In re Maylin, Bankruptcy No. 92-10168.
| Decision Date | 09 June 1993 |
| Docket Number | Bankruptcy No. 92-10168. |
| Citation | 155 BR 605 |
| Parties | In re Dwight R. MAYLIN, Debtor. |
| Court | U.S. Bankruptcy Court — District of Maine |
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Hugh T. Corbett, Waterville, ME, for Sherman, Sandy & Lee.
Harold J. Shapiro, Shapiro & Daly, Gardiner, ME, for debtor.
Dwight Maylin's Chapter 13 plan is before the court for confirmation. Sherman, Sandy & Lee, his former counsel in pre-petition divorce proceedings and, presently, a judgment creditor, has objected. The plan and objection raise issues under 11 U.S.C. §§ 502 and 522,1 under Fed. R.Bankr.P. 3006 and 4003(b) and under the law as articulated by the Supreme Court in Taylor v. Freeland & Kronz, ___ U.S. ___, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992). For the reasons set forth below I conclude that the requisite good faith inheres in Maylin's Chapter 13 plan; that, although Sherman, Sandy & Lee may contest the Maylin's exemption claim in defending his efforts to avoid its lien, the firm has not sustained its burden; and that the plan may therefore be confirmed.
Sherman, Sandy & Lee served as Maylin's counsel in state court divorce proceedings that terminated in October 1991.2 In dividing marital property, the divorce court ordered Maylin's ex-spouse, Lynn Maylin, to pay him $8,000.00 by January 1, 1992.
After the divorce, when Mr. Maylin did not pay his bill, Sherman, Sandy & Lee sued him in state court, seeking $5,497.60 in fees and expenses. On December 19, 1991, the state court issued an ex parte writ for prejudgment attachment and trustee process in the amount sought by the firm.3 Trustee summons was served on Lynn Maylin on December 20, 1991, thereby impressing the obligation she owed Maylin with a $5,497.60 lien in Sherman, Sandy & Lee's favor.4
Maylin filed his Chapter 13 petition on March 9, 1992, listing the $8,000.00 due from his ex-wife as an asset.5 Pursuant to 14 M.R.S.A. § 4422(1)(A) and (C), he claimed an exemption in $7,500.00 of the $8,000.00.6 The § 341 meeting of creditors was held on April 27, 1992. No party objected to Maylin's claimed exemptions within the next 30 days.7
Sherman, Sandy & Lee filed a secured proof of claim on July 23, 1992. No party has filed an objection to that proof of claim,8 although Maylin's plan, filed with the petition, indicated that the law firm's liens would be avoided.
The plan summary served on creditors, including Sherman, Sandy, & Lee, prior to the first hearing on the plan expressly set forth debtor's intention to avoid the firm's judicial lien pursuant to 11 U.S.C. § 522(f) and § 547. The plan was confirmed on an interim basis over the firm's objections, without prejudice, on June 9, 1992.9
When the Chapter 13 trustee noticed the plan for final confirmation, Sherman, Sandy & Lee asserted that this is not a good faith Chapter 13 case and opposed Maylin's motion to avoid its judicial lien. It contends that the lien does not impair a valid exemption. Maylin argues that his plan is proposed in good faith, that he has validly claimed an exemption for $7,500.00 due him from his ex-wife, that the Sherman, Sandy & Lee judicial lien is avoidable and that his plan should be confirmed.
I directed the parties to brief the issues, including the question whether, under Taylor v. Freeland & Kronz, ___ U.S. ___, 112 S.Ct. 1644, 118 L.Ed.2d 280, the exemption may be attacked in light of the fact that no creditor filed timely objections to exemption claims.
Sherman, Sandy & Lee argues that Maylin has not initiated Chapter 13 in good faith because he was solvent.10 According to the firm, Maylin has sufficient resources to pay off his debts without bankruptcy protection. Accordingly, it "requests that this court deny Debtor protection under the Bankruptcy Code...." Objection to Final Confirmation at 4-5. Treating the pleading as either an objection to confirmation11 or as a motion to dismiss,12 the record does not support a finding that the case was initiated, or the plan proposed, in bad faith.
The Bankruptcy Code does not require that debtors be insolvent to obtain Chapter 13 relief. Compare § 109(e) (Chapter 13 eligibility) with § 109(c)(3) (). See Connell v. Coastal Cable T.V., Inc. (In re Coastal T.V., Inc.), 709 F.2d 762, 764 (1st Cir.1983) ().13
Apart from the erroneous assertion that Maylin is solvent, Sherman, Sandy & Lee's contention that Maylin is proceeding in bad faith is without foundation.14 The objection is overruled.
From the outset, Maylin's plan has proposed avoiding the Sherman, Sandy & Lee judicial lien. It proposed to do so under either § 522(f) or § 547(b).15
To begin, § 522(f) is available to the debtor. He may proceed thereunder by motion to avoid a judicial lien that impairs an exemption.16 Section 547(b) generally is not. Hill v. Fidelity Fin. Serv. (In re Hill), 152 B.R. 204, 205-206 (Bankr. S.D.Ohio 1993); In re Jernigan, 130 B.R. at 887 (). A debtor may avoid a judicial lien as a preference by invoking § 522(h). However, § 522(h) is available only if, inter alia, the debtor could have exempted property had the trustee recovered it under § 544, 545, 547, 548, 549, or 724.17
By either route, the threshold inquiry is whether Maylin is entitled to an exemption in the property against which the lien lies, in this case the funds due him from his exwife.
Sherman, Sandy & Lee has received adequate, accurate notice of the nature of Maylin's plan, including its provisions calling for avoidance of the Sherman, Sandy & Lee lien. Each side has had a full opportunity to make its case.18 But the question remains whether Sherman, Sandy & Lee, which holds a charge against a specific asset, can now contest the bona fides of Maylin's exemption claim in that asset.
The question stems from an apparent conflict in the law. The Supreme Court held in Taylor v. Freeland & Kronz that, under § 522(l) and Fed.R.Bankr.P. 4003(b), creditors may not object to a debtor's claim of exemptions later than 30 days from the § 341 meeting. But to require a secured creditor to file a Taylor-timely objection to an exemption claimed in property subject to its lien or lose its ability to defend a § 522(f) lien avoidance motion by contesting the exemption claim would be at odds with accepted principles touching upon the role that secured creditors play in bankruptcy.19 It is fundamental that secured creditors may remain aloof from bankruptcy. Unless a secured creditor is hailed into court and, after appropriate notice and hearing, an order is entered modifying its rights, its lien "passes through" unaffected.
In Taylor v. Freeland & Kronz, ___ U.S. ___, 112 S.Ct. 1644, 118 L.Ed.2d 280 the Supreme Court held that § 522(l) and Fed.R.Bankr.B. 4003(b) set a strict deadline for objecting to exemptions. The former provides that, unless a party in interest objects, property listed by the debtor as exempt "is exempt;"20 the latter provides that creditors must file objections to exemptions within 30 days of the § 341 meeting.21 With or without a statutory basis for it, a debtor's claim to exemption may not be challenged beyond Rule 4003(b)'s 30 day period. ___ U.S. at ___, 112 S.Ct. at 1648. In the absence of timely objection, the debtor's claimed exemptions are established under § 522(l).
Rule 4003(b) governs objections to exemptions brought by "the trustee or any creditor." Taylor describes the rule's operation in terms of the time within which "creditors" must file objections.22 "By negative implication, the Rule indicates that creditors may not object after 30 days `unless, within such period, further time is granted by the court.'" ___ U.S. at ___, 112 S.Ct. at 1648. As the lone dissenter noted, ___ U.S. at ___, 112 S.Ct. at 1652 (Stevens, J., dissenting).23
Section 501 provides that a creditor may file a proof of claim. Section 502(a) provides that if a proof of claim is filed, the claim is "deemed allowed, unless a party in interest ... objects." If an objection is filed, the court is to determine its amount "after notice and a hearing." Section 502(b). The court may determine the extent to which a claim is secured in an adversary proceeding. See § 506(a); Fed. R.Bankr.P. 3007, 7001(2).
A secured creditor may, but need not, file a proof of claim. Under the express provisions of § 501, if it does so, and no objection is filed, its secured claim is "deemed allowed." If it files no proof of claim and no action is taken with regard to its lien, the lien is unaffected by bankruptcy. In other words, unless the secured creditor is hailed into bankruptcy court to respond to an effort to alter, amend or avoid its position, it may ignore the bankruptcy proceedings. The lien passes through bankruptcy. "Codifying the rule of Long v. Bullard, 117 U.S. 617, 6 S.Ct. 917, 29 L.Ed. 1004 (1886), the Code provides that a creditor's right to foreclose on the lien survives or passes through the bankruptcy." Johnson v. Home State Bank, 501 U.S. ___, ___, 111 S.Ct. 2150, 2153, 115 L.Ed.2d 66 (1991). Accord, Dewsnup v. Timm, 502 U.S. ___, ___, 112 S.Ct. 773, 778, 116 L.Ed.2d 903 (1992); Farrey v. Sanderfoot, 500 U.S. ___, ___, 111 S.Ct. 1825, 1829, 114 L.Ed.2d 337 (1991) (); Chandler Bank of Lyons v. Ray, 804 F.2d 577, 579 (10th Cir.1986) (...
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