Andrews v. Adcock (In re Andrews)

• Decision Date: 17 September 2013
• Docket Number: No. 13–40491.,13–40491.
• Citation: 500 B.R. 214
• Parties: In re Michael Marlow ANDREWS, Debtor. Michael Marlow Andrews, Movant, v. Charles William Adcock, Respondent.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

500 B.R. 214

In re Michael Marlow ANDREWS, Debtor.Michael Marlow Andrews, Movant,

v.Charles William Adcock, Respondent.

No. 13–40491.

United States Bankruptcy Court,

N.D. Georgia,

Rome Division.

Sept. 17, 2013.

Brian R. Cahn, Perrotta Cahn & Prieto, P.C., Cartersville, GA, for Michael Marlow Andrews.

Charles William Adcock, pro se.

ORDER ON DEBTOR'S MOTION TO AVOID LIEN

PAUL W. BONAPFEL, Bankruptcy Judge.

The legal question here is whether an unrecorded judgment gives rise under Georgia law to an in rem interest in a Chapter 7 debtor's nonexempt real property that survives bankruptcy when the property is abandoned to the debtor under 11 U.S.C. § 554(c) because the Chapter 7 trustee does not administer it.

As the Court later explains in more detail, a judgment under Georgia law becomes effective as a lien on a judgment debtor's property upon its entry. Although recordation of a judgment is essential to enforcement of a lien on real property against a bona fide purchaser, recordation is not a condition to the creation of the creditor's right to a lien that is enforceable against the debtor's interest in the property. Neither the filing of a Chapter 7 bankruptcy case nor a Chapter 7 debtor's discharge eliminates lien rights in a debtor's property in the absence of avoidance of the lien under some provision of the Bankruptcy Code. When, as in this case, a Chapter 7 trustee does not seek to avoid the lien rights arising from an unrecorded judgment and the debtor has no right to do so because they do not impair his exemption in the property, the judgment creditor's lien rights are enforceable against the debtor's nonexempt property upon the closing of the case.

The facts are not in dispute.¹ Charles William Adcock (the “Creditor”) obtained a judgment for $2,300 plus costs against Michael Marlow Andrews (the “Debtor”) in the Magistrate Court of Paulding County, Georgia, on February 5, 2013.² The Creditor did not obtain a writ of fieri facias and did not record any lien in any county in Georgia ³ by the time the Debtor filed his Chapter 7 case on February 25, 2013.

The Debtor's scheduled assets include real property in Cobb County, Georgia, known as 2912 Noah Drive, Acworth, Georgia (the “Real Property”) with a value of $ 124,000 and a debt of $ 100,000 secured by a deed to secure debt. ⁴ The Debtor claimed an exemption of $ 2,600 in the Real Property, ⁵ but the exemption is immaterial in view of his equity in the property, $ 24,000, and the fact that the amount of the Creditor's judgment, $ 2,300 and costs, is substantially less than the Debtor's equity in it in excess of the exemption. The Debtor exempted all of his other real and personal property.⁶

The Chapter 7 Trustee filed a Report of No Distribution.⁷ In the Report, the Trustee requests that he be discharged and states, “[T]here is no property available for distribution from the estate over and above that exempted by law.” The filing of the Report signals that the Trustee will not seek to sell any assets of the estate or otherwise seek to recover any property or money for distribution to creditors.

The Debtor has received a Chapter 7 discharge. [26]. This means that the Creditor cannot enforce its judgment as a personal liability of the Debtor. 11 U.S.C. § 524(a). But the debt itself still exists and is enforceable against property of the Debtor to the extent that the Creditor has a lien on it, unless the Debtor can avoid it under 11 U.S.C. § 522(f). As applicable here, § 522(f)(1)(A) permits the avoidance of a judicial lien that impairs a debtor's exemption in property.

The Debtor filed a motion to avoid the Creditor's lien in its entirety under § 522(f). [12]. Although the Creditor does not contest the avoidance of the lien under § 522(f) with regard to any of the Debtor's other property, he asserts that the Debtor cannot avoid the lien on the Real Property.

The answers to the § 522(f) questions are easy. With regard to all of the Debtor's assets other than the Real Property, the Creditor's lien impairs the Debtor's exemptions and is avoidable. With regard to the Real Property, however, the lien does not impair the Debtor's exemption because, even after the exemption, the Debtor has equity in the Real Property that exceeds the sum of the amounts of debtor's exemption and the lien. Thus, § 522(f) does not permit the Debtor to avoid any lien that the Creditor has on the Real Property.

But the Debtor's request for relief goes beyond avoidance of the lien under § 522(f). As developed at a hearing on April 25, 2013, the Debtor contends that the judgment is not enforceable as a lien against the Real Property because the Creditor did not obtain a writ of fieri facias and record it prior to the filing of the Chapter 7 case. In effect, the Debtor seeks a determination that the Creditor does not have an enforceable lien on the Real Property as a result of the filing of the Chapter 7 case.⁸

Importantly, the issue is whether the holder of an unrecorded judgment has rights in a Chapter 7 debtor's nonexempt property, not whether a bankruptcy trustee can avoid those rights on behalf of the estate or treatment of the Creditor's claim in a Chapter 13 plan. The failure to record a judgment renders any judgment lien ineffective against a bona fide purchaser. O.C.G.A. § 9–12–86(b). Under 11 U.S.C. § 544(a)(3), a bankruptcy trustee has the rights of a bona fide purchaser of real property, whether or not such a purchaser exists. Thus, the Creditor's lien would be ineffective if the Chapter 7 Trustee sought to avoid it for the benefit of creditors generally, and a Chapter 13 plan likely could treat the Creditor's claim as wholly unsecured for that reason.⁹

Under certain circumstances, a Chapter 7 debtor may avoid transfers that a Chapter 7 trustee could avoid but does not. 11 U.S.C. §§ 522(g), (h). But a condition to a debtor's right to use the trustee's avoidance powers is that he exempt the property. Because the Debtor has not exempted (and does not have sufficient exemptions to exempt) enough equity in the Real Property to overcome the Creditor's lien, he cannot invoke these provisions.

Georgia law controls the issue before the Court. Two Georgia statutes are relevant to the analysis of the question.

First, O.C.G.A. § 9–12–80 states a general rule:

All judgments obtained in the superior courts, magistrate courts, or other courts of this state shall be of equal dignity and shall bind all the property of the defendant in judgment, both real and personal, from the date of such judgments except as otherwise provided in this Code.

This “effective date” statute makes no reference to the necessity of recordation of a judgment for it to “bind all the property of the defendant.” Thus, the general rule in Georgia is that a judgment constitutes a lien on all of the judgment debtor's real and personal property from the date of its rendition.¹⁰

The second statute deals with the recordation of judgments. This “recordation statute,” O.C.G.A. § 9–12–86(b) provides in pertinent part (emphasis added):

No judgment ... shall in any way affect or become a lien upon the title to real property until the judgment is recorded in the office of the clerk of the superior court of the county in which the real property is located.... and is entered in the indexes to the applicable records in the office of the clerk.

The emphasized language in this recordation statute expressly states that a judgment does not “in any way affect or become a lien” upon title to real property until its proper recordation. This language leads to the conclusion that the Debtor urges: the Creditor does not have a lien on his Real Property because it was not recorded at the time of the bankruptcy filing.

Two cases have dealt with the interplay of these two statutes. When they were decided, the two statutes, O.C.G.A. § 9–12–80 and § 9–12–86, were codified as former Ga.Code Ann. § 110–507 and § 110–515, respectively. The language in the current statutes is the same as the language in the earlier codifications, with immaterial editorial changes.

The first case, In re Tinsley, 421 F.Supp. 1007 (M.D.Ga.1976), aff'd554 F.2d 1064 (5th Cir.1977) (Table), arose under the former Bankruptcy Act of 1898, as amended. Section 67a(1) of the Bankruptcy Act then provided that any judgment obtained within four months of a bankruptcy filing was “null and void” if the bankrupt was insolvent at the time.¹¹

The judgment creditor in Tinsley obtained a judgment but did not immediately record it pending an appeal. After affirmance of the judgment, the creditor recorded its judgment lien. The recordation occurred within four months of the judgment debtor's bankruptcy filing. The issue was whether the creditor obtained its lien upon its rendition (outside the four-month period) or upon its recordation (within the four-month period and when the debtor was insolvent).

The trustee contended that the lien was void under former § 67a(1) because the judgment did not become effective until its recordation under the recordation statute (now O.C.G.A. § 9–12–86(b), formerly codified as Ga.Code Ann. § 110–515). The creditor relied on the effective date statute (now O.C.G.A. § 9–12–80, formerly codified as Ga.Code Ann. § 110–507) for the proposition that the lien became effective upon rendition of the judgment. It is important to an understanding of the issue to note that the recordation statute (O.C.G.A. § 9–12–86(b)), was enacted after the effective date statute (O.C.G.A. § 9–12–80).¹²

The Tinsley court ruled that the recordation statute (now O.C.G.A. § 9–12–86(b)), as the later-enacted statute, had “conclusively interred” the principle that, with regard to real property, a judgment becomes a lien upon its rendition. Tinsley, 421 F.Supp. at 1010. The court reasoned that the two statutes were inconsistent and that “the newer statute [now O.C.G.A. § 9–12–86(b) ], with its express provision that conflicting laws be repealed, must prevail.” Id. at...