In re Curry, Bankruptcy No. 579-1155.
| Decision Date | 21 July 1980 |
| Docket Number | Bankruptcy No. 579-1155. |
| Citation | 5 BR 282 |
| Parties | In re John CURRY, Jr. and Jessie Mae Curry, Debtors. John CURRY, Jr. and Jessie Mae Curry, Plaintiffs, v. ASSOCIATES FINANCIAL SERVICES, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
J. L. Reich, Allentown, Pa., for John and Jessie Curry.
Brian A. Bash, Cleveland Heights, Ohio, for Associates Financial Services.
The debtors, husband and wife, filed a joint petition under Chapter 7 of the Bankruptcy Code and, in the course of the Chapter 7 proceeding, filed a motion to avoid the nonpurchase-money security interest of Associates Financial Services on the debtor's household goods pursuant to 11 U.S.C. section 522(f). Associates Financial Services (hereinafter referred to as Associates) opposed the avoidance of its security interest.
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 December 17, 1979.
2) The debtors claimed their furniture and household goods exempt under Ohio Revised Code section 2329.66(A)(4)(b).
3) No party in interest objected to the property claimed exempt by the debtors, except Associates which claims a security interest in the property claimed exempt.
4) Associates has a security agreement and duly filed a financing statement on August 7, 1978, as required by Ohio Revised Code 1309, on the property claimed exempt by the debtors.
5) The debtors now have a balance of Four Thousand Four Hundred Fifty Five Dollars and Ninety Three Cents ($4,455.93) due to Associates on the loan.
6) The security interest of Associates is a nonpossessory, nonpurchase-money security interest in household furnishings and goods.
The issues are:
1) whether pursuant to 11 U.S.C. section 522(f), the debtors can avoid nonpossessory, nonpurchase-money security interests on certain household and personal goods that impair exemptions to which the debtors are entitled, notwithstanding Ohio Revised Code Ann. section 2329.661(C);
2) whether 11 U.S.C. section 522(f) can be applied retrospectively to contractual obligations made prior to the effective date of the new Bankruptcy Code; and
3) whether, in applying 11 U.S.C. section 522(f) to obligations made prior to the effective date of the new Bankruptcy Code, the debtors are entitled to claim the Ohio exemptions which were in effect at the time the obligations were incurred or the Ohio exemptions in effect at the time the debtors filed their petition in bankruptcy.
DISCUSSIONS OF LAW
The first issue is whether, pursuant to 11 U.S.C. section 522(f), the debtors can avoid nonpossessory, nonpurchase-money security interests on certain household and personal goods that impair exemptions to which the debtors are entitled, notwithstanding Ohio Revised Code Ann. section 2329.661(C).
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 one hundred eighty (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 one hundred eighty (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 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.
Ohio Revised Code Section 2329.661(C) provides that:
Section 2329.66 of the Revised Code does not affect or invalidate any sale, contract of sale, conditional sale, security interest, or pledge of any personal property, or any lien created thereby.
Debtors claimed their exemptions under O.R.C. 2329.66 and are attempting to avoid the nonpurchase-money security interest of Associates pursuant to 11 U.S.C. section 522(f). This contradicts the language of O.R.C. 2329.661(C). However, it will be shown that the Federal bankruptcy statute, 11 U.S.C. section 522(f) is superior to the state exemption statute, O.R.C. 2329.661(C).
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 4 of the United States Constitution provides: "The Congress shall have power . . . to make 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 avoiding power of the debtor under 11 U.S.C. section 522(f) only reaches judicial liens on any exempt property and non-possessory, nonpurchase-money security interests on certain household and personal goods to the extent that an exemption is impaired.
The Bankruptcy Code defines a judicial lien as a lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding. 11 U.S.C. Section 101(27). There are two types of security interests under the Uniform Commercial Code and under Ohio law: (1) a purchase money security interest, and (2) a nonpurchase-money security interest. A purchase money security interest is a security interest which is taken or retained by the seller of the collateral to secure all of (or) part of its price; or is taken by a person who by making advances or incurring an obligation gives value to enable the debtor to acquire rights in or to the use of collateral if such value is in fact so used. Ohio Rev. Code Ann. section 1309.05.
Under Ohio Rev. Code Ann. 1309.21(A)(4) a purchase money security interest in consumer goods is automatically perfected and under Ohio Rev. Code Ann. section 1309.31(D) takes...
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