ENTRY
This cause comes before the court on appeal from the Federal Bankruptcy Court. It presents an issue of whether a lien granted to the former wife of the debtor under a dissolution decree was an avoidable judicial lien under 11 U.S.C. section 522(f)(1). The court having reviewed the briefs submitted by the parties and being duly advised hereby AFFIRMS the decision of the Bankruptcy Court.
BACKGROUND
On October 11, 1985, Richard Evans Zachary, Sr. (debtor) filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code. On October 16, 1985, the debtor filed a Motion for Avoidance of Lien, naming Janith L. Zachary (creditor) as respondent. Mrs. Zachary’s lien related to a dissolution decree issued by the Montgomery Circuit Court, State of Indiana, on August 22, 1985, ending her 34-year marriage to the debtor. A judgment was entered against Mr. Zachary pursuant to the dissolution decree and the court ordered a lien on the real estate awarded to Mr. Zachary to secure payment of that judgment. A balance of Twelve Thousand Dollars ($12,000.00) remains due on the judgment.
In his Motion for Avoidance of Lien Mr. Zachary requests an exemption in real estate of Seven Thousand Five Hundred Dollars ($7,500.00) pursuant to 11 U.S.C. section 522(f)(1). The Bankruptcy Court found that the debtor had not satisfied the requirements of lien avoidance under section 522(f)(1) and therefore, denied debtor’s Motion. An appeal followed that presents two issues for decision by this court:
(1) Whether Mr. Zachary is precluded from asserting his exemption rights because of his failure to timely file a Schedule B-4 list of property claimed as exempt under section 522 of the Bankruptcy Code.
(2) Whether the lien established in the dissolution decree from the Montgomery Circuit Court is subject to avoidance under section 522(f)(1).
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Each of these issues present questions of law and are therefore subject to
de novo
review by this court.
Duncan v. Sczepanski,
A. Failure to File Schedule B-4 Property List
Bankruptcy Rule 4003 governs the debt- or’s right to claim an exemption under section 522. The Rule provides that a debtor shall have fifteen days to file a list of property claimed as exempt, Schedule B-4. That list is to be filed with the Schedule of Assets and other forms required to be filed in Bankruptcy Rule 1007. The list of exempt property was never filed in this case. However, five days after Mr. Zachary filed his voluntary petition, he filed a Motion for Avoidance of Lien. In that motion, Mr. Zachary stated that Mrs. Zachary’s lien impaired an exemption to which he was entitled, namely the property exemption of Ind. Code section 34-2-28-1. Mr. Zachary maintains that said motion must be deemed as a claim for exemption. Thus, he asserts that he has complied with the time deadlines established in Rule 4003. In making his argument, the debtor cites to numerous cases which establish a liberal amendment policy in such cases. In this instance, however, the court is not faced with an amendment situation. Mr. Zachary never filed the schedule which he seeks to amend herein. Nonetheless, although Mr. Zachary has not timely claimed his exemption right, this court, like the Bankruptcy Court, is not deciding this case on a mere procedural point. The court below decided this case on the merits of the exemption, and this court will likewise proceed to a determination on the merits.
B. Lien Avoidance Under Section 522(f)(1)
In order for the debtor to prevail on his Motion to Avoid Lien under section 522(f)(1) in this case, three conditions must be met:
[fjirst, the lien to be avoided must have fixed “on an interest of the' debtor in property”; second, the lien must impair “an exemption to which the debtor would have been entitled”; and third, the lien must be a “judicial lien.”
Saxon v. Merchants Nat’l Bank & Trust Co.,
The court must first determine whether Mr. Zachary’s lien attached to an interest of the debtor in property. This court holds that it does not. Mr. and Mrs. Zachary held the property at issue in this case as tenants by the entirety. Therefore, both parties had an interest in the property during the course of their marriage and at the time of their divorce. The dissolution decree in this case merely transformed the creditor/wife’s interest from owner of one-half interest in the fee to that of lien holder.
In
Boyd v. Robinson,
In
Hart v. Hart,
The Hart court stated:
Congress intended to permit the avoidance of creditors’ liens obtained in the rush before bankruptcy when the liens attached after the debtor had already acquired his or her interest in the property and not in the same transaction or judicial proceeding which transferred the interest to the debtor. In a dissolution proceeding, the document which conveys one spouse’s interest in the homestead to the other spouse simultaneously creates a lien in favor of the spouse who will no longer be allowed to live in the residence. In effect, the property is conveyed subject to a lien to secure payment of the nonresident spouse’s share of the property settlement.
Id.
at 961.
Accord Cowan v. Cowan (In Re Scott),
The case law in opposition with
Boyd
is primarily critical of the concept that the creditor has a preexisting interest in the property. In
Pederson v. Stedman,
The Superior Court’s dissolution decree awarded the property outright to the debtor. Any interest [the creditor] may have gained during the marriage was extinguished by the marriage dissolution decree prior to the debtor’s bankruptcy. In its place, the Superior Court granted [the creditor] an $8,000 judgment. The lien which accompanied this judgment clearly attached to “an interest of the debtor in property.” Therefore, this lien was avoidable under section 522(f)(1).
Id.
at 267. That is, the case law in opposition to
Boyd
focuses primarily upon the fact that the reasoning in
Boyd
is convoluted. According to the
Pederson
court, title to the property is granted to the debtor outright in the divorce decree; therefore, the lien of the creditor spouse necessarily attaches to the debtor’s interest in the property and the first condition of section 522(f)(1) is satisfied.
See also, Duncan v. Sczepanski,
In
Maus v. Maus,
Whereas in Maus, the decree did indeed cut off all of the nondebtor spouse’s interest in the property by awarding it to the debtor spouse “free and clear”, in this case it clearly did not. [Credi *919 tor/spouse’s] “vested, but undetermined, interest in” the property continued and was secured by the lien created in the divorce decree. And whatever interest in the property [the debtor] received by virtue of the divorce decree he received subject to [creditor/spouse’s] lien. Thus, Mans does not completely foreclose the availability in this case of the argument that the lien did not attach to an interest of the debtor in property, for the purpose of determining whether the lien is avoidable by the debtor under section 522(f)(1).
Id. at 264 n. 7 (emphasis added) (citation omitted).
The Parker court expressly left open the question of avoidability of the lien arising in the dissolution decree itself and limited the Maus holding to its facts. Therefore, the issue to be decided in the instant case remains unresolved in the Tenth Circuit.
Despite the existence of the split of authority, this court finds the reasoning behind the preexisting interest theory more persuasive. The proposition that both spouses have a property interest in the marital home that they hold as tenants by the entireties is well-established. Therefore, it is entirely consistent with the existence of those interests to determine that the dissolution decree which creates the lien also transfers the lienholders interest to the other spouse subject to the lien. The lien attaches at the same time as title is transferred; therefore, it does not attach to an interest of the debtor in property for purposes of section 522(f)(1). The debtor acquired the property interest subject to the lien; consequently, it does not fall within the ambit of the protection afforded by section 522(f)(1) and the first condition of lien avoidability is not satisfied in this case.
The third condition which must be satisfied in order for a lien to be avoidable under section 522(f)(1) is that the lien must be a judicial lien. Judicial lien is defined in 11 U.S.C. section 101(32) as a “lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.” Lien is defined in 11 U.S.C. section 101(33) as a “charge against an interest in property to secure payment of a debt or performance, of an obligation.” Thus, this court must determine whether the lien created in the dissolution decree is a judicial lien.
Case law which has determined that a lien like the one in this case is not a judicial lien has focused on the nature of interest that the lien was created to protect. That is, courts have recognized that the interest in the property is not created by the imposition of the lien. The creditor’s interest in the property is created by state law, by virtue of the fact that the parties owned the home as a married couple. The interest that each party has in the property is created by conveyance of the property to them as husband and wife. That interest is merely effectuated by the imposition of a lien in the dissolution decree.
See, e.g., Hart v. Hart,
The cases which hold that the lien created in the dissolution decree is a judicial lien theorize that the lien is created by the court in the dissolution decree and as such it arises as a result of a judicial proceeding. Thus, these courts hold that under the plain meaning of the phrase judicial lien under the Bankruptcy Code, the lien in the decree is a judicial lien.
See, e.g., Pederson v. Stedman,
Although the argument that a lien created in a divorce decree is necessarily a judicial lien, because of the clear and unambiguous definition of that phrase in the
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Code would appear to be meritorious at first blush, upon further consideration the flaws in that argument become apparent. The District Court opinjon in
Boyd v. Robinson,
[t]he interest [herein] was created by family state law, the lien itself secures this preexisting interest and functions the same as a security interest. To label this a judicial lien merely because it is a lien which was imposed in a judicial proceeding puts form over substance.
Id. at 595 (emphasis added).
As the court noted in
In re Sanders,
The second condition of section 522(f)(1) requires that the lien impair an exemption to which debtor would have been entitled. Since the court has determined that Mr. Zachary has not met the first and third conditions of section 522(f)(1), it is unnecessary to address the second condition.
Because the court finds that the lien in favor of Mrs. Zachary does not satisfy the conditions for avoidance in section 522(f)(1), the order of the Bankruptcy Court denying Debtor’s Motion to Avoid Lien is hereby AFFIRMED.