In re Davis

• Decision Date: 30 September 2015
• Docket Number: Case No. 14–52909
• Citation: 539 B.R. 334
• Parties: In re: Clotilde Davis, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

539 B.R. 334

In re: Clotilde Davis, Debtor.

Case No. 14–52909

United States Bankruptcy Court, S.D. Ohio, Eastern Division.

Signed September 30, 2015

Filed October 1, 2015

Sondra O. Bryson, Columbus, OH, for Debtor.

Jordan S. Berman, Ohio Attorney General's Office, Donn D. Rosenblum, Attorney General of Ohio, Columbus, OH, for Intervenor.

MEMORANDUM OPINION ON DEBTOR'S MOTION TO AVOID LIEN

C. Kathryn Preston, United States Bankruptcy Judge

This cause came on for hearing on February 5, 2015 to consider Debtor's Motion to Avoid Judicial Lien (Doc. 43) (the “Motion”), the response (Doc. 45) of Kenny Centre, LLC (“Creditor”), the response (Doc. 46) of the Ohio Attorney General (the “Attorney General”), and Debtor's reply (Doc. 49)¹ . Present at the hearing were attorney Sondra Bryson as counsel for Debtor, attorney Jeffrey Jordan as counsel for Creditor, and attorneys Jordan Berman and Donn Rosenblum as counsel for the Attorney General.

The Motion seeks avoidance of Creditor's judicial lien on Debtor's residential real property pursuant to 11 U.S.C. § 522(f). The issues before the Court are (1) whether certain amendments to Ohio's exemption statute violate the Takings Clause of the United States Constitution and/or the Ohio Constitution, and (2) whether Debtor's application of Ohio's increased homestead exemption to avoid Creditor's lien violates the Ohio Constitution's prohibition of retroactive laws.

I. Jurisdiction

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and General Order 05–02, entered by the United States District Court for the Southern District of Ohio, referring all bankruptcy matters to this Court. Venue in this Court is proper pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (K).

II. Background

A. Findings of Fact

On or about March 28, 2001, Debtor acquired certain residential real property commonly known as 6025 Acropolis Way, Columbus, Ohio 43231 (the “Property”). Debtor granted a first mortgage on the Property on December 26, 2002, to secure a loan in the original principal amount of $89,250.00 (the “Mortgage Loan”). On January 17, 2006, Creditor obtained a judgment lien on the Property pursuant to a certificate of judgment filed in the Franklin County, Ohio, Court of Common Pleas, judgment case number 06 JG 000275 (the “Judgment Lien”). The Judgment Lien secures a judgment in the original amount of $30,134.09, plus costs and interest from December 29, 2005. Creditor renewed the Judgment Lien on November 12, 2010.

Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code on April 24, 2014 (the “Petition Date”). As of the Petition Date, the value of the Property was $119,700.00, the balance of the Mortgage Loan was $52,503.00, and the outstanding balance of the judgment secured by Creditor's Judgment Lien was $70,567.65. See Proof of Claim 1–1, May 6, 2014. The Property is also encumbered by seven (7) liens held by the Ohio Department of Taxation (collectively, the “Tax Liens”)² . The Tax Liens secure separate tax debts in the original amount of $6,038.49 in the aggregate³ . On her Amended Schedule C (Doc. 21), Debtor claimed an exemption in the Property of $125,000.00 pursuant to Ohio Revised Code § 2329.66(A)(1).

B. Amendments to Ohio's Homestead Exemption

At the time Creditor obtained the Judgment Lien, Ohio Revised Code § 2329.66(A)(1) (hereinafter, the “Homestead Exemption”) allowed persons domiciled in the state of Ohio to exempt from execution, garnishment, attachment, or sale to satisfy a judgment or order, “that person's interest, not to exceed five thousand dollars, in one parcel or item of real or personal property that the person or a dependent of the person uses as a residence.” Ohio Rev. Code § 2329.66(A)(1)(b) (2005). In 2008, the Ohio General Assembly amended Ohio Revised Code § 2329.66 to increase the Homestead Exemption to $20,200.00 (the “2008 Amendment”)⁴ . Then, in 2012, the General Assembly passed Substitute House Bill No. 479 (“H.B. 479”). Effective March 27, 2013, H.B. 479 increased the Homestead Exemption to $125,000.00 (the “2013 Amendment,” and with the 2008 Amendment, generally, an “Amendment” or the “Amendments”)⁵ .

C. Arguments of the Parties

Pursuant to 11 U.S.C. § 522(f), Debtor's Motion seeks to avoid Creditor's Judgment Lien against the Property on the basis that such lien fully impairs Debtor's claimed Homestead Exemption of $125,000.00. Creditor does not contest that the Judgment Lien is avoidable in its entirety, if Debtor's Homestead Exemption is based on the 2013 Amendment; nor does Creditor contest that applicable law prescribes the use of the 2013 Amendment in determining whether Debtor may avoid the Judgment Lien under § 522(f). Rather, Creditor argues that, because its Judgment Lien attached to the Property in 2006, application of the 2008 Amendment or the 2013 Amendment to avoid any portion of the Judgment Lien would impair Creditor's already-vested substantive rights, and thus, violate the Ohio Constitution's prohibition of retroactive laws. Creditor further contends that the 2008 Amendment and/or the 2013 Amendment, as applied to the Judgment Lien, results in a complete deprivation of value of the Judgment Lien, thereby violating Creditor's rights under the Takings Clause of both the United States Constitution and the Ohio Constitution. Accordingly, Creditor seeks to limit Debtor's Homestead Exemption to $5,000.00—the Homestead Exemption in effect at the time the Judgment Lien attached to the Property.

In response, Debtor and the Attorney General assert that neither the 2008 Amendment nor the 2013 Amendment are being applied retroactively. They contend that the focal point is not when the property being impaired is acquired, but when the exemption is being asserted, which occurs at the time of a forced sale or on the date of commencement of a bankruptcy case. As to Creditor's assertion that the 2008 Amendment and/or the 2013 Amendment are unconstitutional takings, the Attorney General and Debtor aver that the increases in the Homestead Exemption were merely the Ohio legislature adjusting the benefits and burdens between debtors and creditors to provide greater protection to homeowners, which does not amount to an unconstitutional taking. Debtor further claims that the 2008 Amendment and the 2013 Amendment do not actually deprive Creditor of any property; rather, it is the application of § 522(f) that extinguishes Creditor's property rights. Therefore, as a Homestead Exemption does not, in and of itself, impair Creditor's property rights, Debtor contends that Creditor's attack on the 2008 Amendment and 2013 Amendment is conceptually flawed.

III. Analysis

A. Section 522 and Impairment of the Judgment Lien

Section 522(b) of the Bankruptcy Code allows individual debtors to exempt from property of the estate the property listed in § 522(d) or any property that is exempt under state or local law applicable on the date of the filing of the petition⁶ . 11 U.S.C. § 522(b). However, a state may “opt-out” of the § 522(d) exemptions and limit debtors to the exemptions listed under state or local law and applicable nonbankruptcy federal law. 11 U.S.C. § 522(b)(3). Ohio has done so, and thus, the debtors domiciled in Ohio may only claim exemptions authorized under Ohio Revised Code § 2329.66, other applicable state or local law, and applicable nonbankruptcy federal law. See Ohio Rev. Code § 2329.662 (“[T]his state specifically does not authorize debtors who are domiciled in this state to exempt the property specified in the ‘Bankruptcy Reform Act of 1978[.]’ ”).

Pursuant to 11 U.S.C. § 522(f), 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 subsection (b) of this section, if such lien is—(A) a judicial lien[.]” 11 U.S.C. § 522(f)(1). Section 522(f)(2)(A) describes how to calculate the extent to which a lien impairs an exemption:

For the purposes of this subsection, a lien shall be considered to impair an exemption to the extent that the sum of—

(i) the lien;

(ii) all other liens on the property; and

(iii) the amount of the exemption that the debtor could claim if there were no liens on the property;

exceeds the value that the debtor's interest in the property would have in the absence of any liens.

11 U.S.C. § 522(f)(2)(A).

In the instant case, the parties do not dispute that the 2013 Amendment established the amount of the Homestead Exemption in effect on the date Debtor filed her petition under Chapter 7 of the Bankruptcy Code, and thus, if the Bankruptcy Code and Ohio Revised Code are applied as written, the 2013 Amendment is applicable. In that instance, the calculation of the extent to which the Judgment Lien impairs Debtor's Homestead Exemption is as follows:

Creditor's Judgment Lien	$ 70,567.65
Mortgage Loan	$ 53,503.00
Tax Liens	$ 6,038.49
Debtor's Exemption (2013 Amendment)	$ 125,000.00
Total Liens & Exemption	$ 255,109.14
Less:
Debtor's Interest in the Property	$ (119,700.00)
Extent to Which the Judgment Lien Impairs Exemption	$ 135,409.14

Debtor's exemption is impaired “to the extent that the sum of [all liens and the exemption] exceeds the value [of] the debtor's interest in the property” absent the liens. 11 U.S.C. § 522(f)(2)(A). The impairment ($135,409.14) obviously exceeds Creditor's Judgment Lien ($70,567.65), and therefore, the Judgment Lien is avoidable in its entirety. However, if the Homestead Exemption is limited to $5,000.00, as Creditor contends is mandated by the United States and Ohio Constitutions, then the Homestead Exemption would only be impaired to the extent of $15,409.14, and $55,158.51 of the Judgment Lien would remain attached to the Property. If the 2008 Amendment were applied to the calculation under § 522(f)(2)(A), the Homestead Exemption would be impaired to the extent of $30,609.14, and the Judgment Lien would remain attached to the...