In re Willoughby

• Decision Date: 08 September 1997
• Docket Number: Bankruptcy No. 96-10107-8C7.
• Citation: 212 BR 1011
• Parties: In re Dennis L. WILLOUGHBY et ux., Debtors.
• Court: U.S. Bankruptcy Court — Middle District of Florida

212 B.R. 1011 (1997)

In re Dennis L. WILLOUGHBY et ux., Debtors.

Bankruptcy No. 96-10107-8C7.

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

September 8, 1997.

COPYRIGHT MATERIAL OMITTED

David L. Schrader, Dade City, FL, for Debtors.

Lauren P. Greene, Seminole, FL, trustee.

Ashley J. McCorvey Myers, Barr, Murman, Tonelli, Herzfeld & Rubin, Tampa, FL, for Judith Haag.

DECISION ON DEBTORS' MOTION TO AVOID LIEN

C. TIMOTHY CORCORAN, III, Bankruptcy Judge.

This case came on for hearing on May 6, 1997, of the debtors' motion to avoid a judgment lien impairing their exempt homestead (Document No. 17) and the lienholder's response (Document No. 21). At the hearing, counsel for the parties recited into the record the undisputed facts and agreed that the issues could be decided as a matter of law from these facts. Accordingly, the court entered a case management order (Document No. 25) and the parties have now filed their briefs (Documents Nos. 27, 28, 29, and 30).

In the context of the facts involved here, this contested matter presents an issue of first impression involving an apparent conflict between the policies behind the lien avoidance provisions of Section 522(f) of the Bankruptcy Code, as amended in 1994, on the one hand, and the Florida law of tenancy by the entireties property, on the other hand. This conflict is created by the 1994 amendments to Section 522(f) that were designed to protect child support and alimony obligations. Concluding that this tension between the two bodies of law can best be reconciled by avoiding the lien in question, the court will grant the motion.

Agreed Facts

The debtor/husband, Dennis L. Willoughby, and the judgment creditor, Judith Ann Haag, were formerly married. Their marriage was dissolved in 1981 in Jackson County, Missouri. In 1993, a judgment was entered in the Circuit Court of Jackson County, Missouri, in favor of Ms. Haag and against Mr. Willoughby. The judgment specifically determined an amount of unpaid child support that was due from Mr. Willoughby to Ms. Haag.

After the divorce from Ms. Haag, Mr. Willoughby married the debtor/wife, Sandra Loy Willoughby. In 1985, they acquired a home in Pasco County, Florida, that they own as tenants by the entireties.¹ The home is their homestead.

In 1994, after the debtors established their Pasco County homestead, Ms. Haag caused a certified copy of the 1993 child support arrearage judgment entered by the Circuit Court of Jackson County, Missouri, to be recorded in the public records of Pasco County, Florida.²

The debtors filed this joint Chapter 7 bankruptcy case on August 5, 1996. The debtors properly claimed the Pasco County home as their exempt homestead in this bankruptcy case. No objection to that claim of exemption has been filed, and the homestead property is therefore exempt.

Issue Presented

By the pending motion, the debtors now seek to avoid the fixing of the lien of the judgment pursuant to the provisions of Section 522(f) of the Bankruptcy Code because it impairs their exempt homestead. The lienholder, Ms. Haag, opposes this effort on the grounds that Section 522(f), as amended by the Bankruptcy Reform Act of 1994, precludes the avoidance of the fixing of a judicial lien that impairs an exemption when the judgment creating the lien is for child support arrearages.

The issue presented here, therefore, is: May the debtors, a husband and wife, who own their exempt homestead in a Florida tenancy by the entireties, use the provisions of Section 522(f) of the Bankruptcy Code to avoid the fixing on the homestead property of the lien of a judgment for child support arrearages obtained by the debtor/husband's former spouse against only the debtor/husband but not also against the debtor/wife?

For the reasons described below, the court concludes that, although the debtor/husband may not avoid the lien on the jointly owned homestead property, the debtor/wife may nevertheless do so.

Discussion

Section 522(f) (1) of the Bankruptcy Code, following the 1994 amendments, now provides in relevant part that:

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 . . . if such lien is —

(A) a judicial lien, other than a judicial lien that secures a debt —

(i) to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court . . . and

(ii) to the extent that such debt —

(I) is not assigned to another entity, voluntarily, by operation of law, or otherwise; and

(II) includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance or support. . . .

The underlined portion of the statute was added in the 1994 amendments to except judgment liens created by alimony and child support judgments from the lien avoidance powers of a debtor. The precise amendment is found in Section 304 of the Bankruptcy Reform Act of 1994, P.L. 103-394, entitled "Protection of Child Support and Alimony." In the words of the House Report:

This section is intended to provide greater protection for alimony, maintenance, and support obligations owing to a spouse, former spouse or child of a debtor in bankruptcy. The Committee believes that a debtor should not use the protection of a bankruptcy filing in order to avoid legitimate marital and child support obligations.

H.R.Rep. No. 103-835, at 54 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3363. This lien avoidance exception is but one of several enhancements to the protection of alimony and child support obligations contained in the amendments. Regarding this addition to the lien avoidance provisions of the Code, the House Report states:

Subsection (d) provides that section 522(f)(1) of the Bankruptcy Code may not be used to avoid judicial liens securing alimony, maintenance, or support obligations. (This subsection is intended to supplement the reach of Farrey v. Sanderfoot, 500 U.S. 291, 111 S.Ct. 1825, 114 L.Ed.2d 337 (1991), which held that a former husband could not avoid a judicial lien on a house previously owned with his wife.)

Id.

Unfortunately, neither the statute nor the legislative history appear to address directly the situation presented by this case. Here the debtors own their homestead property jointly in an estate by the entireties, while the child support judgment creating the lien that threatens this property is against the debtor/husband only.

On its face, the statute provides in the context of this dispute that the debtor may avoid:

1. the fixing of a judicial lien;

2. on an interest of the debtor in property;

3. when it would impair an exemption of the debtor;

4. unless the judicial lien:

a. secures a debt to a former spouse of the debtor;

b. for support of a child of the debtor.

These are the elements of a debtor's Section 522(f)(1)(A) right to avoid a lien that the debtors must establish if the court is to grant their motion and avoid the lien.³ In examining these elements, the first thing one sees is that the relief that Section 522(f) affords is available to "the debtor." The applicable provision begins: "The debtor may avoid . . ." It then goes on to speak in terms of "a judicial lien that secures a debt . . . to a spouse, former spouse, or child of the debtor." In these circumstances, however, there is not a single debtor. There are instead joint debtors under Section 302 of the Bankruptcy Code. It appears, therefore, that the court is required under the statute to test each debtor/spouse's eligibility for relief under this statute on an individual basis.

Assuming for the moment that both the debtor/husband and the debtor/wife in this case satisfy the first three elements of Section 522(f)(1) as outlined above, the fourth element precludes the debtor/husband from avoiding this lien. This is true because the judgment is for a debt owed to the former spouse of the debtor/husband for support of a child of the debtor/husband. The debtor/wife, however, suffers no such prohibition because the judgment is not against her, the judgment creditor is not her former spouse, and the debt is not for the support of her child. Thus, under the precise terms of the statute, the debtor/husband here is not able to avoid the lien. This fourth element of lien avoidance as outlined above, however, does not preclude the debtor/wife from avoiding the lien. Accordingly, she can avoid the lien if she satisfies each of the first three elements.⁴

In analyzing the first three elements of lien avoidance in relation to the debtor/wife, it is important to note that both the debtor/husband and the debtor/wife own their exempt homestead in an estate by the entireties. In Florida, an estate by the entireties is a type of tenancy that can be held only by a husband and wife. In this form of ownership, each spouse owns the "entirety" or the whole of the estate. Quick v. Leatherman, 96 So.2d 136, 138 (Fla.1957). The theoretical basis for this estate is that husband and wife are one person in the law. Strauss v. Strauss, 148 Fla. 23, 25, 3 So.2d 727, 728 (1941). Upon the death of one spouse, the deceased spouse's interest is extinguished and the surviving spouse's whole ownership survives by virtue of the original title. Gerson v. Broward County Title Co., 116 So.2d 455, 456 (Fla. 2d DCA 1959). Because of the critical importance of the marriage to the existence of an estate by the entireties, tenants by the entireties become tenants in common as a matter of law upon the dissolution of their marriage. § 689.15, Fla.Stat. (1995).

Tenancy in common is a substantively different kind of estate than the estate by the entireties. Tenants in common each own a proportional undivided interest in the property rather than the whole. In re Estate of Cleeves, 509 So.2d...