In re Duncan, 87-C-894-S.

• Decision Date: 15 March 1988
• Docket Number: No. 87-C-894-S.,87-C-894-S.
• Citation: 85 BR 80
• Parties: In re John Thomas DUNCAN and Katherine Virginia Duncan, a/k/a Katherine Virginia Mullins, Debtors. John Thomas DUNCAN and Katherine Virginia Duncan, Appellants, v. Diane M. SCZEPANSKI, Appellee.
• Court: U.S. District Court — Western District of Wisconsin

85 B.R. 80 (1988)

In re John Thomas DUNCAN and Katherine Virginia Duncan, a/k/a Katherine Virginia Mullins, Debtors John Thomas DUNCAN and Katherine Virginia Duncan, Appellants, v. Diane M. SCZEPANSKI, Appellee.

No. 87-C-894-S.

United States District Court, W.D. Wisconsin.

March 15, 1988.

Galen Pittman, La Crosse, Wis., for appellants.

Bruce Brovold, Arcadia, Wis., for appellee.

ORDER

SHABAZ, District Judge.

Petitioners John and Katherine Duncan are debtors in a bankruptcy action under Chapter 7 of the United States Bankruptcy Code. Petitioners filed an adversary complaint within the Chapter 7 proceeding to determine whether a lien on their real estate which was granted to John Duncan's former spouse, Diane Sczepanski, pursuant to a divorce decree, is a judicial lien avoidable under § 522(f)(1) of the Bankruptcy Code. Petitioners now appeal the decision of the bankruptcy court dismissing their adversary complaint and holding that the lien is not avoidable under the Bankruptcy Code.

This Court has jurisdiction to hear this appeal from the final order of the bankruptcy court pursuant to 28 U.S.C. § 158(a).

Facts

The parties have stipulated to the following facts:

Diane M. Sczepanski hereinafter Sczepanski and John T. Duncan hereinafter Duncan were married on November 6, 1975, a first marriage for Sczepanski and a second marriage for Duncan and thereafter resided together on a farm that was owned by Duncan prior to the marriage. In 1980 Sczepanski commenced a divorce action. A Marital Settlement Stipulation was reached as to certain issues but not as to property division, child support, attorney fees and guardian ad litem fees. These issues were tried to the Court on September 17, 1981. After briefs were filed, the Circuit Court for Jackson County (Wisconsin) issued a Memorandum Decision as to all of these issues on November 13, 1981. After an additional hearing, the Court filed its FINDINGS OF FACT, CONCLUSIONS OF LAW AND JUDGMENT OF DIVORCE. . . . The Memorandum Decision on page 14, ordered:

"(2) As a full, final and complete settlement the sum of $25,000.00 is awarded to Mrs. Duncan and subject to the following terms:

(a) Payable on or before January 1, 1982;

(b) A lien upon the entire farm of Mr. Duncan;

(c) In default of payment the following described 40, SE ¼ of the SE ¼ of Section 7-20-6 West, plus necessary egress and ingress, if necessary, over the W ½ of the NE ¼ of Section 18-20-6 West, will be transferred to Frank Bichanich, trustee, on January 1, 1982; that Mr. Bichanich is instructed to sell such property on sealed bids to the highest bidder, and that both Diane M. Duncan and John T. Duncan shall execute warranty deed for such conveyance under penalty of contempt of court; that in the event such amount is not sufficient, that the balance will be paid in a period of over five years with six month installments, commencing on July 1, 1982, with interest at the trade of 12 percent."

Duncan did not consent to this property division and, in fact, appealed the property division portion of the JUDGMENT OF DIVORCE to the Wisconsin Court of Appeals. The Circuit Court property division was affirmed by the Court of Appeals.

The "40" described in paragraph (c) of the Memorandum Decision was sold by the trustee and Sczepanski received the proceeds leaving an outstanding balance which Duncan has not paid. On October 9, 1985, Sczepanski commenced an action to foreclose the lien on the balance of the farm described on page 14 of the Memorandum Decision. Because of a variance in the language between the Memorandum Decision and the JUDGMENT OF DIVORCE, the Jackson County Circuit Court was asked to determine whether the divorce judgment as docketed created a judicial lien or a mortgage lien which in fact which would allow a foreclosure proceeding under the Wisconsin Statutes. . . .

On June 9, 1986 plaintiff filed a petition under Chapter 7. . . .

For reasons not relevant here, the initial Chapter 7 file was closed before any decision on this lien issue was reached. On May 28, 1987, the Bankruptcy Court reopened the file and on June 4, 1987, Duncan filed this action asking that the lien created by the JUDGMENT OF DIVORCE be avoided. Sczepanski has answered stated that the lien is not one which may be avoided.

At all times relevant, the farm in question has been the homestead of Duncan. Duncan claimed the farm as exempt real estate pursuant to 815.20 in an amount not to exceed $40,000.00. The entire farm consists of 135 acres. Sczepanski objected to the designation of this property as exempt. A brief phone conference call Hearing was held on this question on July 28, 1986 and no decision was reached. Duncan claims that Sczepanski withdrew her objection to this exemption claim and Sczepanski denies withdrawing her objection.

Sczepanski alleges that there is still due her, under the terms of the Judgment of Divorce, the principal sum of $25,000.00 plus interest in the sum of $10,820.70 computed to August 13, 1987. Sczepanski alleges that interest continues to accrue at $8.22 per day. This obligation was discharged on September 3, 1986.

Memorandum

The sole issue before the Court in this matter is whether a lien on exempt property granted under a divorce judgment to secure payment of a property settlement may be avoided under § 522(f)(1) of the Bankruptcy Code. All facts having been stipulated, this issue is a question of law subject to de novo review by this Court. In Re Evanston Motor Co., Inc., 735 F.2d 1029, 1031 (7th Cir.1984).

The Court finds that the decision of the bankruptcy court is in direct conflict with the unambiguous language of the Bankruptcy Code and therefore reverses the decision.

Section 522(f)(1) provides as follows:

Notwithstanding any waiver of exemptions, 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 the lien is — (1) a judicial lien. . . .

Judicial lien is defined in § 101(32) as a "lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." Lien is defined in § 101(33) of the Bankruptcy Code as a "charge against or interest in property to secure payment of a debt or performance of an obligation."

In this case when the state court granted the divorce judgment it plainly created a lien to secure payment of the property settlement awarded by the divorce decree. The lien is, without a doubt, obtained in a judicial proceeding and grants an interest in property to secure payment of the obligation created by the property settlement. Sczepanski's lien fits precisely within the Bankruptcy Code's definition of a judicial lien.

This position was articulated by the dissent in Boyd v. Robinson, 741 F.2d 1112 (8th Cir.1984) (Ross, dissenting). Subsequent to the bankruptcy court's decision in this matter, this position has also been adopted by the Tenth Circuit Court of Appeals and by the Bankruptcy Appeals Panel for the Ninth Circuit. Maus v. Maus, 837 F.2d 935 (10th Cir.1988). Pederson v. Stedman, 78 B.R. 264 (9th Cir. BAP, 198...