Opinion
ORDER ON MOTION TO AVOID LIEN
PETER W. BOWIE, Chief Bankruptcy Judge
On November 10, 2009, debtors Simona and Theodorus Bakker filed a petition under Chapter 7. In Schedule A they claimed an interest in two properties, one at 3198 Camino Portofino, and one at 2364 E. Alvarado Street, both in Fallbrook, CA. They asserted that Alvarado was held in fee simple and as community property. However, they did not describe the nature of their interest in Camino Portofino, nor how it was held.
In Schedule B, no. 19 they declared they had no equitable or future interests. No. 20 asked about contingent and noncontingent interests in, among other items, a trust. Again, they asserted" none". In Schedule C, they did not assert any homestead exemption claim, but they did invoke California Code of Civil Procedure § 703.140(b)(5) - and exhausted it in exempting other assets.
Interestingly, on Schedule D, debtors listed obligations for first and second position loan obligations on both real properties. On Schedule E they listed a property tax claim for property taxes on the Camino Portofino property.
In the Statement of Financial Affairs, debtors were asked to list all property transferred in the preceding ten years" to a self-settled trust or similar device of which the debtor is a beneficiary." They indicated "none". In their Statement of Intention they stated they wanted to reaffirm the debts on the Camino Portofino property.
The Chapter 7 trustee proposed to abandon certain lawsuits debtors had listed as assets of the estate. That brought opposition from some of the parties to the litigation. Meanwhile, Mr. Bakker had died and, on February 10, 2010 debtor received her discharge.
Then, on May 6, 2010, debtor moved to avoid judgment liens of the Muehls and the Hoffmans pursuant to 11 U.S.C. § 522(f), on the theory that the liens impaired an exemption to which debtor would otherwise have been entitled on the Camino Portofino property. In addition, debtor asserted the lien was avoidable because the underlying personal obligation had been discharged by debtor's Chapter 7 discharge.
The last ground advanced by debtor can be addressed easily. It is true that a Chapter 7 discharge can discharge a debtor's personal liability on a secured obligation such as a judgment lien or mortgage. As reiterated by the Supreme Court in Dewsnup v. Timm , 502 U.S. 410, 418 (1992):
Under the Bankruptcy Act of 1898, a lien on real property passed through bankruptcy unaffected. This Court recently acknowledged that this was so. See Farrey v. Sanderfoot , 500 U.S. 291, 297... ("Ordinarily, liens and other secured interests survive bankruptcy"); [citations omitted] ("Rather, a bankruptcy discharge extinguishes only one mode of enforcing a claim - namely, an action against the debtor in personam - while leaving intact another - namely, an action against the debtor in rem").
To the extent debtor asserts that the judgment liens are avoidable because the underlying obligations were discharged in this Chapter 7 proceeding, the argument fails and the motions are denied on that ground.
More interesting is debtor's argument under § 522(f) for avoidance of the judgment liens because they impair an exemption to which she would otherwise be entitled. Among the multiple issues raised in these proceedings is the issue of ownership of the Camino Portofino property. In a declaration dated June 1, 2010 debtor stated in relevant part:
3. At the time our bankruptcy case was filed, both Debtor Theodorus Bakker and myself, Simona Bakker, were settlors, beneficiaries, and trustees of the Theodorus Bakker and Simona R. Bakker Trust dated July 15, 2005 ("Trust").
Debtor attached a copy of the Trust document which, on Exhibit A, reflects that the Camino Portofino property was property of the Trust. In fact, as creditor's Exhibit D reflects, the property was transferred to "Simona R. Bakker, Trustee of the Bakker Family Trust dated July 14, 2005", and recorded July 20, 2005. Debtor promptly submitted a "Supplemental & Corrected" declaration revising her earlier one to reflect that she was the only trustee of the Trust at the time the bankruptcy was filed.
The Trust is not a debtor in bankruptcy, and even if it were, it could not avail itself of the Bankruptcy Code's exemption scheme because it is not an "individual" within the meaning of the Code. The essence of the issue is found at section 662 of the California Evidence Code. It states: "The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof." In the instant case, debtor has asserted by declaration that Camino Portofino is the property of the Trust. No legal authority, or evidence, has been proffered to rebut the title of record as vested in the Trust. Accordingly, based on the uncontroverted record before it, the Court finds and concludes that the Camino Portofino property is property of the Trust, not of the debtor as an individual. Because debtor does not own the property, she may not avail herself of 11 U.S.C. § 522(f) to attempt to avoid judgment liens on property owned by the Trust.
As noted at the outset, there are multiple other issues raised by the pleadings which, because of the foregoing, the Court need not reach. Based on the above discussion, findings and conclusions, debtor's motions to avoid the judgment liens are denied.
IT IS SO ORDERED.