Case Information
UNITED STATES BANKRUPTCY COURT DISTRICT OF IDAHO ______________________________________________________ Re KASSIE ASHCRAFT, Bankruptcy Case No.
Debtor. ______________________________________________________ MEMORANDUM OF DECISION ______________________________________________________ Appearances:
Jay A. Kohler, Falls, Idaho, Attorney for Debtor. Stephen J. Blaser, Blackfoot, Idaho, Attorney Creditor Beneficial Idaho, Inc.
R. Sam Hopkins, Pocatello, Idaho, Chapter Trustee. Introduction
Kassie Ashcraft has filed Motion Avoid Lien on Exempt Property, Docket No. 19, directed Beneficial Idaho, Inc. (“Creditor”), turn responded, Docket No. Court conducted hearing motion October 2008, thereafter took issues advisement. has now considered the submissions parties, arguments counsel, as well as the applicable law and legal authorities. This Memorandum constitutes the Court’s findings fact and conclusions law. Fed. R. Bankr. P. 7052; 9014.
Procedural History 1998, Debtor and her then husband, Ronald Ashcraft (“Ashcraft”), built a home on approximately four acres in Bingham County, Idaho. Thereafter, and without knowledge, Ashcraft obtained loan from Creditor, and later defaulted. Creditor then sued Ashcraft and obtained judgment against him, only, $14,936.36. recorded judgment May 25, 2007.
Debtor Ashcraft divorced November 21, 2007. accordance with decree, Ashcraft executed quitclaim deed conveying the Bingham County her sole separate The deed recorded a few days later.
On June 2008, Debtor filed chapter bankruptcy relief. her schedules, she listed Bingham County her and claimed exempt. No objections to her claim of exemption were filed.
Analysis Disposition moves to avoid judgment lien under § 522(f), which provides pertinent part:
Notwithstanding any waiver exemptions but subject paragraph (3), debtor may avoid fixing a lien an debtor in extent such lien impairs an exemption which debtor would have been entitled subsection (b) section, if such lien –
(A) a lien . . . U.S.C. § 522(f)(1). Ninth Circuit has that, “under 522(f)(1), a debtor may if three conditions are met: (1) there a on debtor property; (2) such impairs an exemption would have been entitled; (3) such judicial lien.” Culver, LLC v. Chiu (In re Chiu) , 304 F.3d 905, 908 (9th Cir. 2002) (quoting Catli v. Catli (In re Catli) , 999 F.2d 1405, 1406 (9th Cir. 1993)).
A. Property Interest at Time Lien Fixed deciding motion 522(f)(1), bankruptcy courts must often first focus whether property time fixed: operation Section 522(f) is to a
“lien”, per se although practical effect most cases. Rather, by its terms, Section 522(f) provides avoidance “fixing” of certain liens. To “fix” means “fasten liability upon.” Thus, Section 522(f) operates retrospectively annul event fastening subject upon interest.
Accordingly, fundamental question of ownership whether encumbered subject “property debtor” at time upon such property. Chiu F.3d (citing Vincent B.R. ‐
(Bankr. D. Conn. 2000) (emphasis original). each rely upon case law support their
positions. cites The Law Offices Moore & Moore v. Stoneking (In re Stoneking) , B.R. (9th Cir. BAP 1998) argues that avoidance of lien appropriate under the circumstances. relies Farrey v. Sanderfoot U.S. (1991) In Mingo B.R. (Bankr. D. 1995), opposition to the motion. Farrey Mingo Farrey the U.S. Supreme addressed the status lien
created decree. dissolving the marriage, the state court had awarded the marital to the husband, requiring he pay a sum money to wife to balance the division the marital assets. To secure husband’s obligation to pay wife, court imposed lien upon homestead. Shortly after divorce, now ex ‐ husband filed a bankruptcy petition sought avoid securing indebtedness his now ex wife. court reasoned “unless had property attached some point before attached interest, he or she cannot terms
of § 522(f)(1).” Farrey U.S. at (emphasis in original). The court stated that “the critical inquiry remains whether the debtor ever possessed the interest to the lien fixed, before it fixed. If he or she did not, § 522(f)(1) does not permit the debtor to avoid the fixing of the on that interest.” Id . at 299.
Ultimately, the court viewed the impact the entry of the decree three ‐ fold: first, it extinguished pre ‐ existing undivided one ‐ half interests in homestead both husband wife during their marriage; second, it created a new, fee simple interest homestead in favor ex ‐ husband; third, decree created imposed favor ex ‐ wife homestead. Id. ‐ 300. Under paradigm, court concluded ex ‐ husband never possessed fee simple prior to fixing ex wife’s lien, thus he could utilize § 522(f)(1) to avoid lien. Id court stated, “[w]e hold 522(f)(1) Bankruptcy Code requires have possessed which attached, before attached, that interest.” Id .
Post ‐ Farrey , this Court decided In re Mingo. In that case, two creditors held liens against Mingos’ community homestead prior their divorce. The awarded in the decree, he filed his bankruptcy petition shortly thereafter, and he sought creditors’ liens. This Court noted had previously held that when divorce decree transfers community property one party his or her separate property, community property interest is thereby extinguished new property created. re Mingo , 189 B.R. 515 ‐ 16 (citing re Hunt 94 I.B.C.R. 62, 65 ‐ 66 (Bankr. D. 1994)). Applying Hunt because Mingos’ rights were extinguished with decree, because new ownership right created favor debtor, then “owned no in this property before liens attached, and therefore, fixing these liens may not avoided under § 522(f)(1).” In re Mingo B.R. 516.
Under rationale expressed in In re Mingo Creditor contends that Debtor may avoid its on Bingham County It points out that Ashcraft’s attached property when it by parties property, that community extinguished by divorce decree, substituting, instead, new right favor Debtor, that fee simple ownership. Thus, insists, cannot utilize 522(f)(1) lien. In re Stoneking Debtor, other hand, contends more recent case In re Stoneking casts new light Farrey’s reach influence, compels a different result than reached Mingo Stoneking attorney wife action obtained order determined fees she incurred for representation during the proceedings were community obligation payable from community The court ordered a favor the attorney against the community property, while still property, before was awarded husband the decree. The attorney recorded the before husband filed bankruptcy.
During course bankruptcy proceedings, debtor moved avoid attorney’s lien. The attorney opposed motion arguing that, under Farrey acquired his after lien, therefore could avoid it. bankruptcy court instead concluded Farrey inapplicable circumstances granted debtor’s motion lien. On appeal, BAP affirmed, noting facts case were distinguishable from those : argument, however, fails to acknowledge critical distinction between this case Farrey case. Here, unlike Farrey and its progeny, lien attached community property; Debtor held this community property before lien attached. other cases, lien attached to newly ‐ created property interests debtors did not hold those interests before of lien. As a result material distinction, can avoid lien under “critical inquiry” Farrey [quoted above] . Stoneking B.R. BAP explained why these factual differences compel an
outcome different than that reached Farrey :
While a debtor may not avoid a lien that attached before he held any property, does not necessarily follow debtor cannot avoid merely because his interests were augmented after attachment lien. If a debtor could have avoided such on ‐ real pursuant section 522(f)(1) before acquiring sole ownership property, should not lose right same after acquiring sole ownership. . . Applying such circumstances preclude avoidance a third party “is inconsistent with [section 522(f)’s] main purpose, fair, contrary common sense.” re Ulmer , B.R. 523, (Bankr. E.D.N.C. 1997). Instead, Farrey’s focus on time of lien attachment should sufficient prevent efforts judgment lien created part parcel of creation it encumbers.
Id . at (emphasis in original).
3. Application Case Authority
BAP in Stoneking noted three significant distinctions between facts therein, those found in Farrey :
Unlike Farrey this case explicitly encumbered community property of Debtor Former Spouse. Further, unlike Farrey creation Creditor’s . . . event separate from – simultaneous with – transformation community property into separate property . . . . Moreover, unlike Farrey when created, still in Residence. Id . All three these factual distinctions are likewise presented in case. First, Creditor’s predates parties’ and affixed to their community property while Debtor Ashcraft were married.
Whether Debtor possessed homestead property prior is answered reference to state law. U.S. 299; Catli , 999 F.2d 1408; Barnes , 198 B.R. 779, (9th Cir. BAP 1996). There appears no factual dispute about issue. During oral argument, counsel Debtor stipulated existence certain facts, counsel read into record. One those stipulated facts was Ashcraft had acquired homestead property Bingham County 1998, built home it while they were married. Idaho, there “presumption all property acquired after marriage property.” Reed v. Reed 44 P.3d (Idaho 2002) (citing Barton v. Barton P.2d 746, (Idaho 1999); Code Thus, acquired during their marriage, indeed parties’ community when obtained recorded its judgment against
In Idaho, both husband and wife have equal, vested rights their community property. In re Hunt , 94 I.B.C.R. 65 (Bankr. D. Idaho 1994) (citing Hansen v. Blevins, 367 P.2d 758 (Idaho 1962); Compton v. Compton , P.2d (Idaho 1980)). They both have equal right possess and control their community In re Hunt I.B.C.R. at 65; Code 912. similar vein, husband wife each has “power to encumber more than their own half of community,” See Compton P.2d at 1182. Thus, “debts one partner encumber community property interests both partners.” Hunt I.B.C.R. Simply put, while Ashcraft incurred debt, Creditor’s judgment attached both Ashcraft’s interests Bingham County time was recorded. second distinction noted BAP facts and Stoneking also present here: creation did not
occur simultaneously with entry decree. Rather, that created attached about six months prior entry decree, wholly unconnected with divorce.
Third finally, unlike Farrey , when granted its judgment, recorded its lien, still a community homestead.
Based upon these critical facts, Court concludes Farrey does not control, In re Stoneking represents better reasoned view applicable law. [5] Other courts have reached similar conclusion. See e.g., In re Pederson, 230 B.R. 158 (9th Cir. BAP 1999) (a judgment that attached simultaneously with debtor’s acquisition may not be avoided; decision followed Farrey stated “consistent” with In re Stoneking ); In re Perez 391 B.R. 190 (Bankr. S.D. Fla. 2008) ( Farrey distinguishable previously recorded judgment issue); In re Mariano B.R. (Bankr. D. Mass. 2004) (“ Farrey does not stand proposition lien, once “affixed” may not avoided”).
This first occasion Court has distinguished Vierra I.B.C.R. (Bankr. D. 1993), debtor his wife executed a settlement agreement during the pendency their which provided, inter alia the debtor would assume loan made to parties by the wife’s parents to purchase the homestead, but was not secured by property. Id . While state court’s decree adopted agreement, it did not provide agreement to repay wife’s parents would secured by homestead. As result, when first obtained title to homestead, was not subject lien favor wife’s parents, thus any subsequent not protected under Id . 130.
This same analysis applies here. Both Ashcraft had a interest when Creditor’s first affixed While Debtor’s later augmented decree, such does change analysis. Because affixed prior parties’ divorce, first element required avoidance 522(f)(1) met.
B. Impairment The second element to consider § 522(f)(1) whether Creditor’s impairs an exemption to would have been entitled. Code provides formula that, when applied, dictates whether impairs an exemption. § 522(f)(2)(A). Pursuant to the statutory formula, the instructed to total Creditor’s lien, well as any other liens on property, plus amount homestead exemption, compare sum with value Debtor’s residence in order determine extent to which, if any, impairs exemption. Cal. Cent. Trust Bankcorp v. Been (In re Been) F.3d n. (9th Cir. 1998); Taylor 03.2 I.B.C.R. 132, (Bankr. D. 2003). Schedule A, valued homestead at $94,000, listed amount due on consensual secured claims $120,386.53. Docket No. However, Debtor’s motion represents that secured claim balance is $104,386.53, Docket No. hearing, her counsel stated encumbered $104,000 consensual liens. Creditor, on other hand, provided no information Court concerning value property, or amount due on consensual liens Debtor’s homestead property. Therefore, while precise amount due uncertain, there does appear any dispute amount owed consensual secured claims exceeds value homestead As result, concludes lien impairs exemption, second element met.
C. Judicial Lien Under 522(f)(2)(A), final element avoidance requires that lien in question be “a judicial lien, other than a judicial lien secures a debt kind is specified in section 523(a)(5) . . .” A “judicial lien” means a lien “obtained judgment, levy, sequestration, or other legal or equitable process or proceeding.” § 101(36).
There no dispute concerning this element. The debt owed by Ashcraft for loan, a support obligation type described § 523(a)(5). When Ashcraft defaulted loan, Creditor sued him obtained money judgment against him, recorded. recording judgment county real records created Bingham County Code § Therefore, Creditor’s lien.
Conclusion All elements required avoidance Creditor’s under 522(f)(1) are met facts presented case. Accordingly, concludes motion should granted, that against Bingham County should be avoided. A separate order will entered.
Dated: November
Honorable Jim D. Pappas
United States Bankruptcy Judge
[1] Unless otherwise indicated, all chapter section references are Bankruptcy Code, U.S.C. §§ – all rule references are Federal Rules Bankruptcy Procedure, Rules –
[2] analytical shortcomings Farrey’s approach, making timing critical inquiry, have been highlighted bankruptcy treatises. See Weeks v. Pederson (In Pederson) B.R. ‐ 62 (9th Cir. BAP 1999) (citing 4 L. King, Collier Bankruptcy, ¶ 522.11[4] (15 th ed. Rev. 1998) (noting “the time debtor’s relevant . . .”), Epstein, Nickels, White, Bankruptcy (1992)).
[3] California, motion obtain such order securing counsel’s fee claim called “Borson” motion. See Marriage Borson Cal. Rptr. (Ct. App. Cal. 1974).
[4] Indeed, Stoneking panel noted believed U.S. Supreme specifically limited its holding liens created simultaneously with creation “new” interests. Id n. 3.
[5] acknowledges its holding here may cast doubt continued viability Mingo .
[6] 522(f)(2)(A) provides: For purposes subsection, shall be considered impair exemption extent that sum – (i) lien; (ii) all other liens property; (iii) amount exemption the could claim if there were no liens property; exceeds value debtor’s would have absence any liens.
[7] Of course, Court’s decision does impact right enforce its judgment against Ashcraft or his assets; merely avoids judgment against fee simple Bingham County property.