the available exemption is impaired by the judicial lien. This requires the fact finder to subtract the allowed amount of the judicial lien from the equity determined to exist in the preceding paragraph. If after subtracting the lien from such equity there remains a property interest which is greater in value than the available exemption, no impairment exists. If the deduction leaves equity which is less than the available exemption, impairment arises to the extent of the deficiency. If no equity remains, impairment of the available exemption is complete.
The extent to which the judicial lien is determined to impair the available exemption is the extent to which the judicial lien is avoidable. Section 522(i)(l) provides that the debtor may recover the avoided transfer in the manner prescribed by and subject to the limitations of Section 550 and further that the debtor may exempt that property so recovered under Section 522(b). 11 U.S.C. §§ 101(50), 522(i), 550. The debtor may thus recover the avoided portion of the judicial lien, or the value thereof, for the benefit of the estate and then to exclude such value from the estate by claiming an exemption.
We find the trial court’s application of Section 522(f)(1) to be sound as far as it went. The court deducted the $82,207 senior consensual lien from the Debtors’ $94,500 residence and thereby determined that the Debtors had equity of $12,293 in the absence of the Parents’ judicial lien. Because their $45,000 claimed exemption exceeded this equity, the court established that they had an available exemption, in terms of Section 522(f)(1), in the like amount of $12,293.
The trial court then proceeded to deduct the $32,182 judicial lien from the equity of $12,293. Because no equity remained, the judicial lien was held to be avoidable to the extent of $12,293, an amount which was then preserved for the benefit of the bankruptcy estate. We find that this portion of the trial court’s order was a correct interpretation of Section 522(f)(1).
See In re Baxter, supra,
However, the trial court further ruled that the remainder of the “lien” was unaffected. It is this refusal to avoid the remaining $19,889 of the judicial lien, which it treated as a “secured claim to be paid in full through the plan,” that troubles the Panel.
The trial court’s decision is admittedly in accord with a number of decisions which decline to allow a debtor to avoid that portion of a judicial lien which was unsecured at the date of the petition.
See In re Simonson, supra,
We view decisions confining the use of Section 522(f) to avoidance of the collateral-ized portion of judicial liens only, as taking an unnecessarily restrictive view of the powers vested in Section 522(f)(1). While we applaud efforts to define properly the various avoidance roles of Sections 506(d) and 522(f), we do not read these sections as mutually exclusive. Instead, we read Section 522(f) to ascertain the congressional intent and give effect to the legislative will by implementing its objective and policy.
See Philbrook v. Glodgett,
To implement Congressional will to provide a fresh start, it is essential that the avoidance powers provided in Section 522(f) not be unduly restricted. We view cases such as
In re West, supra,
A prospective buyer, upon discovering the existence of such liens and realizing that the judgment debtor cannot transfer his homestead rights, will pay the debtor a lesser sum for his homesteaded property, in proportion to the amount of the attached liens. In this way, the mere attachment of the lien may effectively preclude the judgment debtor from obtaining the full potential value of his homestead.
Our holding is in accord with such cases as
In re Rehbein,
Where the value of the unavoidable liens and the total amount of the Debtor’s claimed exemptions exceeds the value of a bankrupt’s property, judicial liens may be avoided to their full extent, because any payment toward such liens would impair the Debtor’s exemptions (Emphasis added).
In reaching this decision the Panel notes the more complex scenario presented in such cases as
In re Chabot, supra,
In summary, we hold that Section 522(f)(1) can be used to avoid the secured portion of any judicial lien to the extent that the security could otherwise be claimed as exempt property and that the unsecured portion of any judicial lien is likewise avoided in its entirety as it also impairs homestead rights. This approach forwards Congressional intent by providing debtors with the value attributed to their homestead exemptions and post-petition appreciation gained from the debtors’ property. To the extent that cases such as
In re Chabot, supra,
IV
CONCLUSION
Section 522(f)(1) was available to avoid the entirety of the Parents’ judicial lien. Therefore, the trial court’s order is AFFIRMED as to the avoidance of the secured portion of the judicial lien and REVERSED as to the failure to avoid the remainder of the judicial lien.
Notes
. We recognize that in this case the mechanical application of Section 522(f) is rather straightforward as the judicial lien is the junior encumbrance on the property. Other cases can be more involved and will require more intense consideration.
See In re Duncan,