In re Dunn

• Decision Date: 08 September 1988
• Docket Number: Bankruptcy No. 87-60765.
• Citation: 109 BR 865
• Parties: In re Carol Dee DUNN, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

109 B.R. 865 (1988)

In re Carol Dee DUNN, Debtor.

Bankruptcy No. 87-60765.

United States Bankruptcy Court, N.D. Indiana, Hammond Division at Gary/Lafayette.

September 8, 1988.

Thomas Tuytschaever, Schererville, Ind., for debtor.

Robert Stochel, Crown Point, Ind., for plaintiff.

MEMORANDUM OPINION AND ORDER¹

KENT LINDQUIST, Chief Judge.

I Statement of Proceedings

This Chapter 7 case comes before the Court pursuant to James Dunn's (hereinafter: "Creditor") Objection filed October 20, 1987 to Carol Dee Dunn's (hereinafter: "Debtor") Motion to Avoid Lien filed September 15, 1987. The Creditor's objection is based upon the grounds that the interest of the Creditor in the real estate is not a "judicial lien", and consequently is not avoidable pursuant to 11 U.S.C. § 522(f)(1). The Creditor asserts that a Property Settlement Agreement between the parties incorporated into their Dissolution Decree protected a pre-existing property interest that existed in the Creditor in the marital property, and therefore the Debtor's Motion to Avoid the Lien not be granted.

By pre-hearing Order entered November 10, 1987, the parties stipulated that there was no need for submission of evidence on the issue, as the dispute involves a question of law only. The parties having briefed the issue per the scheduling order in said order, this contested matter is now ripe for resolution.

On November 23, 1981, the Lake Superior Court entered a Dissolution Decree dissolving the marriage of the Creditor and the Debtor. The Court also ordered, and made a part of said decree, a certain "Separation Agreement for Custody, Child Support, and Property Division." (See Exhibit "B" to Creditor's Application to Abandon filed September 24, 1987, which per order of court on November 10, 1987, was consolidated with the Motion to Void Lien).

The Property Settlement Agreement, duly executed by the parties, in its relevant part stated as follows:

Paragraph 3. Marital Residence.

(a) The marital residence located at 1428 Chestnut Avenue, Hammond, Indiana, shall be quit claimed by the husband to the wife and shall be held exclusively by the wife. The wife shall be responsible for all mortgage, insurance, taxes, and utility payments on said residence, and agrees to hold the husband harmless therefrom.

(b) That in return for quit claiming the marital residence to the wife, the husband shall receive a Promissory Note in the amount of $12,000.00, payable without interest within five years, or at the time the house is sold, the wife remarries, or lives in a state of purported marriage. Said note shall be secured by the house. (Emphasis added).

The Dissolution Decree in its relevant part states as follows:

The Court further finds that the parties hereto have entered into an agreement concerning the custody of their children, child support, and disposition of their property, which is filed herein and is in the following words and figures, to wit: (H.I.)

* * * * * *

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED by the Court that the parties hereto have entered into an agreement concerning of the custody of their children, child support and the disposition of their property, which is now by the Court approved, filed herein, made a part hereof, and each of the parties is ordered to carry out the terms and provisions of said agreement.

The costs herein are paid.

All of which is ordered, adjudged, and decreed this 23rd day of November, 1981.

James Richards Judge (Emphasis added).

II Conclusions of Law and Discussion

No objection was made by counsel to the jurisdiction of this Court as to this matter, the Court finds jurisdiction to be present and that this is a core proceeding pursuant to 28 U.S.C. § 157.

The issue presented by Creditor's objection is whether 11 U.S.C. § 522(f)(1) applies to a marriage dissolution decree, and, more specifically, whether § 522(f)(1) applies to a consensual property settlement agreement between the parties to the dissolution decree whereby the Debtor voluntarily grants to the ex-spouse a lien in the marital property, and that agreement has been judicially approved by the court as part of a dissolution decree.

A "judicial lien" is defined at 11 U.S.C. § 101(32) (formerly 11 U.S.C. § 101(27) and (30) as redesignated by the Bankruptcy Amendment Act of 1984 and the Bankruptcy Act of 1986), as follows: "`judicial lien' means lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." Cf. "lien" which is defined as a "charge against, or interest in property to secure payment of a debt or performance of an obligation," 11 U.S.C. § 101(33). A "statutory lien" means a "lien arising solely by force of a statute on specified circumstances or conditions, or lien of distress for rent, whether or not statutory, but does not include security interest or judicial lien, whether or not such interest or lien is provided by or is dependent on a statute, and whether or not such interest or lien is made fully effective by statute;" 11 U.S.C. § 101(47).

A "security interest" means a "lien created by an agreement". 11 U.S.C. § 101(45). See also, "Agreement" defined at § 101(44).

As noted in the House and Senate Reports as to the definition of "liens", the concept of lien is divided into three kinds of liens; judicial liens, security interests, and statutory liens. Those three categories are mutually exclusive, and are exhaustive, except for certain common law liens. H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 312 (1977); S.Rep. No. 95-989, 95th Cong., 2nd Sess. 25 (1978), (emphasis supplied), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5811, 6269. Reprinted in Norton Bankruptcy Law and Practice and Related Legislation, Legislative History, and Editorial Commentary, 1987-1988, Edition. P. 38.

Also, the Senate and House Reports as to the definition of a "statutory lien", state that the definition of a statutory lien excludes judicial liens whether or not they are provided for, or are dependent on a statute, and whether or not they are made fully effective by statute. The Reports further note that a statutory lien is only one that arises automatically, and is not based on an agreement to give a lien or on judicial action. (Emphasis added). Mechanics, materialmen's, warehousemen's and tax liens are given as examples of statutory liens. H.R.Rep. No. 95-595, 95th Cong. 1st Sess. 314 (1977); S.Rep. No. 95-989, 95th Cong. 2nd Sess. 27 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5813, 6271. Id. at 48. (Emphasis added).

The House and Senate Reports as to the definition of "security agreement" states that it is a lien "created by an agreement", and that although the term is similar to that under the UCC, Article IX, it is broader and includes real estate mortgages, "as are all other liens created by Agreement". H.R.Rep. No. 95-595, 95th Cong. 1st Sess. 314 (1977); S.Rep. No. 95-989, 2nd Sess. 26 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5812, 6271. Id. at 47. (Emphasis added).

The Court is referred to two different Indiana statutes by which it could be argued that this dissolution decree created a "Judicial lien". First there is I.C. XX-X-XX-X which provides as follows:

Sec. 2. All final judgments for the recovery of money or costs in the circuit court and other courts of record of general original jurisdiction sitting in the state of Indiana, whether state or federal, shall be a lien upon real estate and chattels real liable to execution in the county where, and only where, such judgment has been duly entered and indexed in the judgment docket as provided by law, from and after the time the same shall have been so entered and indexed, and until the expiration of ten (10) years from the rendition thereof, and no longer, exclusive of the time during which the party may be restrained from proceeding thereon by any appeal or injunction or by the death of the defendant, or by agreement of the parties entered of record.

It has been held that in Indiana, the right of a judgment creditor to assert a judgment lien against the property of a judgment debtor is established by this section. Rushville Production Assn. v. Mohr, 42 B.R. 1000 (S.D.Ind.1984). That is, a judgment lien is purely a creature of statute. Uhrich v. Uhrich, 173 Ind.App. 133, 362 N.E.2d 1163 (Ind.App. 3rd Dist.); trans. den.

In addition to the foregoing general statute as to the effect of a money judgment, the Indiana dissolution law at I.C. 31-1-11.5-15 provides as follows:

Sec. 15. Security for Payment. Upon entering an order pursuant to section 11 or 12 of this chapter, I.C. 31-1-11.5-11 or 31-1-11.5-12 relating to disposition of property, maintenance, and child support, the court may provide for such security, bond or other guarantee that shall be satisfactory to the court to secure the obligation to make child support payments or to secure the division of property. As amended by Acts 1979, P.L. 273, SEC. 14.

It has been held that the more specific dissolution statute designed to precisely meet the needs of divorcing citizens controlled over more general judgment lien statutes, and thus, pursuant to the specific language of I.C. 31-1-11.5-15, where the dissolution court awarded certain property to one spouse and granted the other spouse alimony, but expressly denied that other spouse a lien in the property, the dissolution statute controlled over the more general judgment lien statute and no lien arose. Bell v. Bingham, 484 N.E.2d 624 (Ind.App. 2d Dist.1985).

It was also held in Franklin Bank & Trust Co. v. Reed, 508 N.E.2d 1256 (Ind.St. Ct.1987), that the Dissolution Court has the power to completely sever the interest of the parties in each other's share of the property including any lien interest arising under I.C. XX-X-XX-X. The Franklin court also held that since I.C. XX-X-XX-X is general in its application, giving a judgment lien to one obtaining a judgment in any action, such lien is not automatically eliminated by the dissolution s...