UNITED STATES
BANKRUPTCY COURT FOR
EASTERN DISTRICT OF
KENTUCKY
ASHLAND DIVISION
IN RE:
RICHARD KEITH LITTERAL
and CANDACE LITTERAL
DEBTORS CASE
NO. 04-10647
MEMORANDUM OPINION
Introduction
Richard Keith Litteral and Candace
Litteral (the “Debtors”) are before the court on the Chapter 13 Plan that they
filed in this case on August 18, 2004, as amended (the “Plan”). Caniff Funeral
Home, Inc. (“Caniff”) opposes confirmation of the Plan due to its provision for
the avoidance of Caniff’s judicial lien under § 522(f) of the Bankruptcy
Code. Having considered the Plan and
the arguments of counsel, the court concludes that the Debtors are not
entitled to avoid the lien, through the Plan or otherwise.
Factual and Procedural Background
On August 18, 2004 the Debtors
filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code,
commencing this case. The Debtors’ Schedule D (Creditors Holding Secured
Claims) listed Caniff as holding a $6,000 claim secured by a judgment lien on
the property located at 511 Old Buckley Road in Ashland, Kentucky (the
“Property”). The claim was not listed as contingent, unliquidated, or disputed,
the Property was valued at $70,000, and the unsecured portion of the claim
was stated to be zero. The schedule recited Caniff’s address as 528 Wheatley
Road, Ashland KY 41101. The schedules also indicate that Fifth Third Mortgage
Company holds a mortgage on the Property in the amount of $45,876.
That same day, the Debtors filed a
proposed Chapter 13 Plan. Paragraph E of Article III (Treatment of Secured
Claims), provides as follows:
Avoidance of Liens under 11 U.S.C. § 522(f). The liens of the following creditors are avoided
under 11 U.S.C. § 522(f). The allowed claims of such creditors shall be
treated as general unsecured claims:
Secured Creditor |
Collateral Description |
Caniff Funeral Home |
Location: 511 Old Buckley Road, Ashland KY |
The certificate of service attached to the Plan
indicated that copies were mailed to creditors, including Caniff, at the
addresses set forth in the schedules. On August 19, 2004 a § 341(a) meeting of
creditors was scheduled for September 15, 2004. On August 27, 2004 Caniff’s
attorney filed a Notice of Appearance and a Proof of Claim, asserting a claim
in the amount of $8,644.49; the face of the Proof of Claim does not assert that
the claim is secured, but a recorded copy of a Notice of Judgment Lien on Real
Estate, claiming a lien on all real property located in Boyd County, was
attached. On October 14, 2004 Fifth Third Mortgage Company filed a Proof of
Claim asserting a claim in the amount of $45,693.00, secured by a mortgage on
the Property. The Plan was amended on October 25, 2004 and November 1, 2004,
but the provision quoted above was unchanged.
Caniff has never filed an
objection to confirmation of the Plan. It was, however, represented at the
continued hearing on confirmation of the Plan, conducted on November 10, 2004.
Caniff’s attorney at that time challenged the Plan language quoted above, and
counsel for the Debtors responded that Caniff is barred from opposing the
relief due to its failure timely to object to confirmation of the Plan. The attorney
for Beverly M. Burden, the trustee for the Debtors’ estate (the “Trustee”),
confirmed that there is equity in the Property in excess of the Debtors’
exemption. Counsel for the Trustee also stated that, if the Debtors prevail
vis-à-vis Caniff, the Plan is confirmable; otherwise, the Debtors should have
an opportunity to amend the Plan properly to address Caniff’s claim.
Legal Discussion
The avoidance of a lien pursuant
to § 522(f) of the Bankruptcy Code must be sought by motion and “[t]he motion
shall be served in the manner provided for service of a summons and complaint
by Rule 7004.” Fed. R. Bankr. P. 4003(d), 9014(a), (b). The Debtors did not
seek the avoidance of the lien by motion, and it does not appear that the Plan
was served on Caniff in accordance with Rule 7004. See id. R. 7004(b)(3).
Accordingly, the provision in question may be improper. See 11 U.S.C. §
1322, 1325(a)(1); compare In re Thomas, Nos. 97-28232 JKF,
98-20274 JKF, 98-23115 JKF, 97-28213 JKF, 98-20905 JKF, 1999 WL 1102991, at *5
(Bankr. W.D. Pa. Dec. 3, 1999) (citing In re McKay, 732 F.2d 44 (3d Cir.
1984)), vacated in part on other grounds sub nom. Nat’l Tax Funding, L.P. v.
Thomas, Nos. Civ.A. 01-385, Civ.A. 01-386, Civ.A. 01-387, Civ.A. 01-388,
Civ.A. 01-389, 2002 WL 32093127, at *2 (W.D. Pa. Mar. 21, 2002), with In re
Williams, 166 B.R. 615, 618-19 (Bankr. E.D. Va. 1994); cf. Ruehle v.
Educ. Credit Mgmt. Corp. (In re Ruehle), 307 B.R. 28 (B.A.P. 6th Cir. 2004)
(affirming order vacating confirmation of plan containing provision for
discharge of student loan).
However, objections to
confirmation of Chapter 13 plans in this district and division must be filed
and served “at or prior to the date first set for the meeting of creditors” and
“shall be noticed for hearing at the hearing on confirmation of the plan.”
Bankr. E.D. Ky. R. 3015-3(a)(1) (as amended by Standing Order ¶ (a)(1) (eff.
Aug. 1, 2000)). The language challenged by Caniff was contained in the original
version of the Plan, and Caniff did not file an objection to confirmation at
or prior to September 15, 2004 (or thereafter). Accordingly and because
Caniff has not requested an enlargement of the deadline for objections and has
made no attempt to show that its neglect in failing timely to object was
excusable, see Fed. R. Bankr. P. 9006(b)(1)(2), Caniff will not now be
heard to challenge the lien avoidance provision of the Plan.
Nevertheless, even treating the
provision as tantamount to a properly served § 522(f) motion and considering
Caniff to be in default, the court may exercise its discretion to deny the
relief sought if and to the extent that the Debtors’ substantive claim for
avoidance lacks merit. E.g., Aldabe v. Aldabe, 616 F.2d 1089,
1092-93 (9th Cir. 1980); In re Taylor, 289 B.R. 379, 382 (Bankr. N.D.
Ind. 2003); In re Wall, 127 B.R. 353, 355 (Bankr. E.D. Va. 1991).
Section 522(f)(1) authorizes the avoidance of a judicial lien “to the extent
that such lien impairs an exemption to which the debtor would have been titled
under subsection (b) of this section.” 11 U.S.C. § 522(f)(1)(A). In
determining whether a judicial lien impairs an exemption, the court is required
to add the amounts of the lien sought to be avoided, all other liens on the
property, and the exemption; if the total exceeds the value of the property,
the judicial lien may be avoided to the extent of the excess. 11 U.S.C. §
522(f)(2)(A), (B). Here, Caniff asserts a lien in the amount of $8,644.49,
Fifth Third Mortgage Company’s lien on 511 Old Buckley Road is in the amount
of $45,693.00, and the amount of the Debtors’ homestead exemption is
$10,000.00, K.R.S. § 427.060; In re Bush, 196 B.R. 378, 379 (Bankr.
W.D. Ky. 1995). These sums total $64,337.49, which appears to be
substantially below the value of that property ($70,000.00, according to the
Debtors). Accordingly, Caniff’s judicial lien does not impair the Debtors’
exemption.
Conclusion
For the foregoing reasons, the
court will enter a separate order denying confirmation of the Plan, with leave
for the Debtors further to amend the Plan to delete Paragraph III.E. and
provide a treatment of Caniff’s claim that complies with the Bankruptcy Code.
Copies to:
George P. Stavros, Esq.
Daniel King, III, Esq.
Beverly M. Burden, Trustee