In re Kennedy, Bankruptcy No. 91-43526

• Decision Date: 27 March 1992
• Docket Number: Bankruptcy No. 91-43526,91-43766.
• Citation: 139 BR 389
• Parties: In re David L. KENNEDY and Kathy S. Kennedy. In re John O. NICHOLAS and Barbara Nicholas. Locke D. BARKLEY, Trustee for the Estate of David L. Kennedy and Kathy S. Kennedy, Movants, v. TOWER LOAN OF MISSISSIPPI, INC., Respondent. John O. NICHOLAS and Barbara Nicholas, Movants, v. TOWER LOAN OF MISSISSIPPI, INC., Respondent.
• Court: U.S. Bankruptcy Court — Northern District of Mississippi

139 B.R. 389 (1992)

In re David L. KENNEDY and Kathy S. Kennedy.

In re John O. NICHOLAS and Barbara Nicholas.

Locke D. BARKLEY, Trustee for the Estate of David L. Kennedy and Kathy S. Kennedy, Movants, v. TOWER LOAN OF MISSISSIPPI, INC., Respondent.

John O. NICHOLAS and Barbara Nicholas, Movants, v. TOWER LOAN OF MISSISSIPPI, INC., Respondent.

Bankruptcy Nos. 91-43526, 91-43766.

United States Bankruptcy Court, N.D. Mississippi.

March 27, 1992.

William J. Clayton, Batesville, Miss., for David L. Kennedy and Kathy S. Kennedy.

Joe D. Pegram, Oxford, Miss., for John O. Nicholas and Barbara Nicholas.

Harold J. Barkley, Jr., Jackson, Miss., for Locke D. Barkley, trustee.

Richard J. Rohman, Bridgeforth, Love, Norquist and Rohman, Yazoo City, Miss., William J. Lutz and Patrick F. McAllister, Jackson, Miss., for Tower Loan of Mississippi, Inc.

OPINION

DAVID W. HOUSTON, III, Bankruptcy Judge.

On consideration before the court are the following:

1. Motion to avoid a nonpossessory, nonpurchase-money security interest filed by Locke D. Barkley, Trustee for the Estate of David L. Kennedy and Kathy S. Kennedy, debtors, against Tower Loan of Mississippi, Inc.; the request of the debtors to join as parties to the trustee's motion; responses to the motion and the request for joinder filed by Tower Loan of Mississippi, Inc.

2. Motion to avoid a nonpossessory, nonpurchase-money security interest filed by John O. Nicholas and Barbara Nicholas, debtors, against Tower Loan of Mississippi, Inc.; response to said motion filed by Tower Loan of Mississippi, Inc.

The court having heard and considered same, hereby finds as follows:

I.

The court has jurisdiction of the subject matter of and the parties to these proceedings pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. These contested matters are core proceedings as defined in 28 U.S.C. § 157(b)(2)(A), (B), and (K).

II.

This opinion will address the following two issues:

1. Whether the Chapter 13 trustee has standing to file a motion, pursuant to 11 U.S.C. § 522(f)(2), seeking to avoid a nonpossessory, nonpurchase-money security interest that impairs an exemption to which the debtor is entitled.

2. Whether a debtor in Mississippi may now utilize 11 U.S.C. § 522(f)(2), to avoid a voluntary nonpurchase-money security interest that impairs an exemption to which that debtor would be entitled but for the exclusionary language of § 85-3-1(d), Mississippi Code Annotated.

(All Code sections set forth hereinbelow should be considered as Title 11, U.S.Code, unless specifically noted otherwise. Mississippi Code Annotated will be abbreviated as MCA.)

III.

DISCUSSION OF ISSUE 1.

This issue has diminished in significance since the debtors have chosen to join as parties to the trustee's motion. Therefore, the trustee is no longer exclusively prosecuting the motion to avoid Tower Loan's security interest. The issue needs to be addressed, however, since the court overruled the objection of Tower Loan to the debtors' request for joinder, as well as, the initial objection of Tower Loan to the trustee's standing to file and prosecute a § 522(f) lien avoidance motion.

In taking the position that the trustee has no standing to file a motion seeking to avoid a secured creditor's lien pursuant to § 522(f)(2), Tower Loan cites the case of In re Ciavarella, 28 B.R. 823 (Bankr.S.D.N.Y. 1983). That decision is distinguishable from the subject proceeding because there the trustee was taking action that was inconsistent with the debtor's wishes. Here, the facts are totally different; the debtors are agreeable to the course of action pursued by the trustee, and, indeed, have joined in the trustee's motion.

Clearly, the language of § 522(f), as pointed out by counsel for Tower Loan, indicates that the debtor is the designated entity to pursue a motion to avoid a security interest under that section. Nowhere is the trustee mentioned. Seeking guidance as to whether the trustee should be able to prosecute such a motion, standing alone, the court has looked to the various Bankruptcy Code sections mentioned in the parties' memoranda.

The first section is § 1302(b)(1)¹, which provides that the trustee shall perform those duties enumerated in § 704², except § 704(1) and (8).

Section 1302(b)(2)³ says that the trustee, among other listed responsibilities, shall have standing to participate at any hearing concerning the confirmation of a plan. Although the trustee's motion to avoid Tower Loan's security interest is not directly a part of a confirmation hearing, the purpose of the motion directly affects the confirmation processes, particularly the manner in which the trustee will distribute the plan payments to the estate's creditors.

Section 704(5) provides that the trustee shall, if a purpose would be served, examine proofs of claim and object to the allowance of any claim that is improper. Through the motion to avoid the security interest of Tower Loan, the trustee is essentially objecting to Tower Loan's claim, asserting that the claim is improper, i.e., that by virtue of bankruptcy law Tower Loan's claim is an unsecured claim as opposed to being a secured claim.

The court next looks to § 1322(a)(3), which provides that a Chapter 13 plan shall, if the plan classifies claims, provide the same treatment for each claim within a particular class. This section does not say that the trustee has "watchdog" responsibilities in this area, but certainly if a claim by law should be treated as an unsecured claim and, in actuality, is being treated as a secured claim, the trustee should have an intrinsic right to object to this treatment. It is extremely important to recognize that a debtor may have little or no motivation to file a motion to avoid a nonpurchase-money security interest. Because of the disposable income test found in § 1325(b)⁴, the monies, that would otherwise be paid to the secured creditor which are released as a result of the avoided lien, are not retained by the debtor, but are made available to the trustee for distribution to all of the debtor's unsecured creditors. Common logic and simple fairness dictate that the trustee should have standing to present such an issue to the court for adjudication.

In none of the sections that have been mentioned is there limiting language concerning the duties of a Chapter 13 trustee as compared to the duties of a Chapter 7 trustee. Although Ciavarella, supra, implies that there is a distinction, the opinion also mentions other cases which hold to the contrary. See, In re Johnson, 26 B.R. 381 (Bankr.D.Colo.1982) and In re Colandrea, 17 B.R. 568 (Bankr.D.Md.1982).

Finding no limiting language, the court next looks to § 544(a)(1)⁵, which provides that the trustee shall have, as of the commencement of the case, the power to avoid any transfer of property of the debtor or any obligation incurred by the debtor that is avoidable by a creditor who holds a judicial lien on all of the debtor's property. This is one of the trustee's hypothetical "strong arm" avoiding powers, the purpose of which appears to be applicable to this proceeding. The court reasons that if the trustee could assert a lien position under § 544(a)(1), that the trustee, therefore, has standing to attempt to avoid a pre-existing competing lien utilizing the authority of either § 522(f)(1) or (2).

For all of the above reasons, the court finds that Tower Loan's objection to the debtors' joinder, as well as, its objection to the trustee's standing to file and prosecute motions to avoid liens under § 522(f)(2) is not well taken and will be overruled.

IV.

DISCUSSION OF ISSUE 2.

Rather than in footnotes, the relevant statutes, applicable to this issue, are set forth in the text of this opinion as follows:

11 U.S.C. § 522(f) provides as follows:

(f) Not withstanding 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.

Section 85-3-1, MCA, provides as follows:

There shall be exempt from seizure under execution or attachment:

(a) Tangible personal property of any kind, not exceeding Ten Thousand Dollars ($10,000.00) in value, which shall be selected by the debtor; provided, however, this paragraph shall not apply to distress warrants issued for collection of taxes due the state or to wages described in Section 85-3-4.

(b)(i) The proceeds of insurance on property, real and personal, exempt from execution or attachment, and the proceeds of the sale of such property.

(ii) Income from disability insurance.

(iii) Payment under a stock bonus, pension, profit-sharing, annuity, or similar plan or contract on account of illness, disability, death, age or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless:

A. Such plan or contract was established by or under the auspices of an insider that employed the debtor at the time the debtor\'s rights under such plan or contract arose;

B. Such payment is on account of age or length of service; and

C. Such plan or contract does not qualify under Section 401(a), 403(a), 403(b), 408 or 409 of the Internal Revenue Code of 1954.

(c) All property, real, personal and mixed, for the collection or enforcement of any order or judgment, in whole or in part, issued by

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