In re Hall

• Decision Date: 20 June 2005
• Docket Number: No. 02-47282-DRD.,02-47282-DRD.
• Citation: 327 B.R. 424
• Parties: In re Jennifer Lynn HALL and Bradley King Hall, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Missouri

Page 424

327 B.R. 424

In re Jennifer Lynn HALL and Bradley King Hall, Debtors.

No. 02-47282-DRD.

United States Bankruptcy Court, W.D. Missouri, Western Division.

June 20, 2005.

David W. Lloyd, Warrensburg, MO, for Debtors.

MEMORANDUM OPINION

DENNIS R. DOW, Bankruptcy Judge.

The matter before the Court in this case is the motion filed by debtors Jennifer Lynn Hall and Bradley King Hall ("Debtors") to avoid a judicial lien held by creditors Michael and Kathlyn Sauer ("Sauers") on the grounds that it impairs an exemption which the Debtors are entitled to claim in their residential real property. Debtors filed this motion only after reopening their case approximately two years after receiving their discharge. Debtors contend that the Court should value the property as of the date they filed their petition and suggest that if the Court does so, the judgment lien held by the Sauers is clearly avoidable as impairing their homestead exemption, applying the formula contained in 11 U.S.C. § 522(f)(2). The Sauers maintain that circumstances have changed since that time making avoidance of the lien inappropriate and inequitable. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and § 157(a) and (b). This is a core proceeding which the Court may hear and determine pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (K) and (O). This Memorandum Opinion contains my Findings of Fact and Conclusions of Law pursuant to Rule 52 of the Federal Rules of Civil Procedure, made applicable to this matter by Rules 9014(c) and 7052 of the Federal Rules of Bankruptcy Procedure. For all the reasons set forth below, the Court overrules the objection and sustains the motion to avoid the judgment lien held by the Sauers.

I. FACTUAL AND PROCEDURAL BACKGROUND

Debtors filed a petition for relief under Chapter 7 of the Bankruptcy Code on December 30, 2002. In their schedules, they listed their residence, ascribing to it a value of $83,000.00, and identified two liens on the property, in the aggregate amount of $77,301.56, a first lien held by Wells Fargo Home Mortgage in the scheduled amount of $72,490.68 and a second lien held by First Community Bank in the amount of $4,810.88. Debtors claimed the resulting equity of $5,698.44 as exempt on Schedule C on their Schedules of Assets and Liabilities. Before the filing of the bankruptcy petition, the Sauers obtained a judgment against Debtors in the Circuit Court of Johnson County, Missouri, in the amount of $17,038.35. Although that judgment became a lien against their residence pursuant to Missouri law, Debtors did not identify it as such, but did schedule the Sauers as unsecured creditors in the judgment amount. On May 20, 2003, this Court entered a discharge order and a final decree closing the case. No action was taken prior to the case closing to avoid the judicial lien held by the Sauers.

On May 11, 2005, Debtors filed a motion, pursuant to § 350(b) and Rule 5010, to reopen this case for the specific purpose of filing a motion to avoid the Sauers' lien. On that same date, the Court granted the motion to reopen. The Debtors filed a motion to avoid the judgment lien simultaneously with the motion to reopen. The Sauers have objected claiming that circumstances have changed since the filing of the petition, that the Court should view the facts relevant to lien avoidance from the date of the filing of the motion and that, if it does so, avoidance of their judgment lien would be both inappropriate and inequitable. Specifically, the Sauers note that what motivated the filing of the motion to avoid their lien at this time was a contract which the Debtors have to sell their real estate for the sum of $110,000.00, suggesting that the property has appreciated in value.¹ The Sauers also contend that the amount of the first lien has been reduced, the second lien which existed on the property at the date of the filing of the petition has apparently since been satisfied and that a new lien has been placed on the property in the amount of approximately $24,000.00, which is subordinate to their judgment lien. The Sauers maintain that if the Court applies the lien avoidance formula set forth in § 522(f)(2) utilizing these new facts, the lien would not completely impair the homestead exemption claimed by the Debtors and, therefore, would be avoidable only in part. The Sauers also claim that the Debtors should not be permitted to move to avoid the lien two years after the entry of the order of discharge and suggest that they have been prejudiced by the delay.

II. DISCUSSION AND ANALYSIS

Section 522(f)(1) of the Bankruptcy Code provides that the debtor may avoid a judicial lien "to the extent that such lien impairs an exemption to which the debtor would have been entitled." 11 U.S.C. § 522(f)(1). From a procedural standpoint, neither the Bankruptcy Code nor the Bankruptcy Rules place any time limit on the filing of a lien avoidance motion. Rule 4003(d) provides that a lien avoidance request filed by the debtor under § 522(f) must be made by motion in accordance with Rule 9014, but establishes no deadline for the filing of such a motion. However, while there is no express time limitation, such motions are subject to equitable limitations and may be denied for equitable reasons such as prejudice, laches, reliance, estoppel or fraud. In re Chesnut, 50 B.R. 309, 311 (Bankr.W.D.Okla.1985); In re Jent, 37 B.R. 561, 564 (Bankr.W.D.Ky.1984); Rheinbolt v. Credit Thrift of America, Inc. (In re Rheinbolt), 24 B.R. 167, 170 (Bankr.S.D.Ohio 1982). As these cases indicate, the mere passage of time is not itself a bar to the filing of the motion unless the lienholder is prejudiced thereby. In this case, however, the Sauers can cite no prejudice which they would suffer from the granting of the motion at this time distinct from that which they would have suffered had the motion been filed prior to the entry of the order of discharge. The Sauers have offered no evidence that they relied in some way on the validity of the judgment lien subsequent to discharge such as by taking any action to enforce it or incurring any expense in that effort. Similarly, they have not established that Debtors are guilty of fraud or any conduct that would warrant their being estopped from seeking avoidance of the lien. Accordingly, they have not demonstrated any prejudice or established any other equitable justification for denying the motion on that ground.

At the time the Debtors filed their petition for relief, the applicable homestead exemption limitation, pursuant to Mo.Rev.Stat. § 513.475, was $8,000.00.² In 1994, Congress amended § 522(f) to include a formula for the courts to apply in identifying the extent to which a judgment lien impairs an exemption and is thus avoidable. Pursuant to § 522(f)(2), the lien is avoidable if the sum of: (1) the lien; (2) all other liens on the property; and (3) 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. It is quite clear that if the Court applies the values and debt amounts drawn from the schedules and pertinent at the time of the filing of the petition, the...