Noble v. YinglingNoble v. Yingling
OPINION
The issue of first impression at the district court level presented by this appeal from the bankruptcy court is whether a debtor must file a complaint prior to discharge to avoid a judicial lien under Section 522(f) of the Bankruptcy Reform Act of 1978,
After the judgment creditors obtained state court judgments on May 7,1980 in the face amount of $2580, the debtors filed a voluntary petition in the bankruptcy court on August 14, 1980. At the time of filing the petition, debtors owned an improved piece of Delaware real estate valued by them at $40,000, encumbered by two liens reaffirmed by debtors in the amount of $30,500 prior to their December 12, 1980 discharge. In the interim, the debtors claimed as exempt property their equity in the real estate which they valued at $10,-000, i.e., $500 more than the difference between their scheduled valuation of the property and the reaffirmed liens. Since no objections to the claimed exemption were filed, this exemption became a reality on October 24, 1980.
The position adopted by the Delaware Bankruptcy Court that an adversary proceeding to avoid a judicial lien pursuant to
Some courts have granted the debtor relief after discharge in the absence of prejudice or equitable considerations dictating otherwise.
See, e.g., Leeman,
Finally, four courts, like the Delaware Bankruptcy Court, have established the date of discharge as the deadline for filing
The cases cited above reflect the deep division within the bankruptcy courts. However, all these courts agree that the Bankruptcy Code, Interim Rules, and Rules of Bankruptcy Procedure do not contain any time limitation within which a complaint to invalidate a judicial lien under
Specifically, the Delaware Bankruptcy Court noted that the Bankruptcy Code and Rules of Bankruptcy Procedure impose time limitations on creditors objecting to discharge or dischargeability of debt.
The relationship between discharge, dischargeability of debt and reaffirmation on the one hand and
The lower court noted that imposition of a time limitation on initiation of
In reality, the concern is not so much one of finality as it is a perceived inequity in the lack of symmetry in the Bankruptcy Code. The Delaware Bankruptcy Court reflects this concern by quoting with approval the following language from
In re Adkins,
* * * there must be some finality to a bankruptcy proceeding. It is not proper for a debtor to sit back and do nothing in protecting his rights, wait for the creditor to take some action and then decide what he wants to do.
If the debtor has not made a timely claim of exemption or timely filed a complaint to avoid a lien, then he should be barred from doing so. If a creditor must timely act to protect his rights, there is no reason not to demand the same of a debtor, particularly when the rights asserted are for the debtor’s benefit.
Doc. 2, No. 7, p. 5.
The lower court’s judicially created time limitation on
In general, matters left to the rules concern ... setting time limits....
The following table lists matters that will be dealt with by the Rules of Bankruptcy Procedure or by local rules of court: (94) Procedure for debtor to avoid a judicial lien on exempt property.
H.R.Rep. No. 595, 95th Cong., 1st Sess. 293, 297 (1977),
reprinted in
U.S.Code Cong. & Ad.News [1978], 5787, 6250, 6254. 'From the language quoted above it is beyond dispute that Congress intended that any time limit would be imposed by the Rules of Bank
Holding that the court below committed an error of law in the procedural context of a grant of judgment on the pleadings does not mean the debtors should necessarily prevail on remand. While not required to do so, the debtors had the power to initiate a lien avoidance complaint prior to discharge. The longer a debtor delays-in exercising his rights under the Code, the more vulnerable he becomes to laches being invoked. A debtor’s delay of excessive duration may cause such prejudice to the creditor as to make allowance of the lien avoidance complaint inequitable.
Usually, after discharge, the automatic stay is lifted pursuant to section 362(c)(2). 5 Then the creditor is free to rely on the debtor’s inaction and, absent other circumstances, execute on the lien. A creditor’s incurrence of attorney’s fees and court costs may be considered as a factor in his detrimental reliance on the debtor’s failure to act. The Bankruptcy court should consider all the equities involved on a case by case basis.
Bankruptcy courts have seemingly begun this process with widely varying results. They have sharply divided on whether initiation of state court execution process on the property subject to the lien is, in and of itself, a sufficient equitable ground to bar a
In addition, there is an emerging division as to who bears the burden of proof and what that burden is.
Cf., In re Coomes,
Given the emerging development of the law and the undeveloped record below, the matter must be remanded. On remand, depending upon the factual matrix presented, the bankruptcy judge may wish to give consideration to the following as a nonex-haustive list of equitable factors: 1) vigor with which the judgment creditors pursued the debtors prior to the filing of the bankruptcy petition, 2) communication of positions by and between debtors and judgment creditors after filing of the petition and prior to discharge, 3) motivating cause of failure to file lien avoidance complaint prior to discharge, 4) length of time between discharge and filing of lien avoidance complaint, 5) reason for the delay in filing of lien avoidance complaint, 6) prejudice to the judgment creditors, and 7) good faith, or lack thereof, of the creditors.
An order reversing judgment on the pleadings and directing remand will be entered.
Notes
. The debtors attempt to assert a second issue, viz., a procedural deficiency in that defendants’ answer to the complaint did not raise the issue of timeliness. The matter is further complicated because defendants inexplicably failed to file a brief in the bankruptcy court. As a consequence, the bankruptcy judge had no choice but to determine the matter on the plaintiffs’ opening letter memorandum. Plaintiffs anticipated and addressed the timeliness issue. Doc. 2, No. 6. Accordingly, the procedural issue need not further detain one.
.
(f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—
(1) a judicial lien; .. .
. An example of a Local Bankruptcy Rule is Local Rule 21 of the Western District of Kentucky which provides that an action to avoid a
.
.
(c) Except as provided in subsections (d), (e), and (f) of this section—
(2) the stay of any other act under subsection (a) of this section continues until the earliest of—
(A) the time the case is closed;
(B) the time the case is dismissed; and
(C) if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, 11, or 13 of this title, the time a discharge is granted or denied.