In re Arnold, Case No. 12-11683

• Decision Date: 05 December 2014
• Docket Number: Case No. 12-11683
• Parties: In Re CHRISTOPHER ARNOLD SUSAN ARNOLD Debtor(s)
• Court: U.S. Bankruptcy Court — Southern District of Ohio

In Re CHRISTOPHER ARNOLD SUSAN ARNOLD Debtor(s)

Case No. 12-11683

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF OHIO WESTERN DIVISION

December 5, 2014

Chapter 7
Judge Buchanan

MEMORANDUM DECISION REGARDING MOTIONS TO AVOID LIENS

[This opinion is not intended for publication or citation. The availability of this opinion, in electronic or printed form, is not the result of a direct submission by this Court.]

Christopher and Susan Arnold (the "Debtors") filed a joint petition for relief under Chapter 7 of the Bankruptcy Code¹ on March 29, 2012 (the "Petition Date"). The matters before this Court involve five motions (as amended) to avoid nine (9) judicial liens against eighteen (18) parcels of

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real property (the "Properties")² owned by the Debtors (the "Motions to Avoid").³ By the Motions to Avoid, the Debtors seek to avoid the judicial liens (the "Judicial Liens") held by the following creditors (the "Judicial Lien Creditors"):

Judicial Lien Creditor	Judgment Against	Date Judgment; Recorded	Amount of Judgment4
First Financial Bank	Christopher Arnold	11/15/2007	$ 40,150
First Financial Bank	Christopher Arnold	11/12/2008	$ 32,071
U.S. Bank	Christopher Arnold	08/24/2010	$342,496
JPMorgan Chase	Christopher Arnold	09/09/2010	$ 71,850
FIA Card Services	Susan Arnold	11/10/2010	$ 4,358
Portfolio Recovery Assoc. LLC	Susan Arnold	12/03/2010	$ 3,235
Midland Funding LLC	Susan Arnold	06/21/2011	$ 10,645
LVNV Funding LLC	Christopher Arnold	08/19/2011	$ 9,130
City of Cincinnati	Christopher Arnold	06/27/2012	$ 3,900
TOTAL			$517,835

The Debtors assert that the Judicial Liens impair an exemption to which the Debtors are entitled under § 522(b) and, therefore, that the Judicial Liens are avoidable pursuant to

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§ 522(f)(1)(A). The Debtors note that they remain personally liable for on-going maintenance and taxes for the Properties. The Debtors seek to avoid the Judicial Liens so that they may attempt to work with their mortgage lenders to refinance the Properties and return the Properties to a productive state. At least one of the Debtors' mortgage lenders, First National Bank of Germantown, is willing to refinance its mortgages against certain of the Properties if the Judicial Liens are avoided.

JPMorgan Chase Bank, N.A. ("Chase") is the only Judicial Lien Creditor that opposes the Motions to Avoid.

I. Jurisdiction

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the standing General Order entered by the United States District Court for the Southern District of Ohio referring all bankruptcy matters to this Court. This is a core proceeding pursuant to 28 U.S.C. § 157 (b)(2)(B) and (K).

II. Findings of Fact and Conclusions of Law

A. Chase's arguments in opposition to Motions to Avoid

Chase advances the following arguments in opposition to the Motions to Avoid:

1. The Motions to Avoid should be denied because the Debtors failed to claim any exemptions for the Properties on Schedule C.

Chase argues that the Motions to Avoid should be denied because the Debtors did not claim any exemption for the Properties on Schedule C nor did the Debtors amend Schedule C to assert any exemption. As noted by Chase, there is a split of authority regarding whether a debtor may avoid a judicial lien pursuant to § 522(f) if the debtor fails to claim the property as exempt on Schedule C. See In re Scannell, 453 B.R. 36, 40 (Bankr. D. N. H. 2011)(collecting cases). Section 522(f) provides that a 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

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subsection (b) of this section, if such lien is . . . a judicial lien." 11 U.S.C. § 522(f)(1)(A) (emphasis added). A plain reading of the statute reflects that the focus of § 522(f) is "not on any actual claim of exemption, but rather on the hypothetical exemption that the debtor would have been entitled to in the absence of the lien." Botkin v. DuPont Cmty. Credit Union, 650 F.3d 396, 400 (4th Cir. 2011). This Court agrees with the line of cases holding that a debtor need not have expressly claimed an exemption on Schedule C as a precondition to avoiding a judicial lien pursuant to § 522(f).

2. The Motions to Avoid should be denied because the Debtors exhausted their "wild card" exemptions with the avoidance of the Judicial Liens against the Lantana Avenue Property.

The first motion to avoid (the "First Motion to Avoid")⁵ filed by the Debtors pertained to certain jointly owned real property located at 5788 Lantana Avenue, Cincinnati, Ohio (the "Lantana Avenue Property"). In the First Motion to Avoid, the Debtors asserted that the Lantana Avenue Property was worth $49,740 and, in addition to the Judicial Liens, was encumbered by a first mortgage in the amount of $88,910.17. The Debtors maintained that the existence of the Judicial Liens impaired the exemptions to which the Debtors were entitled, however, the Debtors did not state the source or the amount of the exemption in the First Motion to Avoid. At the hearing held on the First Motion to Avoid, counsel for the Debtors stated that the exemption claimed to be impaired was the Debtors' respective "wild card" exemption under Ohio Revised Code § 2329.66(A)(18) and that, while it was difficult to quantify, the amount of the exemption each Debtor could claim was worth at least $100. By its terms, Ohio Revised Code § 2329.66(A)(18) applies only in bankruptcy proceedings and allows a debtor to exempt the debtor's "aggregate

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interest in any property, not to exceed [one thousand one hundred and fifty dollars]."⁶ OHIO REV. CODE § 2329.66(A)(18).

Chase did not question the source or the amount of the Debtors' claimed exemptions in its written objection to the First Motion to Avoid or orally at the hearing. Rather, Chase opposed the First Motion to Avoid solely on the grounds that the Debtors did not claim any exemption in the Lantana Avenue Property on Schedule C and, as such, that the Judicial Liens could not be avoided because they did not impair an exemption. Based on the reasoning discussed above, this Court orally overruled Chase's objection at the hearing and granted the First Motion to Avoid.

In its response to the subsequently filed Motions to Avoid, Chase maintains that these later Motions to Avoid should be denied because the Debtors exhausted their wild card exemptions with the avoidance of the Judicial Liens against the Lantana Avenue Property.⁷ This Court disagrees. This Court did not make a specific finding of fact regarding the exact amount of the exemption asserted by each Debtor with respect to the Lantana Avenue Property given that the first mortgage alone exceeded the value of the Debtors' interest in the Lantana Avenue Property making the Judicial Liens fully avoidable under the mathematical formula set forth in § 522(f)(2) even if the amount of the claimed wild card exemption was only $1.00. A specific finding is now necessary, however, in light of the subsequently filed Motions to Avoid, which rely on the same wild card

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exemption as the basis for avoiding the Judicial Liens as to the Debtors' additional properties.⁸ Accordingly, based on the representations made at the hearing on the First Motion to Avoid, this Court finds that each Debtor claimed $100 of their respective wild card exemption in connection with avoiding the Judicial Liens against the Lantana Avenue Property.

3. The Motions to Avoid should be denied in part with respect to the 2401 Vine Street, Ammon Avenue, Cottage Court, Desmond Avenue and Ward Street Properties because the Debtors' claimed exemption is not fully impaired by the Judicial Liens.

Chase argues that there is non-exempt equity in the 2401 Vine Street, Ammon Avenue, Cottage Court, Desmond Avenue and Ward Street Properties to which some portion of the Judicial Liens attach, thereby rendering the Judicial Liens unavoidable to the extent of the non-exempt equity. Analyzing each property individually, Chase employed the following formula to determine the non-exempt equity in these properties:

	Value of the property
Less:	Consensual mortgage
Less:	Debtors' claimed exemptions
	Non-exempt equity9

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The Debtors acknowledge that the Judicial Liens are not fully avoidable as to the Ammon Avenue Property because this property is not encumbered by a consensual mortgage. With respect to the 2401 Vine Street, Cottage Court, Desmond Avenue and Ward Street Properties, however, the Debtors argue that:

The existence of the [Judicial Liens] impair the exemptions that Debtors are entitled under 11 U.S.C. §522 under Ohio Revised Code Section 2329.66A(18), (wildcard) in the amount of Twenty Eight Dollars and fifty cents ($28.50) each. There is no equity in [the Properties]. . . .¹⁰

The amount of the judicial liens and the indebtedness secured by the mortgages exceeds the value of the real property, the judicial liens impair an exemption of the debtors ; therefore, the judicial liens are avoidable pursuant to Section 522 pursuant to Ohio Revised Code Section 2329.66A (18) utilizing Twenty Eight Dollars and fifty cents per address . . . for each Debtor.

Docket Number 166; see also Docket Number 143 (arguing that the Judicial Liens are avoidable because "the amount of all of the liens is far in excess of the value of the [property]"). It would

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therefore appear that the Debtors are advocating for the use of the following formula to determine whether the Judicial Liens are avoidable:

	Value of the property
Less:	Consensual mortgage
Less:	Judicial Liens
Less:	Debtors' claimed exemptions
	No equity/full avoidance of all Judicial Liens

The Debtors' approach to determining lien avoidance under § 522(f) has been expressly rejected by the Sixth Circuit Court of Appeals in Brinley v. LPP...