In re Fisher

Decision Date19 September 1980
Docket NumberAdversary No. 580-0150.,Bankruptcy No. 580-409
Citation6 BR 206
PartiesIn re Robert Ray FISHER fdba Fisher Trucking and Alayna Nadine Fisher, Debtors. Robert Ray FISHER fdba Fisher Trucking and Alayna Nadine Fisher, Debtors-Plaintiffs, v. LIBERTY LOAN CORPORATION, Defendant.
CourtU.S. Bankruptcy Court — Northern District of Ohio

Terrence J. Steel, Akron, Ohio, for creditor.

Carl Hirsch, Barberton, Ohio, for debtors.

Kathryn A. Belfance, Akron, Ohio, Trustee.

FINDING AS TO COMPLAINT TO AVOID NONPURCHASE-MONEY SECURITY INTEREST

H.F. WHITE, Bankruptcy Judge.

A joint voluntary petition under chapter 7 of the Bankruptcy Code was filed by Robert Ray Fisher and Alayna Nadine Fisher, husband and wife, hereinafter referred to as Debtors, on April 1, 1980.

A report of trustee in no-asset case was filed by Kathryn Belfance, trustee of the estate of the Debtors, on April 29, 1980.

A discharge was granted to the debtors on July 16, 1980.

A complaint to avoid the nonpurchase-money security interest of Liberty Loan Corporation on Debtors' household goods, pursuant to 11 U.S.C. § 522(f), was filed by Debtors on July 15, 1980.

An answer to said complaint denying that the lien held by Liberty Loan Corporation could be avoided pursuant to 11 U.S.C. § 522(f) was filed by Liberty Loan Corporation, hereinafter referred to as Creditor, on August 5, 1980. Specifically, Creditor contends in its answer that: (1) The security agreement between the parties pre-dates the enactment of the Bankruptcy Code and the Bankruptcy Code may not be applied retrospectively and (2) Pursuant to the provisions of Ohio Rev.Code § 2329.661 no exemption exists under Ohio law which may be utilized to avoid liens pursuant to 11 U.S.C. § 522(f).

At the pre-trial conference held on August 27, 1980, the parties agreed that there was no dispute as to the facts and submitted the case on the issues of law. However, in order to clarify the issues, this Court makes the following finding of Fact and Law.

FINDING OF FACT

1. Debtors, in Schedule B-4 of their petition, claimed their household goods and furniture exempt in the amount of $800.00, with no particular item exceeding $200.00, under Ohio Rev.Code § 2329.66.

2. No parties in interest objected to the property claimed exempt by the debtors.

3. Liberty Loan Corporation granted Debtors a loan in the principal amount of $2,108.27, plus financing charges, on August 3, 1978.

4. As security for said loan, Liberty Loan took a security interest in the following property of the Debtors: brown plaid divan, black divan, brown chair, end tables, gold carpet, table lamps, swag lamp, tweed rug, double bed, oak chest, baby bed, metal bed, dressers with mirrors, twinsize bed, refrigerator, sewing machine, washer, iron, toaster, mixer, dishwasher, dryer, stereo, can opener, coffee maker, electric griddle and electric broiler oven (hereinafter referred to as household goods and furniture).

5. The security interest of Liberty Loan Corporation is a nonpossessory, nonpurchase-money security interest in household goods and furniture.

6. The balance on the loan now due Liberty Loan was listed by Debtors as $2,314.00. Liberty Loan has not filed a proof of claim. Liberty Loan therefore has a secured claim of $800.00 and an unsecured claim of $1,514.00.

ISSUES

1. Whether, pursuant to 11 U.S.C. § 522(f), the debtors can avoid nonpossessory, nonpurchase-money security interests that impair exemptions on certain household and personal goods, notwithstanding Ohio Revised Code Ann. § 2329.661(C)?

2. Whether 11 U.S.C. § 522(f) can be applied retrospectively to contractual obligations made prior to the enactment date of the new Bankruptcy Code?

DISCUSSION OF LAW

Debtors have claimed their household goods exempt under Ohio Rev.Code § 2329.66(A)(4)(b) and are attempting to avoid the nonpurchase-money security interest of Creditor on said household goods pursuant to 11 U.S.C. § 522(f). This conflicts with the language of Ohio Rev.Code § 2329.661(C). However, it will be shown that the federal bankruptcy statute, 11 U.S.C. § 522(f), is superior to the state exemption statute, Ohio Rev.Code § 2329.661(C).

11 U.S.C. § 522(f) provides that:

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 such lien is-
(1) a judicial lien; or
(2) a nonpossessory, nonpurchase-money security interest in any-
(A) household furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor;
(B) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or
(C) professionally prescribed health aids for the debtor or a dependent of the debtor. (Emphasis mine)

The language "an exemption to which the debtor would have been entitled under subsection (b) of this section" is the basis of the dispute herein. The other qualifications for avoidance under § 522(f) are met in that the secured claim of Creditor is a nonpossessory, nonpurchase-money security interest in household goods that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.

Subsection (b) of 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. § 522, unless the State law of the State in which the debtor's domicile has been located for the 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. § 522(d), or under State law of the State in which the debtor's domicile has been located for the 180 days immediately preceding the date of the filing of the petition.

The General Assembly of the State of Ohio, pursuant to the authority granted it in 11 U.S.C. § 522(b)(1) "opted out" of the Federal exemptions, under 11 U.S.C. § 522(d), by enacting Ohio Rev.Code § 2329.662. Section 2329.662 of the Ohio Rev.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 is precluded from selecting the Federal Exemptions listed in 11 U.S.C. § 522(d). A debtor domiciled in Ohio may only exempt from his estate, property that is specified under Ohio Rev.Code 2329.66.

Ohio Rev.Code § 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.

In a recent case, dealing with the identical issue before the court herein, the court observed that:

. . ., if the Ohio law extended no further, unquestionably this debtor would be entitled to exemption of her household goods and furnishings and would be able to avoid the fixing of a lien against that interest. However, Ohio has apparently taken a quantum leap beyond the permissive language of Subsection 522(b).
Matter of Cox, 4 B.R. 240 at 242 (Bkrtcy. S.D.Ohio 1980).

Ohio Revised Code § 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.

The effect of Ohio Rev.Code § 2329.661(C) is to deny debtors domiciled in Ohio the availability of 11 U.S.C. § 522(f) to avoid the fixing of certain liens. Congress enacted 11 U.S.C. § 522(f) to protect the debtor's exemptions, his discharge, and thus his fresh start by permitting him to avoid certain liens on exempt property. H.R.Rep. No. 595, 95th Cong. 1st Sess. 362 (1977), U.S.Code Cong. & Admin.News 1978, p. 5787; S.Rep. 989, 95th Cong. 2nd Sess. 76 (1978), U.S.Code Cong. & Admin.News 1978, p. 5787.

As stated in Cox, supra:

The pivotal question that surfaces is whether Congress intended to not only allow States to determine which list of exemptions would be available to a debtor, but also to permit State law to modify or preempt other substantive areas of the Bankruptcy Code. Id.

This court agrees with the court in Cox that: "A close scrutiny of the Bankruptcy Code produces no specific authority for the States to enact laws beyond selecting debtor exemption entitlements." Id. Collier on Bankruptcy supports this view and states that subsection (f) (of 11 U.S.C. § 522) grants this avoiding power with regard to any exemption allowed under subsection (b) (of 11 U.S.C. § 522) including the state option. If a state opts out of the federal exemption, it does not affect the debtor's power under subsection (f). 3 Colliers on Bankruptcy, Section 522.29 (15th ed. 1979).

Pursuant to the supremacy clause, Article VI, clause 2 of the United States Constitution, any state legislation which frustrates the full effectiveness of federal law is rendered invalid. Perez v. Campbell, 402 U.S. 637, at 652, 91 S.Ct. 1704 at 1712, 29 L.Ed.2d 233 (1971); See Moore v. Bay, 284 U.S. 4 at 5, 52 S.Ct. 3 at 3, 76 L.Ed. 133 (1931); Globe Bank v. Martin, 236 U.S. 288 at 298, 35 S.Ct. 377 at 380, 59 L.Ed. 583 (1914).

A statute of the State of Ohio, Ohio Rev. Code 2329.661(C), purports to prevent the operation of a federal bankruptcy statute, 11 U.S.C. § 522(f). Subject to the general limitation on state powers as the prohibition against impairing the obligations of contracts, a state may pass and enforce...

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