In re Cannon

• Citation: 568 B.R. 859
• Decision Date: 16 September 2016
• Docket Number: Case No. 3:15–bk–4525–PMG
• Parties: IN RE: Andrea Michelle CANNON, Debtor.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Florida

568 B.R. 859

IN RE: Andrea Michelle CANNON, Debtor.

Case No. 3:15–bk–4525–PMG

United States Bankruptcy Court, M.D. Florida, Jacksonville Division .

Signed September 16, 2016

Weldon M. Burnette, Mark Burnette PA, Ocala, FL, for Debtor.

Jerrett M. McConnell, McConnell Law Group, Jacksonville, FL, for Trustee.

ORDER ON DEBTOR'S MOTION TO AVOID LIEN OF KATHLEEN TAYLOR ON EXEMPT PROPERTY

PAUL M. GLENN, United States Bankruptcy Judge

THIS CASE came before the Court for a final evidentiary hearing on the Debtor's Motion to Avoid Lien of Kathleen Taylor on Exempt Property. (Doc. 10).

Under § 522(f) of the Bankruptcy Code, a debtor may avoid a judicial lien if (1) the lien had fixed on an interest of the debtor in property, and (2) the lien impaired an exemption to which the debtor would have been entitled.

On her schedules, the Debtor listed a 25% interest in certain real property located in Marion County, Florida, and claimed the property interest as exempt homestead. Kathleen Taylor is the holder of a judgment against the Debtor, and the judgment was recorded in the public records of Marion County.

The record shows: (1) that the 25% property interest is exempt in the Debtor's bankruptcy case; (2) that Taylor's lien impairs the exemption; (3) that Taylor's lien had attached while the Debtor was an owner of the property; and (4) that the lien had remained on the property until the Debtor acquired the 25% interest.

Under these circumstances, the Debtor may avoid the judicial lien under § 522(f), because Taylor's lien had fixed on an interest of the Debtor in property, and the lien impaired an exemption to which the Debtor would have been entitled.

Background

The Debtor, Andrea Michelle Cannon, is married with one young child. She is not employed.

On January 25, 2007, the Debtor and her father acquired approximately 5.6 acres of real property located at 11660 SE 1^st Street Road, Silver Springs, Florida (the Property). (Exhibit 1).

The Debtor lived in a home on the Property until the home was destroyed by a fire on June 1, 2013. (Exhibit 2).

On April 16, 2014, Kathleen Taylor (Taylor) obtained a Final Summary Judgment against the Debtor in the County Court in Marion County, Florida. (Exhibit 11). The Judgment was recorded in the public records of Marion County on April 21, 2014, and Taylor filed a Judgment Lien Certificate with the Secretary of State on April 30, 2014. (Exhibit 12).

On July 7, 2014, the Debtor signed a Warranty Deed conveying her one-half interest in the Property to her mother, Brenda Cannon. (Exhibit 13). The Warranty Deed provided that the Property was not the Debtor's homestead.

On December 14, 2014, Brenda Cannon died and devised her assets, including the one-half interest in the Property, to the Debtor and the Debtor's sister in equal shares. (Exhibit 21).

In 2015, the Debtor moved back to the Property with her husband. No dwelling is located on the site, and the couple lives in a camper owned by the Debtor's husband.

On October 14, 2015, the Debtor filed a petition under Chapter 7 of the Bankruptcy Code. On her schedules, the Debtor listed a 25% interest in the Property as an asset, and claimed the Property as exempt pursuant to article X, § 4(a)(1) of the Florida Constitution, and sections 222.01 and 222.02 of the Florida Statutes. (Docs. 1, 6).

Discussion

The Debtor filed a Motion to avoid Taylor's lien on the Property pursuant to § 522(f) of the Bankruptcy Code. Section 522(f) provides:

11 U.S.C. § 522. Exemptions

...

(f)(1) Notwithstanding any waiver of exemptions but subject to paragraph (3), the 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 subsection (b) of this section, if such lien is—

(A) a judicial lien, ...

11 U.S.C. § 522(f). "Under the statute, two elements must be satisfied for the debtor to avoid a judicial lien: (a) the lien must have fixed on an interest of the debtor in property; and (b) the lien must impair an exemption to which the debtor would have been entitled." In re Lezdey , 2007 WL 295213, at *5 (Bankr. M.D. Fla. 2007) (citing In re Cooper , 202 B.R. 319, 322 (Bankr. M.D. Fla. 1995), aff'd, 197 B.R. 698 (M.D. Fla. 1996) ).

The two elements were separately evaluated by the United States Supreme Court in Owen v. Owen , 500 U.S. 305, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991), and by the Eleventh Circuit Court of Appeals in Owen v. Owen , 961 F.2d 170 (11th Cir. 1992).

First, the Supreme Court addressed the question of whether a judicial lien "impairs an exemption to which the debtor would have been entitled." In Owen , a judgment creditor asserted that its judicial lien could not be avoided under § 522(f), because the lien had attached before the property became the debtor's homestead, and pre-existing liens are excepted from Florida's homestead exemption under Florida law. Owen v. Owen , 500 U.S. at 307, 111 S.Ct. 1833. The Court evaluated the creditor's contention as follows:

To determine the application of § 522(f) [bankruptcy courts] ask not whether the lien impairs an exemption to which the debtor is in fact entitled, but whether it impairs an exemption to which he would have been entitled but for the lien itself.

As the preceding italicized words suggest, this reading is more consonant with the text of § 522(f) —which establishes as the baseline, against which impairment is to be measured, not an exemption to which the debtor "is entitled," but one to which he "would have been entitled." The latter phrase denotes a state of affairs that is conceived or hypothetical, rather than actual, and requires the reader to disregard some element of reality. "Would have been" but for what ? The answer given, with respect to the federal exemptions, has been but for the lien at issue , and that seems to us correct.

...

We have no doubt, then, that the lower courts' unanimously agreed-upon manner of applying § 522(f) to federal exemptions—ask first whether avoiding the lien would entitle the debtor to an exemption, and if it would, then avoid and recover the lien—is correct. The question then becomes whether a different interpretation should be adopted for state exemptions. We do not see how that could be possible....

On the basis of the analysis set forth above with respect to federal exemptions, and in light of the equivalency of treatment accorded to federal and state exemptions by § 522(f), we conclude that Florida's exclusion of certain liens from the scope of its homestead protection does not achieve a similar exclusion from the Bankruptcy Code's lien avoidance provision.

Owen v. Owen , 500 U.S. at 310–15, 111 S.Ct. 1833 (Emphasis in original). In Owen , therefore, the Supreme Court acknowledged that Florida law does not permit the assertion of the homestead exemption against pre-existing liens, but ultimately concluded that the exclusion does not prevent the avoidance of the lien under § 522(f). See In re Wilbur , 217 B.R. 314, 317–18 (Bankr. M.D. Fla. 1998) ; and In re Cooper , 202 B.R. 319, 322–23 (Bankr. M.D. Fla. 1995). Consequently, the judicial lien in Owen impaired an exemption to which the debtor would have been entitled, even though it had attached before the property became the debtor's homestead.

The Supreme Court determined only the second element of § 522(f), however, and remanded the case to the Eleventh Circuit Court of Appeals to determine the first element. Owen v. Owen , 500 U.S. at 314, 111 S.Ct. 1833.

On remand, the Eleventh Circuit considered the issue of "whether there was a fixing of a lien on an interest of the debtor" for purposes of § 522(f). Owen v. Owen , 961 F.2d at 172. To avoid a judicial lien under that section, the Eleventh Circuit determined that the debtor must have had the property interest before the lien attached to the interest. Id . (quoting Far rey v. Sanderfoot , 500 U.S. 291, 111 S.Ct. 1825, 1829, 114 L.Ed.2d 337, 344 (1991) ).

In other words, for there to be "a fixing of a lien on an interest of the debtor," as required by § 522(f), the debtor must have had the property interest prior to the fixing of the lien. Owen v. Owen , 961 F.2d at 172 (Emphasis in original). If "the debtor had no property interest prior to the fixing of the lien," according to the Eleventh Circuit, "there was never a fixing of a lien on an interest of the debtor." Id . (Emphasis in original). Because the lien in Owen attached to the property at the same time as the debtor acquired the interest, the requirement of § 522(f) was not met, and the Court determined that the debtor could not avoid the lien. Id . at 172–73.

A. "Impairs an exemption to which the debtor would have been entitled"

In this case, the Property at issue is approximately 5.6 acres of real property in Silver Springs, Florida. The Debtor claimed a 25% interest in the Property as exempt on her bankruptcy schedules. (Docs. 1, 6). The claim of exemption was made pursuant to article X, § 4(a)(1) of the Florida Constitution, and §§ 222.01 and 222.02 of the Florida Statutes.

1. Exemptions are determined as of the petition date.

For purposes of § 522(f), a debtor's entitlement to a claim of exemption is determined as of the petition date. In re Harle , 422 B.R. 310, 318 n. 7 (Bankr. M.D. Fla. 2010).

Under the Code, [ ], the question is whether the lien impairs an "exemption to which the debtor would have been entitled under subsection (b)," and under subsection (b), exempt property is determined "on the date of the filing of the petition," not when the lien fixed.

Owen v. Owen , 500 U.S. at 321, n. 6, 111 S.Ct. 1833. "The Supreme Court of the United States has instructed that the time for deciding a debtor's entitlement to an exemption for § 522(f) purposes is at the time of the filing of the petition in bankruptcy and not at the time the lien attaches." In re Allen , 217 B.R. 945, 951 (Bankr. M.D. Fla. 1998) (quoted in In re Harle , 422 B.R. at 318, n. 7 ). See also In re Ballato , 318 B.R. 205, 209 (Bankr....