In re Tarrant, Bankruptcy No. 4-81-0025.

• Decision Date: 08 April 1982
• Docket Number: Bankruptcy No. 4-81-0025.
• Citation: 19 BR 360
• Parties: In re Ronald R. TARRANT and Sandra J. Tarrant, Debtors. Ronald R. TARRANT and Sandra J. Tarrant, Plaintiffs, v. SPENARD BUILDERS SUPPLY, INC., Defendant.
• Court: U.S. Bankruptcy Court — District of Alaska

19 B.R. 360 (1982)

In re Ronald R. TARRANT and Sandra J. Tarrant, Debtors Ronald R. TARRANT and Sandra J. Tarrant, Plaintiffs, v. SPENARD BUILDERS SUPPLY, INC., Defendant.

Bankruptcy No. 4-81-0025.

United States Bankruptcy Court, D. Alaska.

April 8, 1982.

Barry W. Jackson, Fairbanks, Alaska, for plaintiffs.

James D. DeWitt, Fairbanks, Alaska, for defendant.

MEMORANDUM OPINION

J. DOUGLAS WILLIAMS, II, Bankruptcy Judge.

This matter is before the court on a motion for summary judgment of Creditor Spenard Builders Supply, Inc. (Spenard) and on the Debtor's oral cross-motion for summary judgment. Chapter 7 Debtors Ronald R. Tarrant and Sandra J. Tarrant (Tarrants) seek, pursuant to § 522(f)(1) of the Bankruptcy Reform Act of 1978 (Code), 11 U.S.C. § 101 et seq., to avoid the judicial lien held by Spenard on the residence of the Tarrants, more particularly described as Lot Five, Block Twelve, Beaver Subdivision, Fairbanks Recording District, Fourth Judicial District, State of Alaska. Ronald Tarrant has claimed a $19,000 exemption in the residence, pursuant to Alaska law, and the Tarrants argue that Spenard's lien would impair that exemption. Spenard argues that the Tarrants' complaint to avoid the lien was not timely filed, because not filed before the Tarrants were granted a discharge. The parties also disagree concerning the time at which the residence should be valued for purposes of exemption. Having considered the arguments of the parties, this Court finds that the Tarrants' complaint to avoid Spenard's lien was timely filed and that the value of the residence for exemption purposes, and thus the extent to which Spenard's lien is avoided, are to be determined as of the date of the filing of the Tarrants' Chapter 7 petition.

I. Factual Background

The Tarrants filed their joint Chapter 7 petition on August 1, 1980. On June 25, 1981, Ronald Tarrant claimed the exemptions to which he was entitled under Alaska law, including a $19,000 exemption in the family residence.¹ No objections to the claimed exemptions were filed. On July 10, 1981, the Tarrants were discharged pursuant to § 727 of the Code. The case has not yet been closed, as the estate is still being administered.

Spenard timely filed a proof of claim and alleges that it holds a secured claim in the amount of $10,030.26 plus interest. The basis for Spenard's claim is a Judgment of Confession entered by the District Court for the Fourth Judicial District of the State of Alaska against Ronald Tarrant. Spenard claims that this judgment became a lien on Ronald Tarrant's real property when the judgment was recorded on March 13, 1980.²

On August 20, 1981, after the order for discharge but during the administration of the estate, the Tarrants filed a complaint objecting to Spenard's secured claim and seeking to avoid the fixing of a lien on exempt property pursuant to § 522(f) of the Code.

As of the filing of the Tarrants' Chapter 7 petition on August 1, 1980, the residence had a fair market value of $59,000. It was encumbered at the time by a first deed of trust to Mt. McKinley Mutual Savings Bank, on which $46,482.11 was owing, and by a second deed of trust to Alaska Statebank, on which $3,958.79 was owing. In addition, Plywood Supply, Inc. claimed a lien on the property by virtue of a judgment against Ronald Tarrant for $3,131.63 plus interest, recorded on January 21, 1980.

Subsequent to the filing of the Chapter 7 petition, the Tarrants tried to sell the residence, without success. Ronald Tarrant undertook to enhance the marketability of the property by making several improvements, e.g. the addition of a forced air heating system, an underground fuel tank, topsoil and gravel, and several interior improvements. Ronald Tarrant's uncontradicted affidavit alleges that he made cash expenditures of $6,745 and contributed $1,300 worth of his own labor to the making of the improvements.

In the summer of 1981, the Tarrants sold the residence to the U.S. Department of Housing and Urban Development for $76,000. From this amount, the expenses of sale and the two deeds of trust were satisfied, and $11,797.21 was disbursed to the Tarrants. The proper disposition of the remaining $13,161.89, the amount of the claims of Spenard and Plywood Supply, Inc., is the object of the present dispute.

II. Timeliness of Debtors' Complaint to Avoid Judicial Liens

Spenard argues that the Tarrants are barred from filing a complaint to avoid a judicial lien on exempt property pursuant to § 522(f) after they have received their discharge. Relying chiefly on In re Adkins, 7 B.R. 325, 2 C.B.C.2d 1228, 6 B.C.D. 997 (Bkrtcy.S.D.Cal.1980), Spenard argues that debtors should be required to avoid liens before the expiration of the time for reaffirming obligations stemming from the liens, i.e., before discharge, and that the interest in finally resolving questions concerning the debtors' property requires them to act to avoid liens before discharge.

Section 522(f) by its terms imposes no time limitation on actions to avoid judicial liens on exempt property. Section 522(f)(1) states:

Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is—

(1) a judicial lien; . . .

. . . .

Several reasons compel this Court to join the majority of courts that have decided this issue and to hold that no time limitation exists on the filing of complaints to avoid liens pursuant to § 522(f). First, it would be unfair and perhaps raise questions of due process to find that the Tarrants had lost their right to avoid judicial liens pursuant to § 522(f) because of their failure to take action before discharge where the Tarrants had no notice of any time limitation. Several courts have refused to apply a time limitation under § 522(f) because of the lack of notice. See, e.g., In re Bennett, 13 B.R. 643, 645, 4 C.B.C.2d 1317, 8 B.C.D. 670, CCH Bkr.L.Rptr. ¶ 68,334 (Bkrtcy. W.D.Mich.1981); In re Baskins, 14 B.R. 110, 111, 5 C.B.C.2d 130, 132, 8 B.C.D. 161, 162, CCH Bkr.L.Rptr. ¶ 68,352 (Bkrtcy. E.D.N.C.1981). That unfairness would be compounded in the present case where the Tarrants may have relied on an order of this Court in forming their belief that no time limitation existed. Paragraph 5 of this Court's Order of Discharge Hearing Combined with Notice Thereof, issued on December 2, 1980, states that "Complaints to Avoid Liens under § 522(f) will be scheduled for trial or pre-trial upon filing of the complaint." In contrast, paragraph 2 of the same order states that "motions for approval of agreements of the kind specified in 11 U.S.C. § 524(c) reaffirmation must be filed at or prior to said hearing, and will be heard and determined at said hearing." The Tarrants may have justifiably relied on the language of paragraph 5 of the order, in light of the contrast with paragraph 2, in determining that their complaint to avoid liens need not be filed before discharge.

Secondly, section 350 of the Code supports the argument that no general time limitation bars filing of complaints to avoid liens under § 522(f). Section 350 authorizes a bankruptcy court to reopen a closed case "to administer assets, to accord relief to the debtor, or for other cause." From the legislative history it can be inferred that Congress contemplated that this section might be used to allow employment of a debtor's avoidance powers:

Subsection (b) permits reopening of the case to administer assets, to accord relief to the debtor, or for other cause. Though the court may permit reopening of a case so that the trustee may exercise an avoiding power, laches may constitute a bar to an action that has been delayed too long. . . .

H.R.Rep.No.95-595, 95th Cong., 1st Sess. 338 (1977); S.R.Rep.No. 95-989, 95th Cong., 2d Sess. 49 (1978), reprinted in U.S.Code Cong. & Admin.News 1978 at pp. 5835 and 6294. Courts have authorized lien avoidance under § 522(f) subsequent to the closing of a case. In re Gortmaker, 14 B.R. 66, 5 C.B.C.2d 127, 8 B.C.D. 67 (Bkrtcy. D.S.D.1981); In re Newton, 15 B.R. 640, 5 C.B.C.2d 843, 8 B.C.D. 514 (Bkrtcy.W.D. N.Y.1981). In light of the Congressional intent expressed by § 350 and in consideration of the interpretation given that section by the courts cited above, this Court will not foreclose the use of § 522 (f) to the Tarrants whose case has never been closed and whose assets were still being administered when they filed their complaint to avoid Spenard's lien.

Finally, several courts have held that the imposition of general time limitations on the filing of actions is normally a legislative function, and that since Congress has refrained from imposing any such limitation on a debtor's exercise of the rights granted the debtor by § 522, a Court should not create such a limitation. In re Gortmaker, supra, 14 B.R. at 67, 5 C.B.C.2d at 129; In re Smart, 13 B.R. 838, 840; CCH Bkr.L. Rptr. ¶ 68,379 (Bkrtcy.D.Ariz.1981); In re Swanson, 13 B.R. 851, 854, 5 C.B.C.2d 52, 8 B.C.D. 13 (Bkrtcy.D.Idaho 1981); Matter of Ward, 14 B.R. 549, 554 (D.C.S.D.Ga.1981). Indeed one court has gone so far as to say that the force of a local bankruptcy court rule requiring that § 522(f) complaints be filed before discharge is overridden by the choice of Congress not to impose a limitation. In re Newton, supra, 15 B.R. at 641, 5 C.B.C.2d at 845. Although this Court does not agree that the establishment of time limitations for the filing of § 522(f) complaints is beyond the sphere of judicial rule-making, where no such court rule has been promulgated the concerns expressed in the above-cited cases support a refusal to apply an ad hoc limitation.

The reasoning of the court in In re Adkins, supra, relied on by Spenard, is not persuasive. That court based its decision to require the filing of § 522(f) complaints before discharge...