In re Keenan
| Decision Date | 13 October 1989 |
| Docket Number | Bankruptcy No. 84 B 94524 C. |
| Parties | In re Lawrence Paul KEENAN and Glenda Christine Keenan, Debtors. Lawrence Paul KEENAN and Glenda Christine Keenan, Applicants, v. MT. CARMEL CREDIT UNION, Respondent. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado |
Anthony R. Cross, Colorado Springs, Colo., for debtors/applicants.
Tuck Young, Pueblo, Colo., for creditor/respondent.
This matter is before the Court upon the debtors' motion to avoid the lien of creditor Mt. Carmel Credit Union and the creditor's response thereto. This opinion addresses whether the Court had jurisdiction to reopen the case and hear the motion to avoid the judicial lien; whether the judicial lien creditor is barred by Bankruptcy Rule 4003(b) from raising the an objection to the claimed exemption as a defense to the motion; and whether the debtors are entitled to void the judicial lien to the extent that it impairs their homestead exemption.
The essential facts are as follows. On September 20, 1984, the debtors filed a Chapter 7 bankruptcy petition. On that date, the debtors were living at 4042 Valley Drive, Pueblo, Colorado which is the property upon which the homestead exemption was claimed. They lived there from 1976 to July 1983 and from August of 1984 to June of 1985. The creditor was listed on the debtors' bankruptcy statements and schedules. The debtors received their discharge on February 21, 1985.
In 1983, Mr. Keenan accepted a job in Glenwood Springs, Colorado. Due to the job change the debtors moved from Pueblo to Rifle and purchased a home there. They rented the property in Pueblo for a one year lease term. Mr. Keenan's job in Glenwood Springs did not work out and the debtors fell behind on the mortgage payments due on the house in Rifle. Nevertheless, they continued to make the payments on the house in Pueblo with the income received from the lessees and with money borrowed from their parents.
In June of 1984 the creditor filed suit against the debtors due to the debtors' loan default. The creditor obtained a default judgment against the debtors on July 9, 1984 and recorded it on July 11, 1984 in Pueblo County Colorado.
A copy of a letter was admitted in to evidence which was purportedly written by the debtors on July 10, 1984 to the lessees of the Pueblo house advising them of the debtors intent to move back into the property. In August of 1984, the debtors returned to Pueblo and reoccupied the Valley Drive property.
On January 20, 1989. The debtors filed their motion to reopen their bankruptcy case to allow them to void judgment liens on the Pueblo property of which they had not been aware prior to receiving their discharge. The debtors were unable to sell the Valley Drive property due to the liens against it. There is no certificate of mailing for the motion to reopen indicating that the creditor was notified of such motion. On January 30, 1989, the Court ordered that the case be reopened. On February 7, 1989, the motion to void this creditor's lien was filed.
The debtors contend that they are entitled to void the creditor's judicial lien pursuant to 11 U.S.C. § 522(f) because it impairs the debtors' homestead exemption. The debtors assert that they were entitled to a homestead exemption on the house in Pueblo at the time the creditor's judgment lien was filed on July 11, 1984. In support of this claim the debtors allege that their intent to return to the house in Pueblo was evidenced by the letter dated July 10, 1984 to the then current lessees, wherein they set forth their intent to reoccupy the house. Further, the debtors maintain that they are entitled to avoid the lien even if it attached prior to their homestead exemption because they maintained an interest in the property during the time that they lived outside of Pueblo. The debtors cite In re Chandler, 77 B.R. 513 (Bankr.E.D.Pa.1987) in support of that assertion.
Alternatively, the debtors argue that to the extent the lien takes priority under state law over their exemption, there is a conflict with the Bankruptcy Code, hence, the supremacy clause of the United States Constitution would require the Court to void the lien. The debtors cite In re Hershey, 50 B.R. 329 (S.D.Fla.1985) in support of that position.
The creditor maintains that the debtors are not entitled to a homestead exemption and thus, the creditor's lien cannot be avoided. First, the creditor asserts that the Court has no authority or basis to grant the debtors' motion to void the lien, because the case was reopened without notice to the creditor and therefore the Order reopening the case is invalid. Next, the creditor contends that the debtors did not meet the requirements of the Colorado Homestead Exemption statute at the time that the judgment against them was recorded and accordingly, the creditor's lien supercedes the homestead exemption. The creditor broadly pleads estoppel, waiver and laches as miscellaneous other reasons why relief is not appropriate. Finally, the creditor asserts that the debtors are not entitled to a homestead exemption on the subject property because they no longer live there.1
The threshold issue to be resolved is whether this Court has jurisdiction to grant the motion to void lien. The Creditor claims that the debtors' failure to serve the motion to reopen upon them pursuant to Bankruptcy Rule 2002 or 9014 makes any order opening the case invalid. Briefly, the process for reopening a case is as follows. First, pursuant to 11 U.S.C. § 350, a case may be reopened to accord relief to the debtor or for other cause. See In re Hawkins, 727 F.2d 324 (4th Cir.1984) (). Bankruptcy Rule 5010 permits a case to be reopened, upon the motion of the debtor. Bankruptcy Rule 9013 applies to motions filed pursuant to § 350. Bankruptcy Rule 9013 states that:
Every written motion other than one which may be considered ex parte shall be served by the moving party on the trustee or debtor in possession and on those entities specified by these rules or, if service is not required or the entities to be served are not specified by these rules, the moving party shall serve the entities the court directs.
Neither the Code nor the Rules specify that notice of a motion to reopen is required to be given to creditors. Nor did the Court direct the debtors to serve notice on any parties.
Where cause is shown, the Court typically grants motions to reopen ex parte and any objections to reopening are more properly raised by the parties against whom specific relief is sought. This action is consistent with the legislative history which notes that, "though the court may permit reopening of a case so that the trustee may exercise an avoiding power, laches may constitute a bar to an action that has been delayed too long." H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 338 (1977); S.Rep. No. 95-989, 95th Cong., 2d Sess. 49 (1978), U.S.Code Cong. & Admin. News 1978, pp. 5787, 5835, 6294. Hence, the Court finds that the Order reopening the case is valid and the Court has jurisdiction to determine whether the creditor's lien may be avoided.
There is another preliminary issue which was not raised by either of the parties. That issue is whether Bankruptcy Rule 4003(b) precludes the creditor from challenging the debtors' entitlement to a homestead exemption in a motion to void lien proceeding when the creditor failed to timely raise an objection to the debtors' exemption.
Bankruptcy Rule 4003(b) requires that objections to the list of property claimed as exempt be made within 30 days after the § 341 meeting of creditors. This jurisdiction has spoken conclusively on Rule 4003(b) in In re Keyworth, 47 B.R. 966 (D.Colo.1985). There the Court held that to allow an untimely objection to claimed exemptions "would be to impermissibly amend Rule 4003(b) which is clear and unequivocal." Id. at 970.
The Courts that bar the creditor from raising the exemption objection in a void lien proceeding emphasize that the time limit in Rule 4003(b) was established to set a cutoff point at which debtors could be certain of the objections that had been made. Those jurisdictions are concerned that allowing creditors to wait until the § 522(f) action is commenced to raise the exemption objection will result in undermining the time limitation rule and create further delay. E.g. In re Grethen, 14 B.R. 221, 225 (Bankr.N.D.Iowa 1981); In re Van Pelt, 83 B.R. 617 (Bankr.S.D.Iowa 1987). Contra, In re Montgomery, 80 B.R. 385, 388-89 (Bankr.W.D.Tex.1987) (). See also In re Allen, 725 F.2d 290, 292-93 (5th Cir.1984); In re Roehrig, 36 B.R. 505 (Bankr.W.D.Ky.1983).
The Court finds that Rule 4003(b) is rendered meaningless if a creditor is allowed to raise an untimely exemption objection in a proceeding to void a lien. Furthermore, Rule 4003(b) promotes consistency in the construction of § 522(f) and (l). The recognized standard of statutory construction requires that all subsections must be given meaning and they must coexist. Nevada Power Co. v. Watt, 711 F.2d 913, 920 (10th Cir.1983). Hence, the exemptions determined by § 522(l) will not be disregarded in proceedings to void liens pursuant to § 522(f).
The foregoing analysis of 4003(b) does not address the critical question of whether a judicial lien creditor, holding a lien which attached prior to the exemption right, has an obligation to raise its objection to the exemption claimed within the time allowed by that rule. There is a dearth of authority on this issue.2 However, it does not appear that the...
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