IN RE: DONNIE RILEY NANCY FAYE RILEY CASE NO. 96-50724

UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF KENTUCKY

LEXINGTON DIVISION

IN RE:

DONNIE RILEY

NANCY FAYE RILEY CASE NO. 96-50724

DEBTORS

MEMORANDUM OPINION

This case is before the court on the motion of Fidelity Credit Corporation for relief from stay and on the counter-motion of the debtors to redeem an oil heater from the lien of Fidelity Credit Corporation.

FINDINGS OF FACT:

On or about January 25, 1996, the debtors executed a promissory note in favor of Fidelity Credit Corporation evidencing an indebtedness in the principal amount of $1,649.43 plus a finance charge in the amount of $680.12, for a total indebtedness in the amount of $2,329.55, payable in 25 monthly installments. To secure repayment of the indebtedness evidenced by the note the debtors executed a security agreement granting to Fidelity Credit a nonpossessory, nonpurchase-money security interest in "1 Sony cassette recorder, Sony compact disc player, Zenith 20" color TV, 21" Toro push mower, 1 B&S Rototiller, tools, 1 gas heater with acc.," and a purchase money security interest in an oil heater and a washer and dryer.

On April 9, 1996, the debtors filed a joint petition for relief under chapter 7 of the Bankruptcy Code. Fidelity Credit is listed on the schedules to the debtor’s petition as a creditor holding a secured claim on "misc. household items."

The debtors did not list in Schedule B to their joint petition any of the items of personal property in which Fidelity Credit Corporation claims a security interest. Instead they merely listed "misc. household items" valued at $300.00, and in Schedule C they claimed as exempt under KRS 427.010(1) "misc. household items" valued at $300.00.

There is no way to discern from the record whether the debtors own the items of personal property in which Fidelity Credit Corporation claims a security interest or whether the debtors have claimed an exemption in any of those items of property.

There were no timely objections to the exemptions claimed by the debtors. Consequently the debtors are entitled to an exemption in "misc. household items" valued at $300.00. The problem is there is no way to tell whether the items of personal property in which Fidelity Credit claims a security interest are included in the "misc. household items" in which the debtors have claimed an exemption.

On June 14, 1996, Fidelity Credit by counsel filed a motion for relief from the automatic stay to take possession of and sell its collateral. According to the proof of claim of Fidelity Credit, the amount owing to it as of the date of the petition is $1,680.69. It is not clear from the record whether Fidelity Credit's security interest is perfected. Attached to its proof of claim is a receipt dated December 1, 1994 from the Mercer County Court Clerk's office for the fee for filing a financing statement. The receipt identifies Donnie Riley as the debtor and Fidelity Credit Corporation as the secured party. However, there is no evidence in the record that this earlier filed financing statement gives notice to third parties that Fidelity Credit Corporation is claiming a security interest in the property described in the security agreement executed by the debtors more than one year later on January 25, 1996. The motion for relief from stay was noticed for hearing on July 17, 1996, at 1:30 p.m.

Meanwhile, the debtors by counsel on June 27, 1996 filed a motion pursuant to 11 U.S.C. 522(f)(1)(B) to avoid the nonpossessory, nonpurchase-money lien of Fidelity Credit in the Sony cassette recorder, Sony compact disc player, Zenith 20" color television, 21" Toro push mower, B & S rototiller, tools, and gas heater with acc. The debtors initially noticed the motion for hearing on July 17, 1996, at 1:30 p.m., but at the direction of the Bankruptcy Court Clerk the debtors re-noticed the motion for hearing on July 15, 1996. The amended notice was filed on July 1, 1996. No one appeared on behalf of Fidelity Credit at the July 15 hearing. The court sustained the debtors’ motion to avoid the lien and entered an order declaring the lien to be null and void.

Counsel for Fidelity Credit and for the debtors appeared at the hearing on July 17, 1996 on Fidelity Credit's motion to terminate the automatic stay. The court orally abated the order of July 15, 1996 avoiding the lien of Fidelity Credit Corporation pending a resolution of this matter. By agreement of the parties, the hearing was continued to August 7, 1996.

On July 31, 1996, the debtors by counsel filed a motion to redeem the oil heater from the lien of Fidelity Credit. The debtors allege that the value of the oil heater is $75.

The court ordered that the debtors’ motion to redeem and Fidelity Credit's motion to terminate the automatic stay be heard concurrently. A hearing was set for September 4, 1996 at 1:30 p.m. At the hearing the court granted counsel for Fidelity Credit the opportunity to file a memorandum on the issue of what constitutes "household goods" under section 522(f)(1)(B)(i). Fidelity Credit filed its memorandum on September 19, 1996, at which time this matter was deemed submitted to the court.

Fidelity Credit argues: (1) that the Sony cassette recorder and the Sony compact disc player are duplicative items of household goods, either one of which, but not both, may be retained by the debtors as exempt; (2) that a lien in the rototiller and tools may be avoided only if those items are tools of the trade of the debtor or of a dependent of the debtor, 11 U.S.C. 522(f)(1)(B)(ii), and the debtors have not so alleged; (3) that the debtors purchased the oil heater in January 1996 for approximately $230 and that as of the petition date the oil heater had a value in excess of the $75 value attributed by the debtors; and (4) that Fidelity Credit loaned funds to the debtors for the purchase of a washer and dryer and intended and took steps necessary to retain a purchase money security interest in the washer and dryer, yet the debtors did not purchase the washer and dryer, and the debtors have been unable or unwilling to account to Fidelity Credit for the proceeds of the loan. Fidelity Credit seeks an order directing the debtors to surrender either the Sony tape recorder or the compact disc player, as well as the rototiller and tools. Fidelity Credit also seeks an order establishing a value for the oil heater in the amount of $300.

CONCLUSIONS OF LAW:

To rule in favor of either party on these motions would be to condone laxness in completing bankruptcy schedules and proofs of claim. The court prefers to encourage a practice that requires a listing of ownership and itemization of personal property in which debtors claim an exemption. This is especially important if debtors expect to exercise their rights under 11 U.S.C. 522 or 722 to avoid liens on or to redeem exempt property. The court also prefers to encourage a creditor filing a motion for relief from stay to provide complete documentation establishing its perfected security interest in property of the estate that is the subject of the motion. See Rule 400 of the Local Rules of the U.S. Bankruptcy Court for the Eastern District of Kentucky. The court expects such documentation would include evidence that the security interest in property the creditor seeks to repossess is properly perfected by the filing of a U.C.C. 1 financing statement which provides an adequate description of such property.

The court finds the order entered at the hearing on July 15, 1996 sustaining the motion of the debtors to avoid the lien of Fidelity Credit Corporation on a "Sony cassette recorder, Sony compact disc player, Zenith 20" television, 21" Toro push mower, 1 B & S rototiller, tools, and gas heater with acc." as a lien that impairs an exemption of the debtors in such property should be set aside. The court cannot discern from the record that the debtors own or are entitled to an exemption in such property.

The motion of the debtors to redeem an oil heater from the lien of Fidelity Credit by paying said creditor the sum of $75.00 shall be overruled without prejudice. The debtors have not listed the oil heater as an asset nor claimed an exemption therein, which is a predicate to their right of redemption under 11 U.S.C. 722.

The motion of Fidelity Credit Corporation for relief from stay shall likewise be overruled without prejudice to renewal of the motion after amendment of the proof of claim to show that the U.C.C. 1 form filed by said creditor in the Mercer County Clerk’s office gives notice to third parties of Fidelity’s security interest in the property it seeks to reclaim.

Dated:

 

By the court -

 

 

 

____________________

Joe Lee, Chief Judge

 

Copies to:

Shirley Allen Cunningham, Esq.

Gerry L. Harris, Esq.

Mark Metcalf, Esq.