In re Ambrose
| Decision Date | 06 June 1980 |
| Docket Number | Adversary No. 580-0023.,Bankruptcy No. 579-1050 |
| Parties | In re Stanley P. AMBROSE and Judith M. Ambrose, Debtors. CENTRAN BANK OF AKRON, Plaintiff, v. Stanley P. AMBROSE and Judith M. Ambrose, Defendants. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio |
Dianne R. Newman, Akron, Ohio, for debtors.
David Friedman, Barberton, Ohio, for plaintiff.
FINDING AS TO RECLAMATION COMPLAINT
The Plaintiff, Centran Bank of Akron (hereinafter referred to as Centran) filed a complaint to reclaim household goods. The Defendants, Stanley P. Ambrose and Judith M. Ambrose, debtors in bankruptcy, (hereinafter referred to as debtors) filed an answer claiming that the property is exempt and requesting the Court to find that the lien of Centran is void under 11 U.S.C. § 522(f)(2)(A) of the Bankruptcy Code.
The parties agreed that there was no dispute as to the facts and submitted the case on the issue of law. However, in order to clarify the issues, this Court makes the following finding of Fact and Law.
1. The debtors filed a voluntary petition in Bankruptcy on November 27, 1979.
2. The debtors claimed furniture and household goods exempt under Ohio Revised Code 2329.66(A)(4)(b).
3. No party in interest objected to the property claimed exempt by the debtors, except Centran which claims a lien on the exempt property.
4. Centran has a signed security agreement and duly filed a Financing Statement on November 3, 1978, as required by Ohio Rev.Code 1309, on the property claimed exempt by the debtors.
5. The lien was to secure a loan made on October 21, 1978. The balance now due Centran is $2,571.34.
6. The security interest of Centran is a nonpossessory, nonpurchase-money interest in household furnishings and goods.
7. Public Law 95-598, Title 1 was enacted November 6, 1978 and Section 522 became effective on October 1, 1979.
The issue is whether 11 U.S.C. 522(f)(2)(A) can impair contractual obligations made prior to the effective date of the New Bankruptcy Code.
11 U.S.C. Section 522(f) provides:
Subsection (b) of 11 U.S.C. Section 522 gives the debtor a choice of exempting from property of the estate either (1) property that is specified under subsection (d) of 11 U.S.C. Section 522, unless the State law of the State in which the debtor's domicile has been located for the 180 days immediately preceding the date of the filing of the petition specifically does not so authorize; or (2) any property that is exempt under Federal law, other than 11 U.S.C. Section 522(d), or under State law of the State in which the debtor's domicile has been located for the 180 days immediately preceding the date of the filing of the petition.
The General Assembly of the State of Ohio "opted out" of the Federal exemptions allowed under 11 U.S.C. Section 522(d) by enacting Ohio Revised Code Section 2329.662. Section 2329.662 of the Ohio Revised Code provides that:
Pursuant to the "Bankruptcy Reform Act of 1978", 92 Stat. 2549, 11 U.S.C.A. 522(b)(1), this state specifically does not authorize debtors who are domiciled in this state to exempt property specified in the "Bankruptcy Reform Act of 1978". 92 Stat. 2549, 11 U.S.C.A. 522(d).
Thus, a debtor domiciled in Ohio may only exempt from property of his estate property that is specified under Ohio Revised Code Section 2329.66.
Ohio Revised Code Section 2329.66(A)(4)(b) entitles the debtor to hold exempt:
. . . the person\'s interest, not to exceed two hundred dollars in any particular item, in household furnishings, household goods, appliances, . . ., that are held primarily for the personal, family, or household use of the person.
The debtors, herein, claimed their household goods exempt under ORC § 2329.66(A)(4)(b) and are attempting to avoid the nonpurchase-money security interest of Centran in said household goods pursuant to 11 U.S.C. §§ 522(f).
The power to legislate on the subject of bankruptcies is conferred expressly upon Congress by the Constitution of the United States. Article I, Section 8, clause 5 of the United States Constitution provides: "The Congress shall have Power . . . to establish . . . uniform Laws on the subject of Bankruptcies throughout the land." In addition to this express grant, there is the general grant of power under Article I, section 8, clause 18 that: "The Congress shall have the Power . . . to make all laws which are necessary and proper for carrying into Execution the foregoing Powers . . .".
The uniformity which is required by the Constitution relates to the law itself and not to its results upon the varying rights of debtor and creditor under the laws of the several states. Thomas v. Woode, 173 F. 585 (8th Cir. 1909).
Absolute uniformity in the application of the Bankruptcy Act is impossible, since Congress cannot create uniform conditions and circumstances in the various states of the Union. Thomas, supra. Thus, the recognition of state laws as determinative of dower rights, liens, priorities, and exemptions, does not render the Bankruptcy Act unconstitutional as lacking in uniformity, although the result of such recognition is that the Act does not operate with the same results in all states. Stellwagen v. Clum, 245 U.S. 605 at 613, 38 S.Ct. 215, at 217, 62 L.Ed. 507 (1918).
The grant of power to Congress to legislate on the subject of bankruptcies includes the power to impair the obligations of contracts notwithstanding the individual states are forbidden to do so. Hanover National Bank v. Moyses, 186 U.S. 181, at 188, 22 S.Ct. 857, at 860, 46 L.Ed. 1113 (1902). Article I, section 10 of the Constitution of the United States which prohibits any state from passing a law which impairs the obligations of contracts, is in its terms, a limitation on the powers of the states only. Louisville Joint Stock Land Bank v. Radford, 74 F.2d 576, at 580 (6th Cir. 1935).
The Constitutional provision conferring upon Congress the power to legislate on the subject of bankruptcies is read into contracts as constituting a part thereof. Wright v. Union Central Life Ins. Co., 304 U.S. 502 at 516, 58 S.Ct. 1025, at 1033, 82 L.Ed. 1490 (1938). A mortgagee's rights are at all times subject to bankruptcy legislation by Congress affecting the creditor's remedy against the debtor's assets or the measure of the creditor's participation therein provided only that the bankruptcy provisions are consonant with fair, reasonable, and equitable distribution of the assets. Re Chicago, R.I. & P.R. Co., 90 F.2d 312 at 316 (7th Cir. 1937).
The power of Congress to establish bankruptcy laws is subject to the due process clause of the Fifth Amendment to the United States Constitution. It has been held that a violation of the fifth amendment due process clause occurs when the retrospective application of a bankruptcy statute destroys vested property rights. Louisville Joint Stock Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593 (1935) (hereinafter cited as Radford).
The question as to whether a statute operates retrospectively, or prospectively only, is one of legislative intent. Hassett v. Welch, 303 U.S. 303, 58 S.Ct. 559, 82 L.Ed. 858 (1938). Section 403(a) of Title IV of the Bankruptcy Reform Act of 1978, Pub.L. 95-598, known as the "Savings Provision," provides that:
(a) A case commenced under the Bankruptcy Act, and all matters and proceedings in or relating to any such case, shall be conducted and determined under such Act as if this Act had not been enacted, and the substantive rights of parties in connection with any such bankruptcy case, matter, or proceeding shall continue to be governed by the law applicable to such case, matter, or proceeding as if the Act had not been enacted.
Accordingly, only cases commenced prior to October 1, 1979, the effective date of the Bankruptcy Reform Act of 1978, are to be determined under the former Bankruptcy Act (bankruptcy statute enacted on July 1, 1898, and amended from time to time until the passage of the 1978 legislation.) For all other purposes, the Bankruptcy Act is repealed. Section 401(a) Title IV, Pub.L. 95-598.
Thus, in cases filed after October 1, 1979, if Congress did not intend the substantive provisions of the Bankruptcy Reform Act to apply to obligations created by the debtors prior to October 1, 1979, there would be no bankruptcy laws in effect to deal with those debts. Therefore, it appears that Congress intended that the Bankruptcy Reform Act be applied retrospectively.
In the Radford case, Radford, hereinafter referred to as debtor, took advantage of the provisions of the Frazier-Lemke Act, which amended section 75 of the Bankruptcy Act, and sought to stay all proceedings against his farm by the mortgagee bank for five years, during which five years the debtor was to retain possession provided he pay a reasonable rental. At the end of the five years, or prior thereto, the debtor could purchase the property by paying into the court the appraised price of the property. The mortgagee bank, in the Radford case, refused to consent to the sale of the property to the debtor under the provisions of the Frazier-Lemke Act.
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