82-260 | Mont. | Jan 6, 1983
No. 82-260
IN THE SUPREME COURT OF THE STATE OF MONTANA 1982 DAVID REICHERT and IRENE REICHERT, individually and d/b/a THE ECHO INN,
Plaintiff and Appellant., RAWLEY C. KOCH, d/b/a SPEAR MEAT CO., Defendant and Respondent. Appeal from: District Court of the Thirteenth Judicial District, In and for the County of Yellowstone Honorable William J. Speare, Judge presiding.
Counsel of Record: For Appellant: Elmer J. Dolve argued, Billings, Montana For Respondent: Harold F. Hanser, County Attorney, Billings, Montana Paul M. Warren argued, Billings, Montana Frank D. Meglen, Assistant U.S. Attorney, Billings,
Montana Laura A. Mitchell, Billings, Montana Bawd-F, H a n s e ~ B u n L y I l t t o m e y ~ + 1 4 - i - g s 7 -Montana Sidney R. Thomas, Billings, Montana
Submitted: November 10, 1982 Decided: January 6, 1983 G IS','] J Filed: M r . J u s t i c e F r e d J . Weber d e l i v e r e d t h e O p i n i o n of t h e C o u r t . Appeal i s t a k e n from a n o r d e r o f t h e D i s t r i c t C o u r t of t h e T h i r t e e n t h J u d i c i a l D i s t r i c t , Y e l l o w s t o n e County, a l l o w - i n g e x e c u t i o n a g a i n s t homestead p r o p e r t y o f b a n k r u p t p a r t i e s . W e a f f i r m t h e o r d e r of t h e D i s t r i c t C o u r t .
On September 1 6 , 1980, r e s p o n d e n t Rawley Koch o b t a i n e d and d o c k e t e d i n Yellows t o n e County a f i n a l judgment a g a i n s t t h e a p p e l l a n t s , David and I r e n e R e i c h e r t , husband and w i f e . The judgment was i n t h e amount o f $26,163.54. On May 1 3 , 1981, a p p e l l a n t s f i l e d i n Y e l l o w s t o n e County a j o i n t d e c l a r a - t i o n o f homestead c o v e r i n g t h e i r r e s i d e n c e a t 532 M i l t o n Lane, B i l l i n g s . On August 6 , 1981, a p p e l l a n t s f i l e d a j o i n t C h a p t e r 7 b a n k r u p t c y p e t i t i o n i n t h e B i l l i n g s D i v i s i o n o f t h e U n i t e d S t a t e s Bankruptcy C o u r t . On December 1 4 , 1981, a p p e l l a n t s o b t a i n e d a p e r s o n a l d i s c h a r g e from t h e Bankruptcy C o u r t . On J a n u a r y 7 , 1982, r e s p o n d e n t Koch s o u g h t and had i s s u e d a w r i t o f e x e c u t i o n and n o t i c e o f s a l e and l e v y upon t h e a p p e l l a n t s 1 r e s i d e n c e a t 532 M i l t o n Lane. A s h e r i f f ' s s a l e was s e t f o r F e b r u a r y 3 , 1982. On J a n u a r y 11, 1982, a p p e l l a n t s f i l e d s u i t a g a i n s t r e s p o n d e n t i n t h e T h i r t e e n t h J u d i c i a l D i s t r i c t . The s u i t a l l e g e d t h a t r e s p o n d e n t 1 s judgment had been v o i d e d by t h e d i s c h a r g e i n b a n k r u p t c y , and s o u g h t damages f o r " w r o n g f u l and m a l i c i o u s e x e c u t i o n . " A l s o on J a n u a r y 11, 1982, a p p e l l a n t s f i l e d a n a c t i o n s e e k i n g a n i n j u n c t i o n a g a i n s t t h e s h e r i f f t o p r e v e n t t h e s a l e of t h e i r r e s i d e n c e . The s h e r i f f ' s s a l e was c a n c e l l e d and t h e s u i t s were c o n s o l i d a t e d .
On J a n u a r y 28, 1982, r e s p o n d e n t moved t o d i s m i s s and s o u g h t a d e c l a r a t o r y judgment e s t a b l i s h i n g t h e v a l i d i t y o f h i s l i e n and t h e p r i o r i t y and s t a t u s o f t h e i n t e r e s t s o f h i m s e l f , t h e R e i c h e r t s , t h e I . R . S . , Y e l l o w s t o n e County, S e c u r i t y Bank, and t h e b a n k r u p t c y t r u s t e e . Numerous m o t i o n s to dismiss were filed and a hearing on them had on March 29, 1982. On May 19, 1982, the District Court issued an order which: (1) dismissed appellants' suit for malicious execu- tion, (2) dismissed appellants' suit against the sheriff and dissolved the preliminary injunction, (3) dismissed respon- dent's complaint for declaratory judgment, (4) acknowledged the existence of appellants' Montana homestead exemption, and (5) ordered respondent to proceed with enforcement of his lien after he had complied with section 70-32-203, MCA.
Reicherts appealed, and raise the following issues: 1. Does a discharge in bankruptcy void a pre-existing
judgment lien against the debtors? 2. If a judgment lien survives the debtors' discharge in bankruptcy, is section 70-32-203, MCA, the proper procedure for enforcement?
3. Was it error for the District Court to dismiss appellants' complaint which alleged "wrongful and malicious execution?"
Appellants rely in large part upon the language of 11 U.S.C. 5524 to support their position that the judgment lien is void. That section provides in part that a discharge in bankruptcy:
" (1) voids any judgment at any time obtained, to the extent that such judgment is a determin- ation of the personal liability of the debtor with respect to any debt discharged under section 727, 944, 1141, or 1328 of this title, whether or not discharge of such debt is waived; " (2) operates as an injunction against the commencement or continuation of an action, the employment of process, or any act, to collect, recover or offset any such debt as a personal liability of the debtor, or from property of the debtor, whether or not dis- charge of such debt is waived . . ."
It appears that, on its face, S524 would preclude a post-
discharge execution on a judgment lien. However, examination of other sections of the Bankruptcy Reform Act of 1978 leads
us to a contrary conclusion. Although S524 provides that discharge voids judgments to the extent that they are determinations of the personal liability of debtors, it is silent on the question of the effect of discharge upon liens which arose out of those judgments. The question of the survivability of a judgment lien was discussed in - - In re Sillani (S.D.Fla. 1981), 9 Bankr. 188,189:
"It is the debtor's position that be- cause the judgment lien secured a personal liability . . . the enforcement of that lien is discharged by the provisions of §524(a) (1) . . .
"This is a common source of confusion.
The quoted provision merely voids judg- ments to the extent they are unsecured. The judgment creditor cannot seek any recovery on his judgment other than that obtainable against his security. Liens pass through the bankruptcy case unaffect- ed unless a party in interest requests the court to determine and allow or disallow the claims secured by the lien under 5502 and the claim is not allowed. §506(d); Collier on Bankruptcy (15th ed.) 11506.03 at pages506-6 and 12."
If Koch had not docketed his judgment in Yellowstone County in accordance with section 25-9-301, MCA, appellants' position would be persuasive. However, the docketing of the judgment created a judicial lien against the Reicherts' real property in Yellowstone County. That real property was also the property which the Reicherts subsequently claimed as their homestead. A homestead is exempt property. Bank- ruptcy disposition of judicial liens upon exempt property is governed by 11 U.S.C. 5522.
Section 522(f) provides in part that "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 . . . if such lien is - 1 ) a judicial lien." That avoidance is not automatic. In order to avoid a lien, the debtor must affirm- atively seek the Bankruptcy Court's review. - - In re Burkholder
(E.D.Pa. 1981) 11 Bankr. 346, 348, - - In re Adkins (s.~.Cal. 1980), 7 Bankr. 325, 326. This conclusion is in keeping with the treatment of non-judicial liens provided for in 11 U.S.C. §506(d): "To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless --(I) a party in interest has not requested that the court determine and allow or disallow such claim under section 502 of this title."
"Subsection (d) permits liens to pass through the bankruptcy case unaffected. However, if a party in interest requests the court to determine and allow or disallow the claim secured by the lien under section 502 and the claim is not allowed, then the lien is void to the extent that the claim is not allowed." H.R. Rep. No. 595, 95th Cong., 1st Sess. 357 (1977).
Only personal liability is discharged; liens not avoided by the bankruptcy code may be enforced notwithstanding dis- charge of the debtor. 3 Collier - on Bankruptcy li524.01 (15th ed. 1979).
"A discharge order does not discharge valid liens. It accomplishes three things. First, it releases a debtor from all debts that arose before the date of the order for relief (the same date as the filing date of a voluntary Chapter 7 petition) except those debts which are nondischargeable by virtue of 8523, 11 U.S.C. 8727(b). Second, it voids any judgment obtained at any time with respect to any debt discharged to the extent that the judgment is a determination of the personal liability of the debtor and, third, it operates as an injunction against any act to collect any discharged debt as a personal liability of the debtor or from property acquired by the debtor after the commencement of his bankruptcy case. 11 U.S.C. 8524 (emphasis supplied). A creditor is not prevented by this injunction from enforcing a valid lien on property of the debtor existing at the time of the entry of the order for relief. Property exempted from the estate is not considered as prop- erty acquired after the entry of the order for relief. Section 522 (c) (2) of Title 11 adopted the long-standing rule of Long v. Bullard, 117 U.S. 617 (1886) that the security of a creditor is preserved des~ite debtor's claim of exemptions." 1; ;e Andrews (D.De1. 1982), 9 Bankr. Ct. - - Dee. (CRR) 589,590.
The Reicherts did not seek avoidance of Koch's judicial lien in Bankruptcy Court. We hold that the lien survived the Reicherts' discharge in bankruptcy.
Appellants next contend that there is no procedure for enforcement of a judgment lien against homestead property. This contention is without merit. The procedure for execution on a judgment lien upon homestead property is clearly set forth at section 70-32-203, et seq., MCA.
Finally, we hold that respondent's attempted execution was soundly based upon the applicable law and was not an abuse of process.
The order of the District Court is affirmed. We concur: 7% ".* $.@ &A- Chief >ustice /--\ /* Hon. J61b n S. Henson Judge, sitting in place ustice John C. Sheehy