DEBTORS                                         CASE NO. 04-10647



                              MEMORANDUM OPINION


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.



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