In re Quidley
| Decision Date | 04 April 1984 |
| Docket Number | Bankruptcy No. 83-00971-R,Adv. No. 83-0274-R. |
| Citation | 39 BR 362 |
| Court | U.S. Bankruptcy Court — Eastern District of Virginia |
| Parties | In re Tommy Brian QUIDLEY, individually and t/a Waverly Equipment Service, Debtor. Tommy Brian QUIDLEY, Plaintiff, v. SMALL BUSINESS ADMINISTRATION, Defendant. |
James R. Sheeran, Richmond, Va., for plaintiff.
Stran L. Trout, Richmond, Va., for defendant.
This matter came before the Court upon the filing of a complaint to determine validity of lien and motion to avoid lien by the debtor, Tommy B. Quidley. A trial on the debtor's complaint was held on December 13, 1983. After taking evidence and listening to argument by both parties, this Court ruled that certain office equipment not the subject of this opinion was not exempt as tools of the trade and that any exemptions claimed by the debtor in property purchased with proceeds of the Small Business Administration (SBA) loan are inferior to the valid SBA security interest in such property. In addition, the Court took under advisement the question of whether a Chapter 13 debtor may utilize the provisions of 11 U.S.C. § 522(f) and whether certain other property claimed as exempt by the debtor is in fact tools and implements of his trade. The parties presented memoranda in support of their positions regarding the matters taken under advisement and after consideration thereof, the facts adduced at trial, and the applicable law, this Court renders the following opinion.
The following facts relevant to the Court's determination herein have been stipulated by the parties as follows:
1) Tommy Brian Quidley, the debtor, filed a Chapter 13 petition on June 16, 1983. The debtor was and is engaged as a sole proprietor in the business known as Waverly Equipment Service. The business of Waverly Equipment Service is a repair of heavy equipment used primarily in the logging and trucking industries.
2) On May 5, 1981 the Bank of Waverly made a loan, guaranteed by the SBA, to the debtor. Sometime after June 16, 1983, the Bank of Waverly looked to the SBA to perform under the guaranty arrangement and assigned its interest in the loan and security interest to the SBA.
3) At the time the loan was made a security interest was obtained by the Bank of Waverly and properly perfected. Among the property encumbered by the security interest was the following: a television set, four-piece living room suite, Baldwin organ, china cabinet, valve grinder, seat grinder, tool group, tool boxes, as well as all the debtor's furniture, fixtures, machinery, equipment, and inventory then owned or thereafter acquired.
4) Pursuant to Virginia law the debtor claimed as exempt his tools and utensils of trade and certain household goods. The value placed on the tools and utensils in the debtor's homestead deed was $13,772.50.
5) On September 16, 1983, the debtor filed a motion pursuant to 11 U.S.C. § 522(f) to avoid the SBA's claimed security interest in certain household goods and a complaint to determine the validity of the SBA lien in certain tools, machinery, and equipment owned by the debtor.
At the outset of these proceedings the SBA as assignee claimed a security interest in all of the debtor's inventory, equipment, machinery, certain vehicles, as well as some household goods owned by the debtor. The debtor has conceded that the SBA has a purchase-money security interest in the following items of personal property and, therefore, as to these items does not contest the SBA's lien: steam generator with sand blaster, fifty-ton press, engine stand, five-ton engine lift, transmission jack, wheel dolley, electric typewriter, filing cabinet, time clock, drill press, calculator, two fifty-foot hoses, two Nova lights, one 12 UT light, two power pullers, two tap and die sets, two 100-foot drop cords, a grinder, two desks, two chairs, and a storage cabinet.1 Likewise, the SBA has conceded that it has no lien on the debtor's automotive equipment including certain vehicles.2 In addition, this Court ruled from the bench on December 13, 1983 that (1) the debtor's exemptions claimed in property purchased with proceeds of the loan guaranteed by the SBA are inferior to the SBA's security interest and lien, and (2) that any office equipment not covered by the parties' stipulation is not and cannot be exempt property under Virginia law as tools or utensils of the trade. Finally, as to the alleged lien of the SBA on the debtor's household goods including the debtor's television set, a four-piece living room suite, a Baldwin organ, and a china cabinet, the SBA by agreement has relinquished any lien that it may have on that property except to the extent that such a lien may not be avoided by a Chapter 13 debtor.3
The areas of dispute having been narrowed both by agreement by the parties and by this Court in its earlier ruling, the Court is left with primarily two issues to be resolved. First, as a threshold issue this Court must determine whether the lien avoidance provisions of 11 U.S.C. § 522(f)(2) are available to Chapter 13 debtors. Second, if such lien avoidance provisions do inure to the benefit of Chapter 13 debtors, this Court must determine whether certain property constitutes tools and utensils of the trade pursuant to Virginia law and, therefore, serve as a basis for lien avoidance.
Those courts addressing the question of the applicability of § 522(f) in Chapter 13 proceedings have been unable to arrive at a consistent resolution of the problem. Compare Baldwin v. Avco Financial Services, 22 B.R. 507 (D.Del.1982) () with In re Aycock, 15 B.R. 728 (Bkrtcy.E. D.N.C.1981) (). In addition, no United States Circuit Court of Appeal has provided any guidance on this issue at present.
In light of the rather clear and unequivocal language of 11 U.S.C. § 103(a) which provides:
(a) except as provided in § 1161 of this Title, Chapters 1, 3, and 5 of this Title apply in a case under Chapter 7, 11, or 13 of this Title,. . . .
and in following the majority of cases addressing this question,4 this Court holds that a Chapter 13 debtor may utilize the lien avoidance provisions of § 522(f). This Court recognizes some of the rather cogent arguments set forth by the court in In re Aycock, however, this Court holds that any uncertainty or inconsistency must be resolved with an eye towards the fresh start policy of the Bankruptcy Code and remedial nature underlying § 522(f). When in doubt such conflicts or inconsistencies should be resolved by giving a broad interpretation of remedial statutes such as § 522(b) and § 522(f). Such is clearly the law in Virginia with respect to exemption statutes. See, e.g., Goldberg v. Salyer, 188 Va. 573, 50 S.E.2d 272 (1948).
Having held that the debtor in the instant matter may utilize the provisions of § 522(f) this Court must now determine whether the debtor may avoid the lien on certain property which remains disputed by the parties. Section 522(f) provides:
In the instant matter, the debtor seeks to avoid a nonpossessory, nonpurchase-money security interest in implements and tools of the trade of the debtor pursuant to § 522(f)(2)(B). In order to prevail in such a lien avoidance action, the debtor (1) must have an interest in the property; (2) the lien must impair an exemption to which the debtor would have been entitled under subsection (b) of § 522; (3) the lien must be a nonpossessory nonpurchase-money security interest; and (4) such lien must be implements, professional books, or tools of the trade of the debtor or the trade of the dependent of the debtor.
The debtor clearly has an interest in the property at issue here because the debtor is the owner of said property and as a Chapter 13 debtor the debtor may retain possession of such property. 11 U.S.C. § 1306(b). Whether the SBA's lien impairs an exemption to which the debtor would have been entitled to under subsection (b) of § 522 depends on an interpretation of state law because Virginia has "opted out" of the federal exemption schedule. Va. Code § 34-3.1 (Repl.Vol.1983). Under Virginia law, if the debtor is a mechanic pursuant to Va.Code § 34-26 he may exempt the tools and utensils of his trade.5 Moreover, if such exemption is claimed properly any lien on said tools or utensils would impair the exemption provided for in § 522(b) of the Bankruptcy Code and would constitute an impairment of "an exemption to which the debtor would have been entitled under subsection (b) of this section § 522."
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