In re Hill
| Decision Date | 21 May 1980 |
| Docket Number | 579-1036 and 579-1140,Adversary No. 580-0065.,Bankruptcy No. 579-935 |
| Citation | 4 BR 310 |
| Parties | In re Clarence Alfred HILL, Jr., and Lillian Hill, Otto John Hayman, III aka Otto Hayman and Marlene Hayman, aka Marlene Harris, Marion C. Willis and Myrtle Willis, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Ohio |
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Paul Mellion, Akron, Ohio, for Otto and Marlene Hayman.
Kathryn Belfance, Akron, Ohio, trustee for Otto and Marlene Hayman; Marion C. Willis and Myrtle Willis.
Stanley Migdal, Akron, Ohio, for Avco Financial Services of Ohio (No. 579-1036; No. 579-1140; Adversary No. 580-0065).
Carl Hirsch, Barberton, Ohio, for Marion Willis, Myrtle Willis, Clarence Alfred Hill, Jr., and Lillian Hill.
Harold Corzin, Akron, Ohio, trustee for Clarence Alfred Hill, Jr., and Lillian Hill.
George Manos and Robert C. Hunt, Akron, Ohio, for U.S. Life Credit (No. 579-935).
FINDING AS TO AVOIDANCE OF LIENS
Debtors, domiciled for more than 180 days in Ohio, have filed petitions under Chapter 7 of the Bankruptcy Code, and in the course of the Chapter 7 proceedings, have filed applications to avoid judicial liens and nonpossessory, nonpurchase money security interests of their creditors pursuant to 11 U.S.C. Section 522(f) to the extent that these liens impair exemptions the debtors are entitled to under Ohio Rev.Code Ann. Section 2329.66.
In all cases, the exemption claimed to be impaired is the exemption on household furnishings and household goods under Ohio Rev.Code Ann. Section 2329.66(A)(4)(b).
In all cases, the creditors admit that the security interest they hold on the debtors' household goods and furnishings are non-possessory, nonpurchase-money security interests.
1. In Re: Hill — Case No. 579-935. Debtors, husband and wife, filed an application to avoid the nonpurchase-money security of U.S. Life Credit on the debtor's household goods and furniture. The debtors claimed their household goods and furniture exempt in the amount of $1,750.00. Pursuant to Ohio Rev.Code Ann. Section 2329.66(A)(4)(d), since a homestead exemption was claimed under Ohio Rev.Code Ann. Section 2329.66(A)(1), the total exemption claimed under Ohio Rev.Code Ann. 2329.66(A)(4)(b) (Household Goods) is not to exceed $1,500.00. However, the debtors herein filed a joint petition and each of the debtors is entitled to claim his/her exemptions individually. 11 U.S.C. Section 522(m). The amount of the exemptions has been allowed.
U.S. Life Credit filed a secured claim in the amount of $3,547.43.
2. In Re: Hayman — Case No. 579-1036, Adversary Case No. 580-0065. Debtors, husband and wife, filed an application to avoid the nonpurchase-money security interest of Avco Financial Services of Ohio, Inc. on the debtors' household goods and furniture. The debtors claimed their household goods and furniture exempt in the amount of $1,500.00.
Avco has not as yet filed a proof of claim but is listed in the debtors' schedules as having an unsecured claim in the amount of $3,212.57. The amount of the exemption has been allowed.
3. In Re: Willis — Case No. 579-1140. Debtors, husband and wife, filed an application to avoid the nonpurchase-money security interest of Avco Financial Services on the debtors' household goods and furniture. The debtors claimed their household goods and furniture exempt in the amount of $1,245.00. The amount of the exemption has been allowed.
Avco has not as yet filed a proof of claim but is listed in the debtors' schedules as having an unsecured claim in the amount of $2,990.34.
The issue is whether the debtors can avoid judicial liens and nonpossessory, non-purchase-money security interests on certain household and personal goods that impair exemptions to which the debtors are entitled pursuant to 11 U.S.C. Section 522(f) notwithstanding Ohio Rev.Code Ann. Section 2329.661(c).
11 U.S.C. Section 522(f) provides:
Subsection (b) of 11 U.S.C. 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. Section 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. Section 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 "opted out" of the Federal exemptions under 11 U.S.C. Section 522(d) by enacting Ohio Revised Code Section 2329.662. Section 2329.662 of the Ohio Revised 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 may only exempt from property of his estate property that is specified under Ohio Revised Code Section 2329.66.
Ohio Revised Code Section 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.
Ohio Revised Code Section 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.
Debtors claimed their exemptions under O.R.C. 2329.66 and are attempting to avoid the nonpurchase-money security interests of their creditors pursuant to 11 U.S.C. Section 522(f). This contradicts the language of O.R.C. 2329.661(C). However it will be shown that the Federal bankruptcy statute, 11 U.S.C. Section 522(f) is superior to the state exemption statute, O.R.C. 2329.661(C).
The power to legislate on the subject of bankruptcies is conferred expressly upon Congress by the Constitution of the United States. Article I, Section 8, clause 4 of the United States Constitution provides: "The Congress shall have power . . . to make . . . uniform laws on the subject of Bankruptcies throughout the United States." In addition to this express grant, there is the general grant of power under Article I, Section 8, clause 18 that: "The Congress shall have the power . . . to make all laws which shall be necessary and proper for carrying into Execution the foregoing Powers . . . ".
The uniformity which is required by the Constitution relates to the law itself and not to its results upon the varying rights of debtor and creditor under the laws of the several states. Thomas v. Woods, 173 F. 585 (8th Cir. 1909).
Absolute uniformity in the application of the Bankruptcy Act is impossible, since Congress cannot create uniform conditions and circumstances in the various states of the Union. Thomas, supra. Thus, the recognition of state laws as determinative of dower rights, liens, priorities, and exemptions, does not render the Bankruptcy Act unconstitutional as lacking in uniformity, although the result of such recognition is that the Act does not operate with the same results in all states. Stellwagen v. Clum, 245 U.S. 605 at 613, 38 S.Ct. 215 at 217, 62 L.Ed. 507 (1918).
The grant of power to Congress to legislate on the subject of bankruptcies includes the power to impair the obligations of contracts notwithstanding the individual states are forbidden to do so. Hanover National Bank v. Moyses, 186 U.S. 181 at 188, 22 S.Ct. 857 at 860, 46 L.Ed. 1113 (1902). Article I, Section 10 of the Constitution of the United States which prohibits any state from passing a law which impairs the obligations of contracts, is in its terms, a limitation on the powers of the states only. Louisville Joint Stock Land Bank v. Radford, 74 F.2d 576 at 580 (6th Cir. 1935).
The Constitutional provision conferring upon Congress the power to legislate on the subject of bankruptcies is read into contracts as constituting a part thereof. Wright v. Union Central Life Ins. Co., 304 U.S. 502 at 516, 58 S.Ct. 1025 at 1033, 82 L.Ed. 1490 (1938). A mortgagee's rights are at all times subject to bankruptcy legislation by Congress affecting the creditor's remedy against the debtor's assets or the measure of the creditor's participation therein provided only that the bankruptcy provisions are consonant with fair, reasonable, and equitable distribution of the assets. Re Chicago, R.I. & P.R. Co., 90 F.2d 312 at 316 (7th Cir. 1937).
The power of Congress to establish bankruptcy laws is subject to the due process clause of the Fifth Amendment to the United States Constitution. The Fifth Amendment protects "vested" property rights. Since any exercise of the bankruptcy power impairs the obligation of contracts, such impairment is not to be taken as in itself a...
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