Opinion
Case Nos. 98-17991-SSM Chapter 7, 99-16018-SSM Chapter 7.
Date: April 10, 2000.
Kevin M. O'Donnell, Esquire, Henry O'Donnell, P.C., Fairfax, VA. Counsel for the debtors.
Ferguson Enterprises, Inc., Herndon, VA.
Ferguson Enterprises, Inc. c/o Terry E. Hall, Registered Agent, Newport News, VA.
MEMORANDUM OPINION
A hearing was held on April 4, 2000, in the chapter 7 cases of Charles H. Jones and Candace C. Jones, husband and wife, on their respective motions under 11 U.S.C. § 522(f) to avoid a judgment lien in favor of Ferguson Enterprises, Inc. against their home and against their combined half-interest in a warehouse condominium. Ferguson Enterprises, although served with the motion and notice of hearing, did not file a response and did not appear at the hearing. Local Bankruptcy Rules 4003-2 and 9013-1(H)(4) allow the court, when no response has been filed to a lien avoidance motion, to deem any opposition waived and to enter an order granting the requested relief. Nevertheless, the court, out of an abundance of caution, received evidence in support of the motions. Having considered the evidence, the court will grant the motions in each case.
The testimony presented at the hearing established that the fair market value of the debtors' house located at 3287 Willow Glen Drive, Herndon, Virginia, was $525,000. It is subject to a first lien deed of trust in favor of Am South Bank upon which there is a balance owed of $221,000, and a second lien deed of trust in favor of F M Bank upon which there is a balance owed of $145,000. Next in order of priority is a judgment lien in favor of Central Fidelity Bank in the amount of $400,000. That judgment has been purchased by William Clay, the brother of Candace Jones but remains a lien against the property. Finally, there is the judgment lien at issue in the amount of $86,000 in favor of Ferguson Enterprises. Each of the debtors claimed a $1 homestead exemption in the house.
The fair market value of the warehouse condominium unit (located at 14158-I Willard Road, Chantilly, Virginia) is $120,000. It is subject to a first lien deed of trust in favor of Wells Fargo Bank in the amount of $21,000. The debtors each own a 25% interest in the unit. Their combined equity interest is thus $49,500. That interest is subject, in order of priority, to the $400,000 judgment lien in favor of Central Fidelity Bank and the $86,000 judgment lien in favor of Ferguson Enterprises. Again, each of the debtors claimed a $1 homestead exemption in the property.
Although a bankruptcy discharge eliminates a debtor's personal liability on most kinds of debt, liens generally pass through bankruptcy unaffected and may be enforced against the collateral after discharge. Johnson v. Home State Bk., 501 U.S. 78, 82-84, 111 S.Ct. 2150, 2153-54, 115 L.Ed.2d 66 (1991); Farrey v. Sanderfoot, 500 U.S. 291, 297, 111 S.Ct. 1825 (1991). Certain types of liens, however, may be "avoided," or set aside, in bankruptcy. Among these are judicial liens to the extent they "impair" a debtor's interest in exempt property. 11 U.S.C. § 522(f)(1)(A). In the present case, regardless of whether the two properties are viewed separately or as a whole, their value is wholly consumed by the deeds of trust, the Central Fidelity judgment, and the homestead exemptions. Thus, the Ferguson Enterprises judgment lien "impairs" the debtors' exemptions within the meaning of 11 U.S.C. § 522(f)(2) and may be avoided in its entirety.
Section 522(f)(2)(A), Bankruptcy Code, provides as follows:
(2) (A) For the purposes of this subsection, a lien shall be considered to impair an exemption to the extent that the sum of —
(i) the lien,
(ii) all other liens on the property; and
(iii) the amount of the exemption that the debtor could claim if there were no liens on the property;
exceeds the value that the debtor's interest in the property would have in the absence of any liens.
The motion will be granted. Debtors' counsel shall promptly submit a proposed order in each case granting the motion. The judgment lien being avoided should be identified by judgment lien book and page, and the real estate should contain, in addition to the street address, a legal description sufficient to pass title.