In re Piersol, Bankruptcy No. 99-16689DAS.
| Decision Date | 07 February 2000 |
| Docket Number | Bankruptcy No. 99-16689DAS. |
| Citation | 244 BR 309 |
| Parties | In re Dave PIERSOL, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Timothy J. Trott, Cox & Trott, West Chester, PA, for debtor.
Joel M. Flink, Phila., PA, for creditors.
Gloria Satriale, Chester Springs, PA, trustee.
Frederic Baker, Ass't. U.S. Trustee, Phila., PA, United States trustee.
The instant contested matters are motions ("the Motions") to avoid, in their entirety, certain judicial liens on realty ("the Property") which the Debtor co-owns with his two sisters. Certain lienholders oppose the Motions, at least in part, on the ground that the value of the entire Property less the unavoidable mortgage on it exceeds the Debtor's statutory exemptions in the Property. The issue presented herein is how a Debtor's equity in co-owned real estate should be valued for purposes of 11 U.S.C. §§ 522(f)(1)(A), (f)(2).
We find that § 522(f), appearing in a Code section which references exemptions, must be liberally construed to protect debtors, and therefore must be read literally to allow the Debtor to utilize only the value of his own specific interest in the property in applying the specific formula for § 522(f) calculations set forth in, e.g., In re Brantz, 106 B.R. 62, 68 (Bankr. E.D.Pa.1989). We therefore conclude that the Motions must be granted, and the judicial liens at issue avoided, in their entirety.
The Debtor filed the underlying Chapter 7 bankruptcy case on July 18, 1996. A discharge was granted without incident on November 1, 1996, and the case was closed on November 8, 1996.
On October 6, 1999, the Debtor, after notice to all creditors and interested parties, see In re Rex, 217 B.R. 57, 61 (Bankr. E.D.Pa.), aff'd, C.A. No. 98-1058 (E.D.Pa. April 3, 1998), successfully moved to reopen this case to pursue certain lien avoidance motions overlooked during the pendency of the case in 1996. See, e.g., In re Quackenbos, 71 B.R. 693, 695-98 (Bankr. E.D.Pa.1987); and In re Hall, 22 B.R. 701, 702-03 (Bankr.E.D.Pa.1982).
On December 6, 1999, the Debtor filed three motions pursuant to 11 U.S.C. § 522(f)(1), seeking to avoid judicial liens in the amount of $7,266.71, $2,683, and $5,375, held by First Deposit National Bank ("1st Dep."), Adamar of New Jersey ("Adamar"), and Greate Bay Hotel & Casino ("Greate Bay"), respectively. The 1st Dep. lien was avoided without opposition on December 23, 1999. However, Adamar and Greate Bey (collectively, "the Creditors") both filed answers to the Motions seeking to avoid their liens.
A hearing on the Motions of December 23, 1999, resulted in a request for a continuance and the court's ultimate request that the parties file briefs in support of their positions on or before January 14, 2000, and that the hearing on the Motions be continued until January 20, 2000. While both parties filed briefs, only the Debtor appeared at the continued hearing. However, since the material facts were not in dispute, no testimony was offered, and the Motions will be decided on the briefs.
Both parties agree the Property at issue, the Debtor's residence at 341 Zynn Road, Downingtown, PA 19335, is valued at $129,000, and that it is encumbered by a non-avoidable security interest in the form of a mortgage of $55,000 held by PNC Bank, for which the Debtor and the co-owners, his two sisters, are jointly and severally liable.
The Debtor claimed on his Schedules and in connection with the Motions that he holds no more than a one-third interest in the Property. Based on this one-third interest and applying the formula set forth in, e.g., Brantz, supra, 106 B.R. at 68, the Debtor argues that both liens may be avoided in their entirety. However, the Creditors contend that, if such a one-third interest is used in valuing equity, the Debtor will receive a windfall at their expense because sufficient equity is left in the Property to support these liens based on its full value. They therefore argue that, for the purposes of the Brantz formula calculation, the entire value of the Property must be considered.
The pertinent Bankruptcy Code provisions, 11 U.S.C. § 522(f)(1)(A) and § 522(f)(2)(A), state as follows:
The parties do not appear to dispute that the formula for application of § 522(f) is that set forth by this court in In re Magosin, 75 B.R. 545, 547 (Bankr.E.D.Pa. 1987), and reiterated in Brantz, supra, 106 B.R. at 68, as follows:
Indeed, this formula was expressly approved by the Supreme Court in Owen v. Owen, 500 U.S. 305, 313 n. 5, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991), and by Congress in amending § 522(f) in 1994. 140 CONG.REC.H 10,764 (daily ed. Oct. 4, 1994), reprinted in E COLLIER ON BANKRUPTCY, App. Pt. 9-93 (15th ed. rev.1999).1
The issue before us is how a debtor's equity in real estate should be valued when the real estate is owned by the debtor with other, nondebtor parties. Although the parties do not dispute that the Brantz formula applies, we note that this formula does not address the method for valuing a debtor's interest in jointly-owned Property.
The language of 11 U.S.C. 522(f) seems to clearly state that it is valuation, for purposes of that statute, of only "the interest of the debtor in property," i.e., the debtor's share of the property, which is at issue. Nevertheless, the reported cases deciding this issue have split into two separate approaches.
The Creditors cite to In re Lehman, 223 B.R. 32, 34-35 (Bankr.N.D.Ga.1998), which holds that all encumbrances on a debtor's property must be deducted from the total value of the property before the debtor's exemption is entered into the Brantz formula. Though not cited by the Creditors, we note that this viewpoint is shared by the courts in Nelson v. Scala, 192 F.3d 32, 34-36 (1st Cir.1999); and In re Nielsen, 197 B.R. 665, 668-72 (9th Cir. BAP 1996). These courts believe that a different reading than theirs, though supported by the "plain," Lehman, supra, 223 B.R. at 34, or "literal," Nelson, supra, 192 F.3d at 36, language of the statute, leads to "injustice", id., or "an absurd result." Lehman, supra, 223 B.R. at 34.
On the other hand, in In re Cozad, 208 B.R. 495, 497-98 (10th Cir. BAP 1997); In re Pascucci, 225 B.R. 25, 28 (Bankr. D.Mass.1998); In re Donahue, 205 B.R. 661, 662 (Bankr.D.Mass.1997); and In re Witkowski, 176 B.R. 114, 115 (Bankr. D.Mass.1994), the respective courts reach the opposite result, although the latter three decisions appear to be overruled by the subsequent decision in Nelson.
Thus, in Cozad the court held that the bankruptcy court was correct in deducting a mortgage and other consensual liens from one-half of the property's fair market value, where the debtor jointly owned property with a nondebtor. Rather than finding this result unjust or absurd, Cozad reasoned that Congress intended the words in this statute to carry "their ordinary, contemporary, common meaning which resulted in reducing the value component according to the debtor's interest in the property". Id. at 497. Similarly, in Witkowski, supra, the court found the "benefits of § 522(f)(1) were not intended to be illusionary . . . Congress' belief was that § 522 was related to the fresh start which the Bankruptcy Code promises the debtor. . . ." 176 B.R. at 117.
For several reasons, we agree with the reasoning of the second approach reflected in the Cozad line of cases. First, the Supreme Court has stated that, in construing the Bankruptcy Code, "the plain language of the Bankruptcy Code . . . is our determinant." Patterson v. Shumate, 504 U.S. 753, 757, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992). See also Union Bank v. Wolas, 502 U.S. 151, 162, 112 S.Ct. 527, 116 L.Ed.2d 514 (1991); and United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989).
Second, we note that § 522(f) appears in the Code section addressing a debtor's exemptions.
When there is a significant doubt about the outcome of such a matter, " `liberal interpretation of exemption laws are favored.\' " In re Sidebotham, 77 B.R. 504, 506 (Bankr.E.D.Pa.1987), quoting In re Wilson, 22 B.R. 146 (Bankr.D.Or.1982).
In re Kaplan, 162 B.R. 684, 698 (Bankr. E.D.Pa.1993), aff'd sub nom. Kaplan v. First Options of Chicago, Inc., 189 B.R. 882 (E.D.Pa.1995), reconsideration denied sub nom. First Options of Chicago, Inc. v. Kaplan, 198 B.R. 91 (E.D.Pa.1996).
Third, we have agreed with the notion, since laying down our ultimately-vindicated formula for § 522(f) in Magosin, supra, that § 522(f) must be interpreted "to maximize the `fresh start' principle" of the Bankruptcy Code. 75 B.R. at 550 n. 2.
Finally, we note that Judge Raslavich of this court, without discussing the decisional schism,...
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