Maddox, Matter of
| Decision Date | 16 March 1994 |
| Docket Number | No. 93-7266,93-7266 |
| Parties | , Bankr. L. Rep. P 75,764 In the Matter of James A. MADDOX, et al., Debtors. TOWER LOAN OF MISSISSIPPI, INC., Appellant, v. James A. MADDOX, Jr., et al., Appellees, and Harold J. Barkley, Jr., Trustee, Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Nicholas V. Wiser, Byrd & Wiser, Biloxi, MS, for Tower Loan of Mississippi, Inc.
Terre M. Vardaman, Harold J. Barkley, Jr., Jackson, MS, for Harold J. Barkley, Jr., Trustee.
Roosevelt N. Daniels, II, Ferr, Smith & Assoc., Canton, MS, for Annie Fisher.
John A. Allen, John A. Allen Law Office, Jackson, MS, for James Maddox, et al., Melvin Travis & Haley, et al., B. Evans, T. Harrell and G. Jones.
Lynda Carol Robinson, Robinson Law Firm, Jackson, MS, for Greenwood, et al.
Lawrence E. Young, Deceased, North MS Rural Legal Svcs., Oxford, MS, Nancy Stuart, West Point, MS, for amici curiae--Tonya White, et al.
Appeals from the United States District Court for the Southern District of Mississippi.
Before HIGGINBOTHAM and WIENER, Circuit Judges, and KAUFMAN, * District Judge.
Today we address two questions arising under the Bankruptcy Code: (1) Whether the recent Supreme Court case of Owen v. Owen 1 has overruled our holding and method in Matter of McManus 2 and the line of cases following it, so that a debtor may now avoid a nonpossessory, nonpurchase-money lien under
Sec. 522(f) 3 on property exempt from seizure under state law, even though that lien falls within a state law exception to such an exemption; and (2) whether a chapter 13 trustee has standing under Sec. 1302 to avoid liens under Sec. 522(f). We answer both questions affirmatively.
The facts in this case are undisputed. Creditor-Appellant Tower Loan of Mississippi, Inc. ("Tower Loan") lent money to each of the several Debtors-Appellees (individually, "Debtor"). As security for these loans, each Debtor granted Tower Loan a nonpossessory, nonpurchase-money lien on various items of personal property. Many of these enumerated items are susceptible of classification as property that is both exempt under state law and also eligible for lien-avoidance under Sec. 522(f). 4
Each Debtor sought protection under Chapter 13 of the Bankruptcy Code. Sixteen of these cases were consolidated in the bankruptcy court and form the subject matter of the instant appeal. These cases vary somewhat in their procedural particulars; and these variations are relevant to the issue whether the chapter 13 trustee, Trustee-Appellee Harold J. Barkley, Jr. ("Trustee"), has standing to seek avoidance of liens under Sec. 522(f).
In three of these sixteen cases the Debtor himself or herself initiated the motion to avoid liens under Sec. 522(f). In each of the remaining thirteen cases, however, the Trustee initiated the motion. In twelve of these remaining thirteen cases the individual Debtors subsequently joined in the Trustee's avoidance motion, leaving only one case in which a Debtor did not join. In one of those twelve cases the Debtor joined the Trustee's motion only after the bankruptcy court "coerced" that Debtor to join. 5 In the thirteenth case, the Trustee has continued prosecuting the lien-avoidance motion despite the lack of any action on the part of the Debtor, either to join or to oppose the motion.
In regard to the two issues relevant to this appeal, the bankruptcy court determined that: 1) a Debtor in Mississippi may now use Sec. 522(f) to avoid a nonpossessory, nonpurchase-money security interest in property (such as household furnishings and goods) that is exempt under MISS.CODE.ANN. Sec. 85-3-1; and 2) a chapter 13 trustee has standing to file a motion to avoid such liens. 6 The bankruptcy court entered orders as to each Debtor accordingly, which orders Tower Loan appealed to the district court. The Debtor who had been coerced to join the motion did not appeal, however. 7 In each instance the district court affirmed. Tower Loan timely continues its appeal to this court.
The first issue we address in this appeal arises out of the intersection of the lien- (A) [H]ousehold furnishings, household goods, wearing apparel, appliances, books, animals, crops, musical instruments, or jewelry that are held primarily for the personal, family, or household use of the debtor or the dependent of the debtor;
avoidance provision in Sec. 522(f) and the exemption provision in Sec. 522(b). Subsection (f) of Sec. 522 provides that a debtor may avoid a lien on property to the extent to "which he would have been entitled" to an exemption under subsection (b) of that same section. This ability to avoid liens under subsection (f) is available only for 1) judicial liens on exempt property, 8 and 2) nonpossessory, nonpurchase-money security interests on exempt property that affect:
(B) implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor; or
(C) professionally prescribed health aids for the debtor or a dependent of the debtor. 9
In determining the universe of exempt property, subsection (b) specifies that a debtor has the option to elect to come under the umbrella of either the federal list of exemptions or the state list, unless the state has "opted-out" of the federal exemption statute. If the state has opted out then the debtor may claim only those exemptions on the state list. 10 In our circuit, Louisiana 11 and Mississippi 12 have opted out of the federal exemption statute; Texas apparently has not. 13 Nonetheless, all three states provide that the state exemptions remain subject to certain security interests or liens placed on exempt property, i.e., exceptions to the exemptions. 14
In Matter of McManus 15 this court determined that the debtor took "the bitter with the sweet" when he used the Louisiana exemption statute as the basis of avoiding liens under Sec. 522(f). In sum, the exemption available under Louisiana law remained limited by the enumerated exceptions to that exemption. Thus, a debtor could not use Sec. 522(f) to avoid a lien on exempt property when that lien fell within an exception to that exemption under state law. 16 McManus has been applied by this court to the Texas exemption statute in Matter of Allen 17 and Matter of Bessent 18 and to the Mississippi exemption statute in Matter of Fox. 19
Almost a decade after our opinion in McManus, the Supreme Court in Owen v. Owen 20 addressed whether a judicial lien placed on exempt property could be avoided under Sec. 522(f) in the face of a state law specifying that the judicial lien at issue fell within an exception to the state exemption statute. Parsing the plain wording of Sec. 522(f), the Court focused on the phrase "would have been entitled" and observed that, as applied to federal exemptions, this language has been correctly construed to mean " 'would have been' but for the lien at issue." 21 The Court concluded that there was no valid basis for distinguishing between The question then becomes whether a different interpretation should be adopted for State exemptions. We do not see how that could be possible. Nothing in the text of Sec. 522(f) remotely justifies treating the two categories of exemptions differently. 22
the approach used for state as opposed to federal exemptions. As the Court stated:
The threshold question we must answer is whether Owen has overruled our McManus line of cases. Tower Loan attempts to distinguish Owen factually as a case involving a judgment lien rather than a nonpossessory, nonpurchase-money lien like the ones here under review. We conclude, however, that this is a classic example of a distinction without a difference. Section 522(f) provides in pertinent part:
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; or
(2) a nonpossessory, nonpurchase-money security interest ... 23
The Court in Owen indisputably construed the "would have been entitled" language of Sec. 522(f) to mean that a debtor may avoid liens that are exceptions to the exemption statute under state law: As the structure of the statute demonstrates, that is the operative language applicable to all subsections of Sec. 522(f), including the one relating to nonpossessory, nonpurchase-money security interests.
The rationale of the Owen decision is perhaps just as important. As one bankruptcy court aptly observed:
Central to Owen 's analysis is the following proposition: [A]lthough a state may elect what property is exempt under state law, federal law determines the availability of lien avoidance under Sec. 522(f) of the Code. That manner of applying Sec. 522(f) is to be adopted under both the state and federal exemption schemes. 24
We agree. Consequently, we conclude, and therefore hold today, that McManus and our subsequent opinions grounded in it have been overruled by Owen to the extent that those cases held lien-avoidance under Sec. 522(f) to be limited by state exceptions.
Tower Loan asserts essentially two alternative contentions to argue that, even if Owen has overruled McManus, Owen does not mean that the liens at issue here are avoidable. First, Tower Loan insists that, under the exemption scheme in Mississippi, liens of this type attach before the property becomes eligible for exemption. According to Tower Loan, this means that such liens are not fixed "on an interest of the debtor" as required by Sec. 522(f). 25
Tower Loan is correct to the extent of its assertion that under Mississippi law the identities of the particular items of property that are subject to an exemption are not known until...
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