In re Mohring

• Citation: 142 BR 389
• Decision Date: 30 June 1992
• Docket Number: Bankruptcy No. 91-27118-C-7.
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Eastern District of California
• Parties: In re Jeannie M. MOHRING, Debtor.

142 B.R. 389 (1992)

In re Jeannie M. MOHRING, Debtor.

Bankruptcy No. 91-27118-C-7.

United States Bankruptcy Court, E.D. California.

June 30, 1992.

COPYRIGHT MATERIAL OMITTED

H. Lee Horner, Sacramento, Cal., for debtor.

MEMORANDUM DECISION DENYING MOTION TO AVOID LIEN PER 11 U.S.C. § 522(f)

CHRISTOPHER M. KLEIN, Bankruptcy Judge:

This is a motion to avoid a lien on putatively exempt property under 11 U.S.C. § 522(f). The question is whether the lack of objection to a claimed exemption of property strips the court of power to deny a motion to avoid a lien on that property as unsupported by evidence. The question is of practical importance in the wake of the decision by the United States Supreme Court in Taylor v. Freeland & Kronz, ___ U.S. ___, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992), enforcing the exemption by default provisions of 11 U.S.C. § 522(l) and Federal Rule of Bankruptcy Procedure 4003(b).

I conclude that an exemption by default has no effect on eligibility for lien avoidance, that the debtor must make a competent record on all elements of the lien avoidance statute, 11 U.S.C. § 522(f), and that one element of a competent record is that the debtor have filed schedules and lists that itemize property with reasonable particularity. In some instances, property that is exempt by default may remain subject to a lien.

I. Facts

The debtor filed a voluntary chapter 7 petition accompanied by schedules and a statement of financial affairs. The personal property category for household goods and furnishings on Schedule B, which requires description, location, and value of the property, had the following entry: "At Debtor's Residence $1,000." The property claimed as exempt on Schedule C was "household goods and furnishings" valued at $1,000, citing California Code of Civil Procedure § 703.140 as the basis for exemption.¹ Avco Financial Services ("Avco") appeared on Schedule D as a creditor holding a $3,028 claim secured by a nonpossessory, nonpurchase-money lien granted in 1990 on "household goods." The Statement of Intention similarly referred merely to "household goods." Finally, on the Statement of Financial Affairs, the debtor averred that in January 1991 a television (value $350), VCR (value $250), car radio (value $300), and speakers (value $100) were stolen.

The debtor has filed two motions to avoid Avco's lien. The first was filed October 29, 1991, and denied by order filed November 25, 1991, accompanied by written findings of fact and conclusions of law explaining that the record was insufficient because the schedules did not itemize property with reasonable specificity and because there was no proof that service of the motion was made on Avco.²

This second motion to avoid Avco's lien was filed without schedules having been amended, without allegation of specific facts,³ and without an affidavit or other evidence in support of the motion. Service was made on Avco.

II. Motion to Avoid Lien

In a debtor's lien avoidance motion, the court is asked to avoid the fixing of a lien on the debtor's interest in certain items of exempt property pursuant to section 522(f).⁴

A debtor seeks such an order by filing a motion to avoid lien, which is treated as a "contested matter" rather than as an adversary proceeding.⁵ Although a contested matter is procedurally more streamlined than an adversary proceeding, many important rules of practice and procedure apply to both of them. For example, evidence to support the relief requested is taken under the Federal Rules of Evidence.⁶ Findings of fact and conclusions of law are required,⁷ as is resolution by a judgment set forth on a separate document.⁸ The general rule that the proponent of a motion has the burden of proof applies to lien avoidance motions.⁹

There are four basic elements to avoiding a lien under section 522(f). First, there must be an exemption to which the debtor "would have been entitled under subsection (b) of this section." 11 U.S.C. § 522(f). Second, the property must be listed on the debtor's schedules and claimed as exempt. Third, the lien must impair that exemption. Fourth, the lien must be either a nonpossessory, nonpurchase-money security interest in categories of property specified by the statute, 11 U.S.C. § 522(f)(2), or be a judicial lien. 11 U.S.C. § 522(f)(1). Additionally, where a security interest on household goods and personal items is in question, there is another element: the property must be "held primarily for the personal, family, or household use of the debtor or a dependent of the debtor." 11 U.S.C. § 522(f)(2)(A).

A motion to avoid lien is generally a routine, noncontroversial matter because the property has been specifically described in the schedules, valued, and claimed as exempt, and the creditor's claim has been listed as secured by the same property. The validity of most exemptions is apparent from the face of the debtor's schedules and lists; properly prepared schedules and lists enable one "to determine precisely whether a listed asset is validly exempt simply by reading a debtor's schedules." Hyman v. Plotkin (In re Hyman), 967 F.2d 1316, 1319-20 (9th Cir.1992). Conversely, proof of the necessary elements becomes more difficult when the schedules are incomplete or vague—there is explaining to do.

The debtor's schedules and list of exemptions are so important to laying a foundation for lien avoidance (particularly on the first two essential elements) that they should be made part of the record. They are nearly indispensable to establishing that the property has been listed and claimed as exempt. A debtor ought to proffer them in support of the motion to avoid lien as evidence relevant to the elements of entitlement to an exemption and of scheduling and claiming exemption in the property.¹⁰

If the debtor does not proffer the verified schedules and list of property claimed as exempt, the court nevertheless has discretion to take judicial notice of them for the purpose of establishing whether the property is listed and claimed as exempt and whether the contents, if true, reflect a prima facie case for entitlement to exemption under 11 U.S.C. § 522(b).¹¹ Fed.R.Evid. 201(b)(2); O'Rourke v. Seaboard Surety Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957-58 (9th Cir.1989); 1 J. Weinstein, Weinstein's Evidence ¶ 201.03 at 201-35 (1992); B. Russell, Bankruptcy Evidence Manual § 201.5 (1991). Without the schedules and list of property claimed as exempt, the record has a missing link that normally is fatal to the motion.¹²

III. Effect of Exemption by Default under 11 U.S.C. § 522(l)

The debtor's claim of exemption in this case elicited no objection within the time provided by Rule 4003(b).¹³ Accordingly, the property claimed as exempt is exempt by default under the terms of section 522(l) and is exempt regardless of whether the exemption is valid. Taylor, ___ U.S. at ___, 112 S.Ct. at 1644.

Taylor does not affect the analysis of motions to avoid lien. The Supreme Court held in Taylor that property the debtor was not entitled to exempt under section 522(b) was nonetheless exempt by default under section 522(l) because the trustee had failed to object.¹⁴ Therein lies a key distinction.

The exemption by default under section 522(l) is not an exemption "to which the debtor would have been entitled under subsection (b)" of 11 U.S.C. § 522. Montgomery, 80 B.R. at 388; see also In re Frazier, 104 B.R. 255, 258 (Bankr.N.D.Cal. 1989). This language is not ambiguous and does not permit a lien to be avoided unless there is entitlement to exemption under section 522(b). It matters not at all that the property may be exempt by virtue of section 522(l).

Accordingly, assuming (without deciding) that Taylor would preclude untimely objection to exemption of property that is not correctly scheduled and listed, the inability of the trustee and other parties in interest to challenge the exemption has no impact on the ability to avoid a lien.

IV. Debtor's Duty to File Lists and Schedules

The difficulties with the record in this case relate primarily to lists and schedules that are not properly completed.

A. Duty to File Schedules

A paramount duty of the debtor is the duty to file a list of creditors, schedules of assets, liabilities, income, and expenditures, and a statement of financial affairs. 11 U.S.C. § 521(1). The debtor must file a list of property claimed as exempt. 11 U.S.C. § 522(l). And in a chapter 7 case, the debtor must cooperate with the trustee in preparing a "complete inventory of the property of the debtor . . ., unless such an inventory has already been filed." Fed. R.Bankr.P. 2015(a) and 4002(4); 11 U.S.C. § 521(3) (duty to cooperate with trustee in preparing inventory).

These matters are at the heart of the bankruptcy system, and their importance can hardly be understated. The proper "operation of the bankruptcy system depends on honest reporting." Payne v. Wood, 775 F.2d 202, 205 (7th Cir.1985).

B. Manner of Preparing Schedules and Lists

The schedules and lists are to be prepared as prescribed by the appropriate Official Forms. Fed.R.Bankr.P. 1007(b) and 9009. They are to be executed under penalty of perjury. Fed.R.Bankr.P. 1008.

The basic rule is that schedules must be accurate and complete. And they must be corrected if they are incomplete. Thus, amendments are liberally permitted and can be demanded by the court. Fed. R.Bankr.P. 1009(a). Numerous cases hold that the debtor has a duty to prepare schedules carefully, completely, and accurately. E.g., In re Jones, 134 B.R. 274, 279 (N.D.Ill.1991); In re Baumgartner, 57 B.R. 513, 516 (N.D. Ohio 1986); In re Mazzola, 4 B.R. 179, 182 (Mass.1980).

The Official Form relating to personal property identifies thirty-three types of property and requires the debtor to state for each category whether the debtor has an interest in any such property. If so, the debtor must give the description and location of the property, together with its market value and its...