In re Ballinger, 4:13–bk–11699.

• Decision Date: 25 November 2013
• Docket Number: No. 4:13–bk–11699.,4:13–bk–11699.
• Citation: 502 B.R. 558
• Parties: In re Jennifer Ann BALLINGER, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas

502 B.R. 558

In re Jennifer Ann BALLINGER, Debtor.

No. 4:13–bk–11699.

United States Bankruptcy Court,

E.D. Arkansas,

Little Rock Division.

Nov. 25, 2013.

Caroline Curry Lewis, Brad Hendricks Law Firm, Little Rock, AR, for Debtor.

ORDER

JAMES G. MIXON, Bankruptcy Judge.

Jennifer Ballinger (Debtor) filed for protection under Chapter 7 of the United States Bankruptcy Code on March 22, 2013. On April 15, 2013, the Debtor filed a motion to avoid a lien pursuant to 11 U.S.C. 522(f) with a 21–day notice of opportunity to object. On May 8, 2013, an order was entered avoiding the lien. On May 14, 2013, Teresa Perkins (Perkins), the alleged judgment lien creditor, filed a motion to set aside the order avoiding the lien, alleging lack of notice. On June 7, 2013, the Debtor filed a response alleging proper notice. Perkins filed a response. A hearing was held on June 21, 2013, whereby the Court granted the motion to set aside the order avoiding the lien, finding that service was inadequate. The Debtor filed a renewed motion to avoid Perkins' lien on July 1, 2013. On July 8, 2013, Perkins filed a response and then an amended response on July 11, 2013.

Trial on the merits was held in Little Rock, Arkansas, on August 23, 2013, and at the conclusion of the trial the matter was taken under advisement. Both parties have filed post-trial briefs with the Court.

This Court has jurisdiction to decide this matter in accordance with 28 U.S.C. § 1334 and § 157(a). The matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(J) & (K).

I. FACTS

The Debtor and Juan Sebastian Nunez–Duron (Nunez) were married on September 8, 2011. (Tr. at 24.) Previous to his marriage to the Debtor, Nunez was married to Teresa Nunez (now Perkins). Nunez and Perkins had a child who was born on December 26, 2003. (Ex. 9.) Subsequently, Nunez and Perkins divorced. Pursuant to the divorce decree signed on December 12, 2005, Nunez and Perkins were each required to maintain life insurance coverage with the other as the beneficiary in the amount of $150,000.00 until the minor child would reach the age of majority. (Ex. 9.) Nunez was ordered to pay child support based on the family support chart amount in another paragraph, which was in the amount of $360.00 a month. (Ex. 9.) Neither party was ordered to pay alimony to the other. (Ex. 9.)

Sometime after the divorce decree, Nunez let his insurance policy lapse. Nunez purchased a new policy for $150,000.00 with the Debtor named as the beneficiary. Nunez also purchased a home in which the Debtor and Nunez resided as a married couple until his death on November 21, 2011. (Tr. at 24 & 55.) The house was titled in Nunez's name alone.

Sometime after Nunez's death, the Debtor received the $150,000.00 in life insurance proceeds.¹ At some point after receiving these proceeds but before May 15, 2012, the Debtor spent about $44,000.00 of the proceeds. ² (Tr. at 42.)

A probate proceeding was filed in Pulaski County and in December or January of 2011, Perkins filed a claim in the probate proceeding for the insurance proceeds. On March 13, 2012, the probate court authorized the Debtor to buy the same house in which she lived with Nunez from his estate. (Ex. 5 & Tr. at 52.) Sometime in late March of 2012, Perkins filed a petition with the probate court to impose a constructive trust on the remaining insurance proceeds. (Tr. at 60–62.) On May 15, 2012, the divorce court issued a temporary restraining order stating that the Debtor, “should be restrained from dispersing any of the insurance proceeds which she still has until further order of the Court.” (CR Ex. 1.)

On June 28, 2012, the Debtor purchased the house in Pulaski County from Nunez's estate for $155,813.47, consisting of a loan for $146,155.00 and cash in the sum of $5,210.74. (Ex. 1, 3, 5 & 5; Tr. at 25.) The Debtor testified that the company she worked for lent her the money for the cash payment and that she used no part of the insurance proceeds to purchase the home. (Tr. at 28 & 52.)

On September 2012, the Debtor paid $100,000.00 of the life insurance proceeds to Perkins, pursuant to an order of the probate court. (Tr. at 65.) On January 29, 2013, the probate court entered a judgment against the Debtor and in favor of Perkins in the amount of $44,575.99. (Ex. 6.) The Debtor filed bankruptcy and listed the current value of her home at $154,000.00, with a secured claim in favor of the lending bank in the amount of $144,599.00, and claimed her federal exemption on the home in the amount of $9,401.00. (Ex. 7 & 8.)

II. ARGUMENT

The Debtor argues that the lien which was created by the recording of the $44,575.99 judgment in favor of Perkins against the Debtor should be avoided pursuant to 11 U.S.C. § 522(d) & (f). The Debtor argues the debt does not qualify as a domestic support obligation. The Debtor also argues that the order from the probate court is not an enforceable judgmentand the order from the divorce court was never reduced to a judgment.

Perkins argues that the Debtor is not entitled to her exemption because she acquired her interest in the property in violation of the state court's temporary restraining order. Perkins also argues the judgment does not impair the exemption because the home is worth more than the mortgage and the judgment. Finally, Perkins contends the judgment is nondischargeable because it is a domestic support obligation.³

III. DISCUSSION

11 U.S.C. § 522(f)(1)(A) 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 ... if such a lien is a judicial lien, other than a judicial lien that secures a debt of a kind that is specified in section 532(a)(5).” A debt specified in 11 U.S.C. § 523(a)(5) is “a domestic support obligation” debt.

In order to avoid a lien, three conditions have to be met: (1) the lien must be a judicial lien; (2) the lien must fix on an interest of the debtor in property; (3) the lien must impair an exemption of the debtor. Taylor v. Taylor (In re Taylor), 271 B.R. 157, 160 (Bankr.W.D.Ark.2001) The definition of a domestic support obligation was added to the Code by BAPCPA in 2005, as was the provision providing that domestic support obligations were unavoidable. Therefore, subsequent to 2005, a fourth condition must be met in order to avoid a lien, that is, (4) the lien must not secure a domestic support obligation debt.

An objecting party has the burden of proving that exemptions are not properly claimed. Fed. R. Bankr.4003. As the movant, the Debtor carries the burden of proving by a preponderance of the evidence every element required to establish his or her entitlement to lien avoidance under 522(f). In re Armenakis, 406 B.R. 589, 604 (Bankr.S.D.N.Y.2009) (citing In re Banner, 394 B.R. 292, 300 (Bankr.D.Conn.2008)); In re Uhrich, 355 B.R. 783, 788 (Bankr.D.Neb.2006); In re Tinker, 355 B.R. 380, 383 (Bankr.D.Mass.2006); Conner v. Wrobel (In re Conner), 300 B.R. 644, 648 (Bankr.W.D.Pa.2003); In re Soost (In re Soost), 262 B.R. 68, 74 (8th Cir. BAP 2001). Based on the above case law and the lack of any allocation of the burden in the statute, the Court finds that the Debtor has the burden to prove by a preponderance that the lien does not secure a debt that resulted from a domestic support obligation. See also Deangelis v. Lacoste (In re Deangelis), 2010 WL 1509111, *2 (Bankr.M.D.Pa.2010).

A. Does Perkins have a judicial lien?

A judicial lien is a “lien obtained by a judgment....” 11 U.S.C. § 101(36). In other words, “a judicial lien is an interest which encumbers a specific piece of property granted to a judgment creditor who was previously free to attach any property of the debtor's to satisfy his interest but who did not have an interest in a specific piece of property before the occurrence of some judicial action.” Taylor v. Taylor (In re Taylor), 271 B.R. 157, 160 (Bankr.W.D.Ark.2001) (quoting Boyd v. Robinson (In re Boyd), 31 B.R. 591, 594 (D.Minn.1983)). A judgment granted by an Arkansas court,

shall be a lien on the real estate owned by the defendant in the county in which the judgment was rendered from the date of its rendition only if the clerk of the court which rendered the judgment maintains a permanent office within the county, at which office permanent records of the judgments of the court are continuously kept and maintained, and the judgment has been filed with the circuit clerk.

Ark.Code Ann. 16–65–117(a)(1).

The Debtor makes an argument in her brief that the divorce decree was never reduced to a judgment and the probate judgment is invalid because the court lacked subject matter jurisdiction since the Debtor was never served with a summons and complaint in the probate proceeding. It does not matter that the divorce decree was not reduced to a judgment because Perkins has a judgment from the probate court that has not been appealed and is entitled to full faith and credit. (Ex. 6.) Pursuant to the Rooker–Feldman doctrine, this Court is not an appellate court of the state courts and does not have jurisdiction to decide that the state court judgment was void. Snider v. City of Excelsior Springs, Missouri, 154 F.3d 809, 812 (8th Cir.1998). There is no procedural due process exception to the Rooker–Feldman doctrine. Snider v. City of Excelsior Springs, Missouri, 154 F.3d 809, 812 (8th Cir.1998); Postma v. First Federal Savings & Loan of Sioux City, 74 F.3d 160, 162 n. 3 (8th Cir.1996). The Debtor's concerns must be addressed to the state court which entered the judgment.

The Debtor bought the home from Nunez's estate on June 28, 2012. The judgment of the probate court out of Pulaski County, Arkansas, was entered on January 29, 2013, which resulted in a lien affixing to the Debtor's interest in her home as of that date. Therefore, Perkins has a valid judicial lien that affixed to the Debtor's interest in her home.

B. Does the lien impair the exemption?

A lien impairs an exemption to the extent that...