The question presented is whether 11 U.S.C. § 522(f) permits a debtor to avoid a judicial lien if the lien existed at the filing of the bankruptcy petition but was satisfied after the bankruptcy case closed and before the debtor filed a motion to avoid. The Bankruptcy Court and the Bankruptcy Appellate Panel below concluded that it does not. We disagree and will remand the matter to permit the Bankruptcy Court to address any equitable defenses that might be available to the creditor under these circumstances.
I.
The bare bones 1 factual background is as follows:
In the course of refinancing the mortgage on his residence nearly two years later in 2004, Wilding found it necessary to address CitiFinancial’s lien.
2
As a matter of law, the lien remained in place because “[ajlthough the unsecured portion of a secured creditor’s claim may be discharged in a Chapter 7 ... case, its lien in the collateral normally survives the bankruptcy proceeding and the discharge, and is enforceable in accordance with state law.”
In re Pratt,
The Bankruptcy Court granted the motion to reopen on January 5, 2005. On January 6, 2005, Wilding filed a motion to avoid the lien. In opposition, CitiFinancial, which had not opposed the motion to reopen, argued that the lien could not be avoided because it had been satisfied. Both the Bankruptcy Court and the Bankruptcy Appellate Panel concluded that since the lien was no longer in effect, there was no longer a lien which could be avoided. The Bankruptcy Court stated, “[qjuite simply, there are no rights or justiciable property interests before the Court, and it is clearly too late to raise any.” The Bankruptcy Appellate Panel held that “because the lien was fully satisfied, it was no longer fixed on property of the Debtor at the time he filed his Motion to Avoid the Lien. Accordingly, it was too late to employ the benefits of § 522(f) of the Code.”
In re Wilding,
II.
We think the Bankruptcy Court and the Bankruptcy Appellate Panel, by essentially embracing a
per se
rule, took too narrow a view of the powers of lien avoidance under 11 U.S.C. § 522(f). Because this is a question of law, we review the Bankruptcy Court’s determination
de novo. See In re Lazarus,
No. 06-1982,
Section § 522(f)(1) states, in relevant part:
[T]he 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 ...
11 U.S.C. § 522(f)(1). Thus, under the statute, a debtor may avoid the fixing of a lien if three requirements are met: (1) there was a fixing of a lien on an interest of the debtor in property; (2) the lien impairs an exemption to which the debtor would have been entitled; and (3) the lien is a judicial lien.
See Culver, LLC v. Chiu,
The parties do not dispute that Wilding has met the first and third requirements; Wilding had an interest in his house before the lien attached and the lien was a judicial lien.
See Farrey v. Sanderfoot,
As for the second requirement, the parties do not dispute that Wilding “would have been entitled to” 3 a homestead exemption. 4 The only matter in dispute is whether Wilding can take advantage of § 522(f) now that he has satisfied the lien, i.e. whether the lien “impairs the exemption” if it no longer exists when the motion to avoid is filed.
CitiFinancial contends that Wilding cannot avoid a lien that does not currently impair the exempt property. At first glance, the language of § 522(f) might seem to support CitiFinancial’s position, because the requirement that the lien “impairs” the exempt property is worded in the present tense. Linguistically, the word “impairs” suggests that a lien must actually impair the exempt property at the time the judge renders the decision to avoid.
Wilding, on the other hand, essentially argues that § 522(f) applies as long as the lien impaired his interest in property at the time he filed his bankruptcy petition. He relies upon several cases in which courts have held that the debtor need not have an interest in the exempt property at the time the debtor files his motion to avoid to take advantage of § 522(f).
See, e.g., Chiu,
For reasons that do not appear on the record, Wilding failed to protect himself in that fashion. Rather, before filing his motion to avoid, Wilding consummated the refinancing transaction and satisfied the lien in full without holding the funds in escrow pending a determination by the Bankruptcy Court.
Yet although the Chiu line of cases is distinguishable, we conclude that the lien itself need not exist at the moment the debtor files a motion to avoid for § 522(f) to apply. CitiFinancial’s position is based upon a narrow grammatical reading of § 522(f); a broader consideration of § 522 as a whole yields a different result.
The textual touchstone for retrospective relief under § 522(f) is found in the definition of “value” provided for by the statute. Section 522(f)(2)(a) reads:
For the purposes of this subsection, a lien shall be considered to impair an exemption to the extent that the sum of—
(i) the lien;
(ii) all other liens on the property; and
(iii) the amount of the exemption that the debtor could claim if there were no liens on the property;
exceeds the value that the debtor’s interest in the property would have in the absence of any liens.
(emphasis supplied). In § 522, “ ‘value’ means fair market value as of the date of the filing of the petition or, with respect to property that becomes property of the estate after such date, as of the date such property becomes property of the estate.” 11 U.S.C. § 522(a) (emphasis supplied). It would be an odd result if the statute required the court to measure the value of the property interest as of the petition date, but to measure the value of the lien as of an unrelated point in the future, for example, when the judge actually addresses a motion to avoid. We think the petition date is the operative date for determining the various § 522(f) calculations. In order to determine whether a lien impairs an exemption, the Bankruptcy Court must calculate the value of the lien as of the filing of the petition. If the lien “impairs” the exemption on that date, the court may thereafter address whether the lien should be avoided. Consequently, it is not determinative that the lien did not exist (or, in other words, had zero value) when Wilding ultimately filed his motion to avoid.
This reading comports with the mechanics of § 522(f). As the Ninth Circuit in Chiu noted,
[t]he operation of Section 522(f) is not to avoid a “lien”, per se, although that is its practical effect in most cases. Rather, by its terms, Section 522(f) provides forthe avoidance of the “fixing” of certain liens. To “fix” means to “fasten a liability upon.” Thus, Section 522(f) operates retrospectively to annul the event of fastening.
Chiu,
Thus, we hold that a debtor may avoid a judicial lien under § 522(f) even if he has satisfied the lien prior to filing a motion to avoid, so long as the lien in question impaired an exemption as of the bankruptcy petition date (or the later acquired property date) as reflected in the statutory definition of “value” under § 522.
III.
That a court sitting in bankruptcy may deploy its equitable powers under § 522 to issue an order avoiding a lien,
nunc pro tunc,
does not mean that it necessarily should exercise those powers to do so. Although § 522(f) permits a debtor to avoid a lien in cases such as this, CitiFinancial might have available equitable defenses to oppose the motion to avoid. Defenses such as laches, fraud, detrimental reliance, and prejudice are often raised in opposition to a motion to reopen. It is well-settled that a Bankruptcy Judge has discretion to determine — in light of such defenses — whether to reopen a bankruptcy petition at all.
See, e.g., First National Bank of Park Falls v. Maley,
In this case, CitiFinancial did not oppose the reopening. But the motion to reopen stage is not the only or perhaps even the best point at which finality concerns may be addressed and balanced against the policy of the Bankruptcy Code to provide “a fresh start” and protect exempt property. It is at the avoidance motion stage when the relative interests of the respective parties are most fully crystallized. Thus, although applying essentially the same test as that applicable for the motion to reopen, the Bankruptcy Court must be prepared to exercise its informed discretion with respect to the motion to avoid filed after bankruptcy proceedings are closed.
Cf. In re Levy,
The courts below did not address or calibrate the equities of granting a motion to avoid. Rather, they concluded as a matter of law that it was too late to do so. Consequently, we leave to the Bankruptcy Court in the first instance to address any equitable defenses that might be available. In that connection, we observe that the Bankruptcy Judge may establish conditions so as to avoid any demonstrable prejudice to CitiFinancial from belated avoidance of its judicial lien.
See, e.g., In re
The Bankruptcy Court’s denial of the motion to avoid the CitiFinancial lien is VACATED. This case shall be REMANDED to the Bankruptcy Court for further proceedings consistent with this opinion. The parties to bear their own costs.
Notes
. We join the Bankruptcy Court and the Bankruptcy Appellate Panel in lamenting the lack of factual detail to be found within the record created by the parties for this case. Nevertheless, we find in the record the information material to our disposition. We note, however, that a full record would have made this case more easily comprehensible and might have avoided the unseemly spectacle of lawyers asserting inconsistent statements about facts nowhere to be found in the record
. Wilding concedes he did not disclose the related debt as being secured by the CitiFinancial judicial lien in the schedules he filed when seeking Chapter 7 discharge. Although the record does not establish whether this omission was inadvertent or intentional, his counsel suggested at oral argument that Wilding, like many Chapter 7 debtors, might have been unaware that a judicial lien had attached. Since it is not apparent how Wilding could have benefitted by failing to schedule an avoidable lien, there is no reason to assume that he intentionally misrepresented the nature of the debt.
. In
Owen v. Owen,
. Wilding contends he failed to value the real property properly on his schedules. He notes in his brief that he listed the property at $60,000 with a first mortgage lien of $58,000. Consequently, only a modest sum — far less than that which was the subject of the judicial lien — would be covered by the exemption. In his brief before us, Wilding's counsel contends that "[i)f valuation were truly an issue Debtor would obviously move to amend his exemptions to permit him to exempt up to $150,000 in his homestead” under the Rhode Island exemption.