196 B.R. 329 (Bkrtcy.W.D.Va. 1996), 7-96-00020, In re Butler

• Citation: 196 B.R. 329
• Party Name: In re James Chester BUTLER, Debtor. James Chester BUTLER, Plaintiff, v. SOUTHERN O CORPORATION, Defendant. Bankruptcy No. 7-95-00231-HPR-7.
• Case Date: May 21, 1996
• Court: United States Bankruptcy Courts, Fourth Circuit

Page 329

196 B.R. 329 (Bkrtcy.W.D.Va. 1996)

In re James Chester BUTLER, Debtor.

James Chester BUTLER, Plaintiff,

v.

SOUTHERN O CORPORATION, Defendant.

Bankruptcy No. 7-95-00231-HPR-7.

Adv. No. 7-96-00020.

United States Bankruptcy Court, W.D. Virginia, Roanoke Division.

May 21, 1996

Roy V. Creasy, Roanoke, Virginia, for Debtor/Plaintiff.

John T. Arnold, Moss & Rocovich, P.C., Roanoke, Virginia, for Creditor/Defendant.

MEMORANDUM OPINION AND ORDER

H. CLYDE PEARSON, Bankruptcy Judge.

This Adversary Proceeding of the Debtor, James C. Butler, seeks to avoid a judicial lien under 11 U.S.C. §§ 522(f) and 506(d), which was docketed against Debtor's real property in the City of Roanoke, Virginia, by Defendant, Southern O Corporation. For the reasons hereafter stated, the lien is avoidable in its entirety.

The stipulated facts are as follows: The Debtor, James Butler, filed a Chapter 7 petition on January 31, 1995 and was granted a discharge on April 24, 1995. The Debtor owned in fee simple a parcel of real estate located in the City of Roanoke and described as a portion of Lot 13, Section 10, Map of Lewis Addition, Roanoke City Tax Identification No. 1020216. The real estate is encumbered by several Deeds of Trust. The first Deed of Trust is held by First Mortgage Corporation (now West Star Financial), dated June 29, 1979 with an outstanding balance of $31,304.41, as of the date of filing of the petition. First Union Home Equity Corporation has a second Deed of Trust dated December 22, 1992 with an outstanding balance of $28,369.71. The third Deed of Trust, dated September 27, 1993, secures the legal holder of a principal sum of $15,000.00 with an outstanding balance of $17,260.00.

Southern O Corporation ("Southern O") docketed its judgment on January 28, 1994 in

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the sum of $115,000.00, plus $18,289.34, plus attorney's fees of $784.74. The judgment was not related to the purchase of or any refinancing of a debt on the subject real estate. There was no equity in the real estate at the time the judgment was docketed. The value of the real estate on the date of filing was $72,000.00 and the amount of the outstanding Deeds of Trust as of the date of filing is $76,934.12. The Debtor recorded a Homestead Deed in the City of Roanoke claiming exemption of $1.00 equity in the above real estate which has been amended and increased to $1,964.00.

The parties stipulated the specific issues to be determined: First, whether the lien on the Debtor's real estate impairs his homestead exemption pursuant to 11 U.S.C. § 522(f); and, secondly, whether Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992) preserves a non-consensual judgment lien as applied to this case. (Stipulations at 2). This Court holds, for reasons hereinafter stated, that the lien is entirely avoidable pursuant to 11 U.S.C. § 522(f) and that any future increase in value accrues to the benefit of the Debtor as after-acquired property.

As an initial matter, the Court notes that the Bankruptcy Code generally is to be liberally construed in favor of the debtor. See Williams v. USF & G, 236 U.S. 549, 35 S.Ct. 289, 59 L.Ed. 713 (1915); Roberts v. W.P. Ford & Son Inc., 169 F.2d 151, 152 (4th Cir.1948) (citing Johnston v. Johnston, 63 F.2d 24, 26 (4th Cir.1933) and Lockhart v. Edel, 23 F.2d 912, 913 (4th Cir.1928)). This universally recognized principle serves to "relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh." Local Loan Co. v. Hunt, 292 U.S. 234, 244, 54 S.Ct. 695, 699, 78 L.Ed. 1230 (1934) (citations omitted). This same "honest but unfortunate debtor" is thus provided with "a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt." Grogan v. Garner, 498 U.S. 279, 286, 287, 111 S.Ct. 654, 659, 112 L.Ed.2d 755, 764, 765 (1991); Perez v. Campbell, 402 U.S. 637, 648, 91 S.Ct. 1704, 1710, 29 L.Ed.2d 233, 241 (1971); Local Loan Co. v. Hunt, 292 U.S., at 244, 54 S.Ct., at 699; Johnston v. Johnston, 63 F.2d, at 26; Royal Indemnity Co. v. Cooper, 26 F.2d 585, 587 (4th Cir.1928).

Bankruptcy Code § 522(f) allows the debtor to avoid the fixing of certain liens to the extent that such a lien impairs an exemption. If the lien is avoidable under § 522, the issue of avoidance under § 506(d) is moot. The language states in pertinent part as follows:

(f)(1) Notwithstanding any waiver of exemptions, but subject to paragraph (3), 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--

(A) a judicial lien ...

11 U.S.C. § 522.

The Bankruptcy Reform Act of 1994 significantly amended section 522(f) in several respects, including the addition of a new subsection (f)(2)(A) to provide an arithmetic test to determine whether a lien impairs an exemption, based upon a decision in In re Brantz, 106 B.R. 62 (Bankr.E.D.Pa.1989) that was favorably cited by the Supreme...