IN RE: ARLENE FAYE PLANCK DEBTOR CASE NO. 94-51065
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
ARLENE FAYE PLANCK
DEBTOR CASE NO. 94-51065
This case is before the court on the motion of the debtor, pursuant to 11 U.S.C. § 522(f)(1), to avoid the judicial liens of Morehead State University and Exchange Bank of Kentucky as liens that impair exemptions accorded the debtor by state law in a .93-acre lot and mobile home located thereon in which the debtor resides.
FINDINGS OF FACT:
These findings of fact are derived from an agreed stipulation of facts filed by the parties and from the record. The .93-acre lot owned by the debtor, located at Route 2, Box 44H, Wallingford, Fleming County, Kentucky, has a fair market value of $5,000. Peoples Bank of Fleming County holds a mortgage on the lot. The balance due on the mortgage on the date of bankruptcy was $1,782.24. The debtor's equity ownership interest in the lot to which the judicial liens in question are affixed is stipulated to be $3,271.76.
Located on the lot is a 1992 Fleetwood mobile home which the debtor uses as a residence. Tobacco Credit Union holds a perfected security interest in the mobile home. The balance due on the indebtedness to the credit union on the date of bankruptcy was $12,961.40. The parties agree the value of the mobile home is $15,000 and that the debtor's ownership equity interest therein to which the judicial liens in question are affixed is $2,038.59.
The claim of one of the judicial lienholders, Morehead State University, filed as a secured claim in the amount of $2,634.78, is based on an agreed judgment entered into between the claimant and the debtor in an action in the Fleming Circuit Court. The debtor apparently defaulted on her agreement to satisfy the judgment by making payments thereon at the rate of $50.00 per month. On February 27, 1992, Morehead State University, as permitted by the terms of the judgment, caused a Notice of Judgment Lien to be filed in the Office of the Fleming County Clerk, thereby creating a lien upon all real estate in the county in which the debtor has an ownership interest. KRS 426.720.
The claim of the other judicial lienholder, Exchange Bank of Kentucky, filed as a secured claim in the amount of $3,626.68, appears to have been entered in an action commenced by the bank against the debtor in the Fleming Circuit Court to collect the unpaid balance due on a promissory installment note. On August 11, 1992 the bank was granted a judgment against the debtor in the amount of $4,539.07, plus attorney fees in the amount of $631.00, plus interest and court costs. On March 12, 1993 the bank caused a Notice of Judgment Lien to be filed in the Office of the Fleming County Clerk, thereby creating a lien upon all real estate in the county in which the debtor has an ownership interest. KRS 426.720.
The parties have stipulated that the foregoing judicial liens encumber the debtor's interest in both the lot and the mobile home.
The debtor filed a petition for relief under chapter 7 of the Bankruptcy Code in this court on July 20, 1994. In schedule C to the petition she claimed a homestead exemption in the amount of $5,000 and a "wild card" exemption in the amount of $1,000, in the lot and mobile home. KRS 427.060; KRS 427.160. There were no objections to these exemptions claimed by the debtor. Consequently, the legal and equitable interest of the debtor in the lot and mobile home, not exceeding the amount claimed, is exempt, 11 U.S.C. §522(l). Taylor v. Freeland & Kronz, 112 S.Ct. 1644 (1992).
The trustee in bankruptcy has filed a notice of abandonment of the estate's interest in the lot and mobile home and has filed a report of no distribution in this case.
CONCLUSIONS OF LAW:
Under Kentucky law the right to the homestead exemption provided for by KRS 427.060 vests upon the acquisition of homestead property. In re Grisanti, 58 F.Supp. 646 (W.D. Ky. 1945); see also Opinion by Judge Howard Oct. 18, 1994 in In re Powell, E.D. Ky. case no. 94-60042 and In re Manis, E. D. Ky. case no. 94-20253. Consequently, the debtor's right under 11 U.S.C. §522(f)(1) to avoid the judicial liens of Morehead State University and Exchange Bank of Kentucky as liens that impair the homestead exemption which she claimed and which has been allowed to her in this case is not postponed to some indeterminate future date. Thus, the decisions in In re Moreland, 21 F.3d 102 (6th Cir. 1994), and In re Dixon, 885 F.2d 327 (6th Cir. 1989), which are based on an interpretation of the Ohio homestead exemption statute, are not controlling.
The judicial lienholders do not dispute the debtor's entitlement to the exemptions claimed in the lot and mobile home. They acknowledge the debtor's right to avoid their judicial liens to the extent that the liens encumber the allowable amount of the debtor's exemptions.
The debtor's equity in the lot and mobile home calculates to $5,310.35, somewhat less than the maximum of $6,000 authorized by the applicable state exemption statutes.
Obviously, the judicial liens in question taken separately are each for an amount less than the debtor's allowable exemptions in the lot and mobile home. Only if the judicial liens are stacked one on top of the other does one of the liens exceed the allowable amount of the exemptions of the debtor by a few hundred dollars. For example, if the lien of Morehead State University, which is first in time and first in right, is stacked onto the inferior lien of the Exchange Bank, the lien of Morehead State University will exceed the allowable amount of the exemptions of the debtor by $951.11 [$3,626.68 + $2,634.78 - $5,310.35 = $951.11]. Conversely, if the inferior lien of Exchange Bank is stacked onto the prior lien of Morehead State University, the lien of the bank will exceed the debtor's allowable exemptions by the same $951.11. But under either scenario the amount of the bottom or foundation lien is below the amount of the debtor's allowable exemption in these two properties and is totally avoidable. And once the bottom lien is avoided there is no foundation for the other lien to stand on and it too then falls below the amount of the debtor's allowable exemptions in the properties in question.
Thus, both of the judicial liens in question are avoidable by the debtor under 11 U.S.C. § 522(f)(1) as liens that impair exemptions to which the debtor would have been entitled but for the liens. Owen v. Owen, 111 S.Ct. 1833 (1991).
While it is true that 11 U.S.C. § 522(a)(2), as added by the Bankruptcy Reform Act of 1994, does not apply to cases filed prior to October 22, 1994, and is thus inapplicable to this case, there is no reason to conclude the amendment changed prior law. Rather, it is the view of the court that the amendment is declaratory of prior law.
The motion of the debtor to avoid the liens in question shall
By the court -
Richard J. Getty, Esq.
John T. Hamilton, Esq./Allon Bailey, Esq.
John G. Irvin, Jr., Esq.
James D. Lyon, trustee
U. S. trustee