In Re Hall
MEMORANDUM OPINION
The matter before the Court in this case is the motion filed by debtors Jennifer Lynn Hall and Bradley King Hah (“Debtors”) to avoid a judicial lien held by creditors Michael and Kathlyn Sauer (“Sauers”) on the grounds that it impairs an exemption which the Debtors arе entitled to claim in their residential real property. Debtors filed this motion only after reopening their case approximately two years after receiving their discharge. Debtors contend that the Court should value the рroperty as of the date they filed their petition and suggest that if the Court does so, the judgment lien held by the Sauers is clearly avoidable as impairing their homestead exemption, applying the formula contained in 11 U.S.C. § 522(f)(2). The Sauers mаintain that circumstances have changed since that time making avoidance of the lien inappropriate and inequitable. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and § 157(a) and (b). This is a core proceeding which the Court may hear and determine pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (K) and (0). This Memorandum Opinion contains my Findings of Fact and Conclusions of Law pursuant to Rule 52 of the Federal Rules of Civil Procedure, made applicable to this matter by Rules 9014(c) and 7052 of the Federаl Rules of Bankruptcy Procedure. For all the reasons set forth below, the Court overrules the objection and sustains the motion to avoid the judgment lien held by the Sauers.
I. FACTUAL AND PROCEDURAL BACKGROUND
Debtors filed a petition for relief under Chapter 7 of the Bankruptcy Code on December 30, 2002. In their schedules, they listed their residence, ascribing to it a value of $83,000.00, and identified two liens on the property, in the aggregate amount of $77,301.56, a first lien held by Wells Fargo Home Mortgage in the scheduled amount of $72,490.68 and a second lien held by First Community Bank in the amount of $4,810.88. Debtors claimed the resulting equity of $5,698.44 as exempt on Schedule C on their Schedules of Assets and Liabilities. Before the filing of the bankruptcy petition, the Sauers obtained a judgment against Debtors in the Circuit Court of Johnson County, Missouri, in the amount of $17,038.35. Although that judgment became a lien against their residence pursuant to Missouri law, Debtors did not identify it as such, but did schedule the Sauers as unsecured creditors in the judgment amount. On May 20, 2003, this Court entered a discharge order and a final decree closing the case. No action was taken prior to the case closing to avoid the judicial lien held by the Sauers.
On May 11, 2005, Debtors filed a motion, pursuant to § 350(b) and Rule 5010, to rеopen this case for the specific purpose of filing a motion to avoid the Sauers’ lien.
II. DISCUSSION AND ANALYSIS
Section 522(f)(1) of the Bankruptcy Code provides that the debtor may avoid a judicial lien “to the extent that such lien impairs an exemption to which the debtor would have been entitled.” 11 U.S.C. § 522(f)(1). From a procedural stаndpoint, neither the Bankruptcy Code nor the Bankruptcy Rules place any time limit on the filing of a lien avoidance motion. Rule 4003(d) provides that a lien avoidance request filed by the debtor under § 522(f) must be made by motion in accordance with Rule 9014, but establishes no deadline for the filing of such a motion. However, while there is no express time limitation, such motions are subject to equitable limitations and may be denied for equitable reasons such as prejudice, lach-es, reliance, estoppel or fraud.
In re Chesnut,
At the time the Debtors filed their petition for relief, the applicable homestead exemption limitation, pursuant to Mo.Rev.Stat. § 513.475, was $8,000.00. 2 In 1994, Congress amended § 522(f) to include a formula for the courts to apply in identifying the extent to which a judgment hen impairs an exemption and is thus avoidable. Pursuant to § 522(f)(2), the lien is avoidable if the sum of: (1) the lien; (2) ah other liens on the property; and (3) the amount of the exemption that the dеbt- or could claim if there were no liens on the property; exceeds the value that the debt- or’s interest in the property would have in the absence of any liens. It is quite clear that if the Court applies the values and debt amounts drawn from the schedules and pertinent at the time of the filing of the petition, the judgment lien would be avoided in its entirety. The property had a scheduled value of $83,000.00. The sum of the lien held by the Sauers ($17,038.35), the other liens on the proрerty ($77,301.56) and the Debtors’ exemption ($8,000.00) is $102,339.91. The difference, $19,339.91, is in excess of the amount of the lien; the lien would therefore be avoided in its entirety. As the Sauers note, however, circumstances have changed. The Debtors have apparently improved the property and currently have a contract to sell it for $110,000.00. The first lien has been reduced to approximately $70,000.00. The second lien which existed on the property at the time of the filing has apрarently since been satisfied or otherwise released. A new lien exists on the property, the amount of which, according to the testimony is approximately $23,550.00. Applying the formula of § 522(f)(2) utilizing these figures yields a different result. The sum of the liеn which the Debtors seek to avoid ($17,038.35), all other hens on the property ($93,550.00) and the Debtors’ homestead exemption amount ($8,000.00) is $118,588.35. That figure exceeds the value of the property by $8,588.35, only a portion of the judgment lien amount. 3 Accordingly, the facts squarely present the legal question as of what time the Court should value the property for hen avoidance purposes.
Although the Sauers argue that the Court should value the property as of the filing of the motion, they have been unable to cite to the Court any cases adopting that approach. Those courts that have considered the question have apparently uniformly held that the appropriate time for dеtermining the value of the property subject to a hen which the Debtors seek to avoid under § 522(f) is the date on which the petition was filed.
Black-Brollier Building Materials v. Truan (In re Truan),
Two principles underlie the choice of the date of filing as the appropriate point in time at which to value the property for lien avoidance purposes. First, the filing of the petition is the focal point traditionally used for determining what property constitutes property of the estate and also for determining what property should be set aside to the debtоr as exempt and thus removed from property of the estate. It seems equally appropriate to use that date for determining the value of property claimed as exempt and the implication for certain lienholders of allowing that exemption.
Dvoroznak,
For all the reasons stаted above, the Court overrules the Sauers’ objection to Debtors’ motion to avoid their lien on the Debtors’ residential real estate.
A separate Order will be entered in accordance with Rule 9021.
Notes
. This figure represents whаt appears to be an appreciation in the value of the property since the entry of the order of discharge resulting from certain repairs or improvements. A new lien placed on the property apparently funded those improvements. The Court does not understand the Sauers to argue that the $110,000.00 figure reflects what the property was actually worth (as opposed to its scheduled value) at the time of the filing of the petition.
. The increase in the homestead exemption amount to $15,000.00 is inapplicable to this case as it was filed before the effective date of the amendment.
. The judgment lien is avoidable, at least in part, notwithstanding the fact that it has priority over the new lien on the property, applying the formula in § 522(f)(2) literally, as the Eighth Circuit has recently indicated that the court must.
In re Kolich,