In re Mootosammy

• Decision Date: 31 March 2008
• Docket Number: No. 6:07-bk-06553-KSJ.,6:07-bk-06553-KSJ.
• Citation: 387 B.R. 291
• Parties: In re Mahendra R. MOOTOSAMMY, Lilouti S. Seecheran, Debtors.
• Court: U.S. Bankruptcy Court — Middle District of Florida

387 B.R. 291

In re Mahendra R. MOOTOSAMMY, Lilouti S. Seecheran, Debtors.

No. 6:07-bk-06553-KSJ.

United States Bankruptcy Court, M.D. Florida, Orlando Division.

March 31, 2008.

COPYRIGHT MATERIAL OMITTED

Richard R. Baker, Baker Law Offices PA, Winter Park, FL, for Debtors.

MEMORANDUM OPINION GRANTING DEBTORS' MOTION TO AVOID JUDICIAL LIEN AND PARTIALLY OVERRULING CREDITOR'S OBJECTION TO DEBTORS' EXEMPTIONS

KAREN S. JENNEMANN, Bankruptcy Judge.

On October 4, 2007, L.W.T., Inc. ("LWT") obtained a Final Judgment against one of the debtors, Mahendra Mootosammy, in the amount of $8,399.28. LWT promptly recorded the judgment with the Florida Secretary of State and, on November 20, 2007, levied upon the debtors' otherwise unencumbered vehicle, a 2006 Ford Ranger. The Orange County Sheriffs Office noticed a sale of the truck for January 8, 2008; however, in the interim, the debtors filed this Chapter 13 reorganization case on December 17, 2007, effectively stopping the sale and requiring LWT to return the truck to the debtors (Doc. No. 27).

The debtors now seek to avoid the judicial lien held by LWT (Doc. No. 25). The debtors claim that, because they can exempt $6,000¹ of the value of the truck, which they value at $10,825,² LWT's judicial lien impairs these exemptions and is subject to avoidance pursuant to Section 522(f) of the Bankruptcy Code.³ The debtors contend that, under any confirmed Chapter 13 reorganization plan, they must pay LWT only on its remaining secured claim calculated as the difference between the claimed exempt amount, $6,000, and LWT's final judgment amount, $8,399.28, for a total remaining amount due under LWT's lien of approximately $2,399.28, plus any post-judgment interest and costs accruing prior to the filing of this bankruptcy case.

LWT opposes the avoidance of its judicial lien and objects to the debtors' claim of exemptions making two arguments.⁴ First, the creditor contends that the debtors waived their right to claim any exemption in their truck insofar as they failed to comply with Section 222.061 of the Florida Statutes within 15 days after LWT levied on the truck. Second, they argue that, if the debtors are entitled to exempt any portion of the truck's value, Mootosammy is limited to a total personal property exemption of $4,000 under both the Florida Constitution and Section 222.25(4) of the Florida Statutes. LWT argument is that the debtors cannot claim both the $1,000 personal property exemption allowed in the Florida. Constitution and the new $4,000 personal property exemption allowed in Section 222.25(4).

The debtors argue that they did not waive any exemptions in failing to take action in connection with the pre-petition levy of their truck. They also argue that they are entitled to a personal property exemption of $5,000 in the truck because they can "stack" the $1,000 Florida Constitution exemption with the new $4,000 statutory personal property exemption.⁵

Section 522(f) of the Bankruptcy Code provides debtors with the power to avoid judicial liens impairing exempt property. Specifically, Section 522(f)(1) provides in relevant part:

... the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such hen impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is — (A) a judicial lien, other than [for a domestic support obligation];

11 U.S.C. § 522(f)(1) (2007).

Debtors use this avoidance power to remove or avoid secured claims encumbering property of the debtor that would be exempt but for the existence of the creditor's lien. 4 Collier on Bankruptcy ¶ 511.11[1] (15th ed. rev.2008). The purpose of the provision is to provide relief for an overburdened debtor, and to avoid creditors racing to courthouses to place prepetition liens on property that would otherwise be exempt. In re Chiu, 304 F.3d 905, 908 (9th Cir.2002); 125 A.L.R. Fed. 465 (1995). A debtor may avoid the fixing of a lien if three requirements are met: (1) a lien was affixed to an interest of the debtor in property; (2) the lien impairs an exemption to which the debtor would otherwise have been entitled; and (3) the lien is a judicial lien other than for a domestic support obligation. See In re Reichardt, 2006 WL 5239229, *2 (Bankr. M.D.Fla.2006).

This case presents a relatively straightforward application of Section 522(f). Here, a lien in the amount of $8,399.28 attached to the debtors' interest in his 2006 Ford Ranger truck on November 20, 2007, when LWT levied on the automobile. The lien attached prior to the debtors' Chapter 13 filing on December 17, 2007. The lien clearly impairs the debtors' ability to claim an exemption of $6,000 of the value of the truck, which, but for the lien and the creditor's objections, the debtors otherwise are entitled to claim. Finally, the lien here is a judicial lien arising from a breach of contract action and not a domestic support obligation.

Pursuant to Section 522(f), the debtors may avoid the lien to the extent that it impairs their otherwise exempt property. Courts have interpreted Section 522(f)(1) to allow partial avoidance of a lien where, as here, the debtor's interest in the property exceeds their exemption amount. See In re Silveira, 141 F.3d 34 (1st Cir. 1998). In effect, the claimed exemption ($6,000) is first applied to the value of the truck ($10,825), then the creditor's lien "attaches" to the remaining un-exempt value of the property. The creditor receives an unsecured claim against the estate for the avoided portion of the lien.

The debtors' contention that LWT's lien should be reduced to $2,399.28 therefore is calculated incorrectly. The impairment is not the difference between the claimed exempt amount and the lien as the debtors assert. Rather, the debtors can exempt $6,000 from the total value of the truck ($10,825), leaving $4,825, not $2,399.28, subject to LWT's original lien of $8,399.28. As such, by partially avoiding LWT's lien and by utilizing their full claim exemptions of $6,000, LWT still would retain a secured lien on the truck of $4,825 and an unsecured claim of $3,574.28. The issue then is whether the debtors can claim the full $6,000 exemption in the truck.

An exemption once claimed by the debtor protects the debtor's interest in property, here a vehicle, from creditors. See 11 U.S.C. § 522. A debtor's claim of exemption is presumptively valid, unless a party in interest objects. 11 U.S.C, § 522(Z). LWT, as the objecting party, has the burden of establishing by a preponderance of the evidence that the debtors' exemptions are not properly claimed. Fed. R. Bankr.Pro. 4003(c) (2005); In re Pettit, 224 B.R. 834, 840 (Bankr.M.D.Fla. 1998). Exemptions are generally construed liberally in favor of the debtor whenever there is ambiguity. In re Stevenson, 374 B.R. 891, 894 (Bankr.M.D.Fla. 2007).

Here, LWT raises two objections to the debtor's claim of exemptions. First, LWT contends that the debtor waived any right to claim an exemption in his truck by failing to following the requirements of Section 222.061 of the Florida Statutes. Second, LWT contends the debtors' claimed exemption should be reduced by $1,000 because the debtors cannot claim both the $1,000 personal property exemption as provided in the Florida Constitution and the $4,000 personal property exemption granted in the recently enacted Section 222.25(4) of the Florida Statutes. Rather, .LWT contends the debtors must include the $1,000 constitutional exemption in the $4,000 maximum allowed by the statutory exemption, thereby reducing the debtors' claimed exemptions by $1,000.

Florida law controls in deciding whether the debtor here can claim both the constitutional and the statutory personal property exemption. Debtors must claim exemptions either pursuant to the federal exemptions provided for in Section 522(d), or by state law exemptions if a state "opts out" of the federal exemption scheme. See 11 U.S.C. § 522(b). Florida has opted out of the federal bankruptcy exemption scheme, and a debtor filing for bankruptcy protection in Florida therefore must claim the exemptions provided by Florida's state law.⁶

Florida law includes two different ways to exempt personal property — one in the Florida Constitution and one by a recently enacted statute. Article X, Section 4(a)(2) of the Florida Constitution provides a blanket personal property exemption of $1,000:

(a) There shall be exempt from forced sale ... the following property owned by a natural person:

... (2) personal property to the value of one thousand dollars.

FLA. CONST. ART. X, § 4 (the "Constitutional Personal Property Exemption"). Section 222.25(4) of the Florida Statutes provides a personal property exemption of an amount not to exceed $4,000 to debtors who do not receive any benefit from the homestead exemption. Fla. Stat. § 222.25(4) (2007) (the "Statutory Personal Property Exemption").

Because these debtors do not own any homestead property, they are entitled to claim the $4,000 Statutory Personal Property Exemption. LWT argues the debtors' total personal property exemption is capped at $4,000 because Section 222-25(4) of the Florida Statutes provides an exemption for the "debtor's interest in personal property, not to exceed $4,000 [.]" (Emphasis added.) LWT argues the language of the statute encompasses the Constitutional Personal Property Exemption provided by Article X, Section 4 of the Florida Constitution. Nothing in the plain language of the statute supports this conclusion.

Bankruptcy courts are required to construe statutory language by employing the plain meaning or common ordinary meaning approach. In re Pasehen, 296 F.3d 1203, 1207 (11th Cir.2002); In re Porter, 182 B.R. 53, 55 (Bankr. M.D.Fla.1994). Furthermore, "laws governing exemptions generally shall be liberally construed and broadly interpreted in favor of the claim of exemption, and strictly against the objecting party's...