UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
DAVID BRIAN MURPHY
SUE LYNNE MURPHY
DEBTORS CASE NO. 92-21690
DAVID BRIAN MURPHY and
SUE LYNNE MURPHY PLAINTIFFS
VS. ADV. NO. 93-2009
COVINGTON KY. C & O EMPLOYEES
CREDIT UNION DEFENDANT
This matter is before the Court for its consideration of the issue of lien avoidance in regard to a garnishment. This case was set for trial on June 23, 1993, and arguments of counsel were heard, although no testimony was offered. This Court has jurisdiction of this matter pursuant to 28 U.S.C.'1334(b); it is a core proceeding pursuant to 28 U.S.C. '157(b)(2)(K).
This matter was initiated by the filing of the plaintiffs' Complaint on February 25, 1993. The Complaint sought the turnover of property pursuant to 11 U.S.C.'542 and contempt remedies for violation of the automatic stay. The property in question was the sum of $675.98, obtained when the defendant garnished the plaintiffs' bank accounts. The garnishment was effective on the same day as the filing of the plaintiffs' petition in this Court, November 20, 1992. The defendant filed its Answer on March 15, 1993. Sometime after the initiation of this proceeding, the defendant returned $75.98 to the plaintiffs, and retained the balance of $600.00.
At the trial of this matter, the plaintiffs argued that the continuation of the garnishment proceeding was a violation of the automatic stay, and the monies obtained by the defendant must be returned. In Williams v. MGM Collection Agency, Adv. No. 89-0223 (Bkrtcy.E.D.Ky. 1990), this Court came to that conclusion. Cases in other jurisdictions, cited by the plaintiffs, support that conclusion. The defendant has argued, however, that upon service of the garnishment a lien in its favor attached. This is indeed the case, pursuant to KRS 425.506. Such a lien is in the nature of a judicial lien, as defined by 11 U.S.C.'101(36): a "lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." See In re Harville, 60 B.R. 188, 190 (Bkrtcy.W.D.Ky. 1986).
It is the defendant's position that a judicial lien creditor (i.e., the trustee) cannot obtain a judicial lien on garnished funds which is superior to that of the party garnishing the funds. While the trustee might be able to avoid the transfer of the amount over the preference limit as a preference, the defendant argues, the transfer of the remaining $600.00 cannot be avoided. This argument does not take into account, however, the effect of 11 U.S.C.'522(f)(1), which permits a debtor to avoid a judicial lien on an interest in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under '522(b). The operation of '522(f)(1) is not affected by any preference limit. See In re Johnson, 53 B.R. 919, 924 (Bkrtcy.N.D.Ill. 1985).
The debtors have claimed as exempt $700.00 in account no. 490261872 at Star Bank, as referenced above, pursuant to KRS 427.160. That statute allows each debtor a $1000.00 general exemption to be applied to any property. According to debtors' Schedule C, this exemption is available to them in full. The defendant's judicial lien impairs an exemption to which the debtors would have been entitled under'522(b); they may therefore avoid it. See In re Buzzell, 56 B.R. 197, 198 (Bkrtcy.D.Md. 1986); In re Keinath, 102 B.R. 699, 700 (Bkrtcy.C.D.Ill. 1986); In re Johnson, supra at 924.
It is therefore the opinion of this Court that the debtors herein may avoid the judicial lien of the defendant and recover the $600.00 in the defendant's possession. It is further the opinion of this Court that the defendant should not be held in contempt since it took no post-petition action against the debtors except to retain the sum in question, and argued, in good faith, the validity of a lien on that sum. An order in
conformity with this opinion will be entered separately.
By the Court -
Daniel T. Lewin, Esq.
J. Randall Reinhardt, Esq.