In re Adkins, Bankruptcy No. 79-02911-KZ.

• Decision Date: 02 October 1980
• Docket Number: Bankruptcy No. 79-02911-KZ.
• Citation: 7 BR 325
• Parties: In re Betty Gene ADKINS, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of California

7 B.R. 325 (1980)

In re Betty Gene ADKINS, Debtor.

Bankruptcy No. 79-02911-KZ.

United States Bankruptcy Court, S.D. California.

October 2, 1980.

Craig E. Dwyer, San Diego, Cal., for debtor.

Jonathen R. Ellowitz, Newport Beach, Cal., for Avco.

MEMORANDUM OF OPINION RE: MOTION FOR INJUNCTION

HERBERT KATZ, Bankruptcy Judge.

Betty Gene Adkins, debtor herein, filed a Motion seeking an injunction against Avco Financial from proceeding against her in a state court action seeking recovery of the collateral which she had pledged as security for a loan.

The facts are not in dispute. Prior to bankruptcy, the debtor obtained a loan from Avco Financial, pledging as security therefore her household furniture and furnishings.

On her bankruptcy petition, Schedule B-4, she scheduled these items as exempt. Pursuant to § 522(b) of the Bankruptcy Code she elected to claim her property exempt under § 522(d) of the Code, rather than the exemptions available pursuant to state law.

At the meeting of creditors called pursuant to § 341(a) of the Code, Mr. Foote, a representative of Avco Financial appeared to examine the debtor regarding the security pledged to Avco. At the conclusion of the meeting, Mr. Foote and Mr. Dwyer, counsel for debtor, had a discussion regarding a reaffirmation of the debtors obligation to Avco Financial.

At that time, Mr. Dwyer claims that he told Mr. Foote that his client intended to avoid Avco's lien under § 522(f) of the Code, or words to that effect. Mr. Foote alleges this was not the case. For purposes of this Opinion, I will assume that Mr. Dwyer's version of the discussion between himself and Mr. Foote is correct.

Thereafter, the debtors discharge was duly entered. No motion or complaint seeking to avoid Avco's lien under § 522(f) was ever filed or served upon Avco, either prior to the grant of the discharge to debtor or since.

Thereafter, Avco filed a complaint against the debtor in state court seeking to recover the items pledged as security for the loan to debtor.

To stop that action, debtor seeks an order permanently enjoining Avco from proceeding in the state court on the ground that Avco had notice of debtors intent to avoid their lien and since Avco did nothing to prevent the avoidance, the lien is avoided as a matter of law, Avco is an unsecured creditor discharged in the proceeding and subject to the injunction contained in the discharge entered pursuant to § 727 of the Code.

This motion raises two issues. The first relates to the type of notice to be given by a debtor to a creditor of the debtor's intent under § 522(f), and the second is the time frame in which such notice must be given.

To answer the first question one must examine § 522(f). That section permits a debtor to avoid a non-purchase money, non-possessory lien on certain types of property enumerated therein to the extent such lien impairs the debtor's exemption. The section is permissive. It is not automatic. It permits a debtor to avail himself of its lien avoidance provisions. But if the debtor does not choose to avoid the liens, it seems to me that the lien is not avoided. In other words, the debtor must act affirmatively to avail himself of the provisions of § 522(f).

It therefor is necessary to determine what affirmative action a debtor must take.

There are no official rules of bankruptcy procedure promulgated yet under the new Code. However, § 405(d) of the Bankruptcy Reform Act provides that the rules of procedure in effect on September 30, 1979, shall apply to cases under Title 11, U.S. Code, (the Bankruptcy Code), to the extent not inconsistent therewith.

An examination of the rules of Bankruptcy Procedure in effect on September 30, 1979, reveals that Rule 701 provides that the Adversary Proceeding Rules apply to proceedings instituted to determine the validity, priority or extent of a lien or other interest in property. Rule 701(3).

It cannot be gainsaid that the avoidance of a lien provided for in § 522(f) is the type of action referred to in Rule 701(3). It therefor seems that a party seeking to avoid a lien under § 522(f) must comply with the provisions of Part VII of the Rules of Bankruptcy and file a complaint seeking the relief sought unless Part VII is somehow inconsistent with the provisions of Title 11, U.S. Code. I cannot conclude that to be the case.

Hence, it was necessary for the debtor herein to file a complaint seeking to avoid Avco's lien and no other notice, certainly not an attorney's oral statement of what his client intended to do, would suffice. See Boozer v. Kennesaw Finance Co., 4 B.R. 524, 2 C.B.C.2d 435 (N.D.Ga.1980) (§ 522(f) brought by complaint); In re Lucero, 4 B.R. 659, 6 B.C.D. 477 (D.Colo.1980) (complaint); In re Cox, 4 B.R. 240, 6 B.C.C. 434 (S.D.Ohio 1980) (complaint); In re Bagley, 1 B.R. 116, 5 B.C.D. 901 (E.D.Pa.1979) (complaint); Cf. In re Hill, Jr., 4 B.R. 310, 6 B.C.D. 307 (N.D.Ohio 1980) (Application); In re Van Gorkom, 4 B.K. 689, 2 C.B.C.2d 477 (D.S.D. 1980) (Request); contra, In re James Alvin and Grace Stegen Ohnstad, 6 B.C.D. 6 (D.S.D.1980) (Allowed by making § 522(f) election in Chapter 13 petition before confirmation).

We now come to the second issue, and that is when must a debtor file a complaint to avoid the lien under § 522(f). Neither the rules, nor the Code, seem to shed any light on this question.

However, an examination of § 524(c) of the Code might give one a clue as to the...