IN RE: LARRY P. STIDHAM CASE NO. 91-50019

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

IN RE:

LARRY P. STIDHAM CASE NO. 91-50019

WANDA F. STIDHAM

DEBTORS

ORDER

This chapter 7 case was reopened on motion of the debtors for the purpose of permitting them to file a motion pursuant to 11 U.S.C. § 522(f)(1) to avoid a judicial lien of Ford Motor Credit Company on real property of the debtors. Clearly relief under section 522(f)(1) is not available on the facts presented. That section of the Code permits a debtor to avoid a judicial lien that encumbers an exemption to which the debtor would be entitled in the property but for the lien. Exemptions are determined as of the date of bankruptcy. The debtors did not own the property in question on the date of bankruptcy.

The issue here is whether the recorded judicial lien of Ford Motor Credit Company encumbers and is enforceable against real property acquired by the debtors subsequent to bankruptcy. This issue should be presented to the court in the form of a complaint for declaratory or injunctive relief. Accordingly, the motion to avoid the lien of Ford Motor Credit Company is overruled without prejudice to the right of the debtors to present in the form of a complaint the issue of the enforceability of the judgment lien against the real property which they acquired after bankruptcy. See Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1280 (1934), which may be controlling in this matter. As noted by the Supreme Court the discharge in bankruptcy operates to extinguish debts retroactively to the date of the petition. Here the underlying unsecured portion of the debt of Ford Motor Credit Company was discharged before the debtors acquired the real property in question. The effect of the discharge upon this prospective lien was the same as though the debt had been paid before the lien came into existence.

Dated: July 25, 1994.

By the court -

Joe Lee, Chief Judge

Copies to:

James L. Hayden

Charles B. Robbins