Hall, In re

• Decision Date: 04 February 1985
• Docket Number: Nos. 84-8065,s. 84-8065
• Parties: 11 Collier Bankr.Cas.2d 1367, 12 Bankr.Ct.Dec. 949, Bankr. L. Rep. P 70,249 In re Donald W. HALL and Lucile E. Hall, Debtors, Donald W. HALL and Lucile E. Hall, Plaintiffs-Appellees, v. FINANCE ONE OF GEORGIA INC., Defendant-Appellant. In re Joe E. STUBBLEFIELD and Vicky L. Stubblefield, Debtors, Joe E. STUBBLEFIELD and Vicky L. Stubblefield, Plaintiffs-Appellees, v. FINANCE ONE OF GEORGIA INC., Defendant-Appellant. In re Clinton Eugene REGISTER and Doris Elaine Register, Debtors, Clinton Eugene REGISTER and Doris Elaine Register, Plaintiffs-Appellees, v. KENNESAW FINANCE COMPANY, Defendant-Appellant. In re Ronald Gary HALL, Debtor, Ronald Gary HALL, Plaintiff-Appellee, v. FINANCE ONE OF GEORGIA INC., Defendant-Appellant. to 84-8067 and 84-8132.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 582

752 F.2d 582

11 Collier Bankr.Cas.2d 1367, 12 Bankr.Ct.Dec. 949,

Bankr. L. Rep. P 70,249

In re Donald W. HALL and Lucile E. Hall, Debtors,

Donald W. HALL and Lucile E. Hall, Plaintiffs-Appellees, v. FINANCE ONE OF GEORGIA INC., Defendant-Appellant.

In re Joe E. STUBBLEFIELD and Vicky L. Stubblefield, Debtors,

Joe E. STUBBLEFIELD and Vicky L. Stubblefield, Plaintiffs-Appellees, v. FINANCE ONE OF GEORGIA INC., Defendant-Appellant.

In re Clinton Eugene REGISTER and Doris Elaine Register, Debtors,

Clinton Eugene REGISTER and Doris Elaine Register, Plaintiffs-Appellees, v. KENNESAW FINANCE COMPANY, Defendant-Appellant.

In re Ronald Gary HALL, Debtor,

Ronald Gary HALL, Plaintiff-Appellee, v. FINANCE ONE OF GEORGIA INC., Defendant-Appellant.

Nos. 84-8065 to 84-8067 and 84-8132.

United States Court of Appeals, Eleventh Circuit.

Feb. 4, 1985.

Richard V. Karlberg, Jr., Atlanta, Ga., for defendant-appellant.

Marshall H. Jaffe, Atlanta, Ga., Paul Parker, Rose H. Staples, Decatur, Ga., for plaintiffs-appellees.

Appeals from the United States District Court for the Northern District of Georgia.

Before KRAVITCH and ANDERSON ^*, Circuit Judges, and ATKINS ^**, District Judge.

KRAVITCH, Circuit Judge:

These four cases were consolidated for appeal because they involve common issues of bankruptcy law. The two questions presented are: (1) whether debtors in bankruptcy whose property exemptions are defined by Georgia law may use 11 U.S.C. Sec. 522(f) to avoid liens that encumber the property they seek to exempt; and (2) whether debtors who opt to file for Chapter 13 rehabilitation are entitled to use that same provision. The courts below ruled in favor of the debtors on both questions. We affirm.

I.

On June 4, 1982, plaintiffs in Register v. Kennesaw Finance Co., No. 84-8067, voluntarily filed a petition for relief under Chapter 13 of the Bankruptcy Code. One of plaintiffs' creditors, defendant Kennesaw Finance Company, held a nonpossessory, nonpurchase-money security interest in the Registers' household goods and furniture as collateral for a loan extended to plaintiffs. The indebtedness on the loan greatly exceeded the value of the collateral. After they filed for bankruptcy, plaintiffs brought this action in bankruptcy court to avoid defendant's security interest under 11 U.S.C. Sec. 522(f) (1982), because the lien prevented plaintiffs from exempting from the estate the property it encumbered. The bankruptcy court granted plaintiffs' motion for summary judgment, and the district court affirmed this ruling. Defendant brought this appeal, seeking reinstatement of the lien.

The other three cases arose in a similar fashion. Each case involved the same defendant; they were thus consolidated for determination in both the bankruptcy court and the district court. Plaintiffs in Ronald Hall v. Finance One, No. 84-8132, filed their Chapter 13 petition on April 4, 1982. Stubblefield v. Finance One, No. 84-8066, began when plaintiffs sought relief under Chapter 13 on April 1, 1982. February 2, 1982, was the date on which plaintiffs filed their Chapter 13 petition in Donald Hall v. Finance One, No. 84-8065. Shortly after their petitions were filed, plaintiffs in each case sought to avoid defendant's nonpossessory, nonpurchase-money security interests in their household goods and furniture pursuant to section 522(f), claiming the liens impaired exemptions to which plaintiffs were entitled. In none of the cases did the value of property covered by the liens equal or exceed the amount of the loan outstanding. The bankruptcy court ordered the liens avoided and the district court affirmed. This appeal ensued.

II.

Appellants contend that the Georgia Legislature has defined the exemptions to which plaintiffs claim they are entitled in a way that prevents them from using the federal lien-avoidance statute, section 522(f). Specifically, they point out that Georgia law permits a debtor in bankruptcy to exempt property only if it is not encumbered by a lien. To evaluate their argument properly, we first explore the statutory scheme of property exemptions to which debtors in bankruptcy can avail themselves.

Upon the filing of a petition in bankruptcy, all of the debtor's legal and equitable interests in property, with few exceptions not relevant here, become property of the estate. 11 U.S.C. Sec. 541(a) (1982). After the property comes into the estate, the debtor is allowed to exempt certain items under 11 U.S.C. Sec. 522(b) (1982). Congress specified the kinds and amount of property that may be exempted in section 522(d). In addition, debtors may retain property defined as exempt by other federal laws. 11 U.S.C. Sec. 522(b)(2)(A). Once the property is removed from the estate, the debtor may use it as his own. Liens valid in bankruptcy that cover exempt property, however, are preserved, and creditors holding such liens may enforce them against exempt property. 11 U.S.C. Sec. 522(c)(2) (1982). Section 522(f), however, permits a debtor to avoid certain kinds of liens encumbering particular kinds of property to the extent that the lien impairs an exemption. Section 522(f) provides:

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; or

(2) a nonpossessory, nonpurchase-money security interest in any--

(A) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor;

(B) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or

(C) professionally prescribed health aids for the debtor or a dependent of the debtor.

Thus, section 522(f) permits the debtor to enjoy an exemption even if property has been fully encumbered by a lien.

The new Bankruptcy Code permits states to "opt out" of the federal list of exemptions described in section 522(d), making them inapplicable to their residents who file petitions for relief under the bankruptcy laws. 11 U.S.C. Sec. 522(b)(1). ¹ The Georgia Legislature has taken advantage of this opportunity and enacted a statute precluding a debtor from using the federal list of exemptions. O.C.G.A. Sec. 44-13-100(b). Thus, debtors who file for bankruptcy in Georgia may claim only those exemptions allowed by state law. The Georgia exemption relied upon by the debtors in this case provides as follows:

(a) In lieu of the exemption provided in Code Section 44-13, any debtor who is a natural person may exempt, pursuant to this article, for purposes of bankruptcy, the following property:

....

(4) The debtor's interest, not to exceed $200.00 in value in any particular item, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor. The exemption of the debtor's interest in the items contained in this paragraph shall not exceed $3,500.00 in total value;

O.C.G.A. Sec. 44-13-100(a)(4).

Appellants' claim is that the Georgia Legislature has defined the exemptions to preclude debtors from avoiding liens under section 522(f). They assert that the phrase "debtor's interest" as used in the exemption statute indicates that a debtor may exempt property only to the extent of his or her equity. Thus, because Georgia law forbids the debtor to exempt property to the extent it is encumbered by a lien, the liens do not impair exemptions to which the debtors are entitled under section 522(b), as required by the language of section 522(f). In support, creditors rely on McManus v. Avco Financial Services (Matter of McManus), 681 F.2d 353 (5th Cir.1982), and Giles v. Credithrift of America (In Re Pine), 717 F.2d 281 (6th Cir.1983), cert. denied, --- U.S. ----, 104 S.Ct. 1711, 80 L.Ed.2d 183 (1984). In McManus, the Fifth Circuit reviewed efforts by Louisiana debtors to avoid liens covering their household goods and furnishings. Louisiana had enacted an exemption statute and opted out of the federal exemption scheme. As part of the statute, the Louisiana Legislature included a provision forbidding debtors to exempt household goods and furnishings held subject to a chattel mortgage. Observing that Congress's authorization in section 522(b) for the states to enact their own exemption statutes was indeed a broad one, 681 F.2d at 355, the Fifth Circuit determined that Louisiana's decision to exclude encumbered property from its exemption scheme was permissible. Id. at 357. Section 522(f) allows the debtor to avoid only those liens encumbering property that is exempt under section 522(b), and property subject to a chattel mortgage was defined as not exempt. Therefore, the court reasoned, the lien avoidance provision could not be used in that case because the lien did not impair an exemption to which the debtor was entitled under section 522(b). Id. ² The Sixth Circuit employed similar reasoning to reach the same conclusion in Giles, when construing Georgia and Tennessee statutes that, according to the court, allowed exemptions only to the extent of the debtor's equity. The court observed that by enacting the opt-out scheme without limitation, Congress expressed its preference for state control of exemptions. 717 F.2d at 284.

The only relevant authority in this circuit is the decision in Maddox v. Southern Discount Co., (In re Maddox), 713 F.2d 1526 (11th Cir.1983). In Maddox, a panel of this court adopted a district court's decision holding that the phrase "debtor's interest" as used in the Georgia exemption statute, section 44-13-100(a)(4), did not mean debtor's equity, but instead was a "broad...