In re Schneider, Bankruptcy No. 80-05147
| Decision Date | 10 March 1982 |
| Docket Number | 81-7074 and 81-7122.,80-05088 and 80-05193,Bankruptcy No. 80-05147,Adv. No. 81-7073 |
| Citation | 18 BR 274 |
| Parties | In re Rodney A. SCHNEIDER and Debra A. Schneider, Debtors. Rodney A. SCHNEIDER and Debra A. Schneider, Plaintiffs, v. BENEFICIAL FINANCE COMPANY OF NORTH DAKOTA, Defendant. In re Dennis Marvin HOYE and Patricia Lynn Hoye, Debtors. Dennis Marvin HOYE and Patricia Lynn Hoye, Plaintiffs, v. BENEFICIAL FINANCE COMPANY OF NORTH DAKOTA-Jamestown, Defendant. In re James Jacob GIENGER and Pamela Kay Gienger, Debtors. James Jacob GIENGER and Pamela Kay Gienger, Plaintiffs, v. AVCO FINANCIAL SERVICES OF NORTH DAKOTA, INC., Defendant. |
| Court | U.S. Bankruptcy Court — District of North Dakota |
Jay D. Carlson, Fargo, N.D., Duane Kragness, Wahpeton, N.D., Michael D. Nelson, West Fargo, N.D., for plaintiffs.
John V. Boulger, Fargo, N.D., for defendants.
JOINT DECISION
Each of the above adversary proceedings involve lien avoidance questions under § 522(f) of the Bankruptcy Reform Act, 11 U.S.C. § 522(f). In Adversary No. 81-7074 (HOYE), a trial was held and copies of the note, security agreement, and identification of security in question were introduced into evidence. In Adversary No. 81-7073 (SCHNEIDER) and Adversary No. 81-7122 (GIENGER) the parties filed stipulations of fact and agreed that the Court could make its determination without trial.
Each case involves non-possessory, non-purchase money security interests in household goods claimed as exempt in the Debtors' bankruptcy proceedings. In HOYE and GIENGER security interests were granted the creditors during the so-called "gap" period between the date of enactment of the Bankruptcy Reform Act and its effective date of October 1, 1979. In SCHNEIDER the Debtors gave Beneficial a security interest in household goods prior to November 6, 1978, the enactment date of the Bankruptcy Reform Act. However, the debt was refinanced during the "gap" period, the Schneider's executing a new note, security agreement, and identification of security. One additional item of security, a 1954 Dodge pickup, was added to the secured property and $739.00 in new money was advanced to the Schneider's.
In none of the cases did the Debtors file adversary proceedings seeking avoidance of the liens in question until after the Debtors' bankruptcy cases were closed. In neither HOYE nor GIENGER did the Debtors file a petition to reopen the bankruptcy proceedings prior to filing their adversary complaints, while in SCHNEIDER the bankruptcy case was reopened before the complaint was filed.
In GIENGER the creditor, AVCO Financial Services, filed a counterclaim seeking possession of the property in which it has a security interest.
This Court previously ruled in In re Manske, Bkptcy. 80-05344 (July 31, 1981), an unreported decision, that liens created during the "gap" period that impair a debtor's exemptions can be avoided under § 522(f) without doing violence to the due process requirements of the Fifth Amendment. The Defendants contend, however, that this Court lacks jurisdiction to avoid liens after the Debtors have been granted their discharge and their bankruptcy cases closed. They further contend that the Debtors are required to reopen their bankruptcy cases before complaints may be filed to avoid liens under § 522(f).
Bankruptcy Courts are not in agreement as to when complaints seeking the avoidance of liens under § 522(f) must be filed. Several courts have held that such actions must be brought prior to the entry of the debtor's discharge, reasoning that, while neither the Bankruptcy Code nor the Bankruptcy Rules specify the time when such actions must be brought, in order for the parties involved to know their respective rights with regard to the property in question, and in order to effectively carry out the provisions of the Bankruptcy Reform Act, there must be some finality in determining the rights of the parties. See In re Adkins, 7 B.R. 325, 2 CBC 2d 1228, 6 B.C.D. 997 (Bkrtcy., S.D.Cal.1980); In re Krahn, 10 B.R. 770, 7 B.C.D. 767 (Bkrtcy., E.D.Wis. 1981); and In re Porter, 11 B.R. 578 (Bkrtcy., W.D.Okl.1981).
Other courts, however, have refused to fix such time limits, holding that the right to avoid liens under § 522(f) is a personal right of the debtor that is not material to the administration of the estate, that Congress did not place a time limit on the assertion of that right, and that in the absence of prejudice or delay to the creditor the court lacks the power to create an arbitrary time limit in which that right must be asserted. See In re Swanson, 13 B.R. 851, 8 B.C.D. 13 (Bkrtcy., D.Idaho 1981); In re Baskin, 14 B.R. 110, 8 B.C.D. 161 (Bkrtcy., E.D.N.C.1981); and In re Gortmaker, 14 B.R. 66, 8 B.C.D. 67 (Bkrtcy., D.S.D.1981).
This Court is more persuaded by the reasoning of Swanson, Baskin, and Gortmaker. While it finds considerable merit in the argument that bankruptcy proceedings should have some finality and agrees that time limits on the assertion of the debtor's rights under § 522(f) might be desirable, this Court does not believe that it can, nor that it should, arbitrarily fix those limits. If time limits are to be imposed it should be done by statute or by a duly promulgated bankruptcy rule.
In SCHNEIDER, the Debtors, relying largely on In re Clark, 9 B.R. 407 (Bkrtcy., E.D.Va.1981), contend that it is the date of refinancing that determines whether the lien can be avoided. In Clark the Court held that the date of the execution of the last security agreement is controlling for purposes of applying § 522(f), reasoning that when the original note was cancelled the underlying debt was extinguished and the initial security interest no longer existed.
Beneficial argues that the Clark Court ignored the provisions of the Uniform Commercial Code dealing with the priority of competing liens in the same secured property, citing § 41-09-33(5)(a) of the North Dakota Century Code, and several cases dealing with priorities under the Uniform Commercial Code. Beneficial further argues that its continuous perfected security interest vested in it a property right from the date of first perfection, and that a deprivation of that right by § 522(f) is unconstitutional, citing Rodrock v. Security Industrial Bank, 642 F.2d 1193 (10th Circ. 1981).
The arguments of Beneficial concerning the Uniform Commercial Code provisions are inapposite. The instant case, unlike the cases cited by Beneficial, does not deal...
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