Opinion
Case No. 16-30204
10-13-2016
In re: KEVIN F. BRYAN, Debtor
Chapter 7
Decision Granting in Part and Denying in Part Amended Motion to Avoid Judicial Lien on Real Estate
This matter is before the court on the Amended Motion to Avoid Judicial Lien on Real Estate filed by the debtor, Kevin F. Bryan ("Bryan") (doc. 19) (the "Motion"). For the reasons to be explained, the court grants in part and denies in part the Motion. The court is contemporaneously entering an order requiring the judgment creditor, Cavalry SPV I, LLC, or its successor, to release and cancel any certificate of judgment which it holds against Bryan and, if it does not do so, authorizing Bryan to file or record the order entered on this matter with any appropriate agency to effect the release and cancellation of the certificate of judgment.
Facts
Bryan filed a Chapter 7 bankruptcy petition on January 27, 2016. At all pertinent times, including on the petition date, Bryan has not owned any real estate. See Schedule A/B (doc. 1). He did, however, schedule Cavalry SPV I, LLC ("Cavalry"), as holding a secured claim on account of a certificate of judgment Cavalry has, but scheduled the entire amount of that claim as being unsecured in the amount of $2,011.31. See Schedule D (doc. 1). The creditors' meeting was held and the Trustee filed a no asset report, indicating there was no property which the Trustee would be administering on behalf of the bankruptcy estate. Bryan was granted his discharge on May 18, 2016 (doc. 14). Cavalry's debt was discharged.
On March 30, 2016, Bryan filed his original Motion to Avoid Judicial Lien on Real Estate (doc. 11), which was twice amended (docs. 16 & 19). The Motion requests the court for an order avoiding a judicial lien on real estate. The memorandum supporting the Motion notes that the underlying judgment held by Cavalry is void pursuant to 11 U.S.C. § 524(a)(1) and argues that the judicial lien arising out of a Certificate of Judgment, recorded under Montgomery County Common Pleas Court Certificate of Judgment number 2015-CJ-195631 (the "Certificate of Judgment"), may be avoided pursuant to 11 U.S.C. § 506. However, Bryan notes that "[a]nother method under § 506 the Courts have considered as a way for the debtor to avoid a judicial lien is through the filing of a Motion to Compel." (doc. 19 at 2). Bryan cited In re Blakely, 2013 Bankr. LEXIS 5474 (Bankr. E.D.KY. Mar. 27, 2013) as an example of this "method" to avoid judicial liens on real estate when the debtor did not own any real estate on the petition date. Cavalry has not responded to the Motion.
Analysis
This court has previously ruled that under these factual circumstances when the debtor does not own real property, a certificate of judgment cannot be avoided under 11 U.S.C. § 522(f)(1)(A) since there is no lien impairing the debtor's exemption. See In re Cooper, Case No. 15-34219, doc. 18 (Bankr. S.D. Ohio Apr. 28, 2016). See also In re Hunter, 2014 WL 4929514, at *1 (Bankr. N.D. Ohio 2014), 2014 Bankr. LEXIS 4255, at *2-3; and In re Hamilton, 286 B.R. 291, 293 (Bankr. D.N.J. 2002). Bryan now instead seeks avoidance of the Certificate of Judgment as a judicial lien pursuant to 11 U.S.C. § 506.
Section 506(a)(1) bifurcates allowed claims which are secured by a lien on property into secured claims and unsecured claims based upon the "the value of such creditor's interest in the estate's interest in such property." 11 U.S.C. § 506(a)(1). To the extent there is value in the property to which the lien attaches, the claim is secured. To the extent there is no value to which the lien attaches, the claim is unsecured. Subsection (d) then provides, with limited inapplicable exceptions, that the lien is void to the extent that the claim is not an allowed secured claim. Thus, the lien is valid only to the extent of the creditor's interest in the value of the collateral and is void as to any amount in excess of that amount. Bryan asserts that by virtue of this provision, Cavalry's judicial lien is void since he owns no property to which the Certificate of Judgment has attached.
The Certificate of Judgment, however, cannot be avoided under § 506(d). The Supreme Court recently held in Bank of Am., N.A. v. Caulkett, 135 S. Ct. 1995 (2015) that a Chapter 7 debtor may not avoid a wholly unsecured lien pursuant to 11 U.S.C. § 506(d).
Assuming for argument only this unusual fact pattern could be distinguished from the holding in Caulkett, Bankruptcy Code § 101(36) defines "judicial lien" as a "lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding." 11 U.S.C. § 101(36). Section 101(37) defines "lien" as a "charge against or interest in property to secure payment of a debt or performance of an obligation." 11 U.S.C. § 101(37). Thus, the term "lien" presupposes the existence of some property which can be "charge[d] against." Without any real property to which the Certificate of Judgment attached, no lien was created. Clowney v. North Carolina National Bank, 19 B.R. 349, 352 (Bankr. M.D.N.C. 1982). See also In re Baker, 217 B.R. 609, 611-12 (Bankr. N.D. Cal. 1998) (prejudgment attachment lien did not apply to future post-petition wages as the wages had to be in existence at the time the lien attached). Compare In re Flynn, 238 B.R. 742 (Bankr. 1999) (Garnishor's pre-bankruptcy attachment against debtor's bank account constituted a lien against property when bank account with funds was in existence at the time the bankruptcy was filed). Since Bryan did not own any real property to which the Certificate of Judgment attached, there is no lien to be avoided. While the Certificate of Judgment would constitute a lien against real property if Bryan owned real property situated in Montgomery County, or in any other county in Ohio in which the Certificate of Judgment was recorded, since Bryan owns no real property, there is no lien and, therefore, no lien to be avoided pursuant to § 506. See Ohio Rev. Code § 2329.02 (providing for a lien only upon lands and tenements of the judgment debtor); 11 U.S.C. § 506(a)(1) (providing for treatment of allowed claims "secured by a lien on property in which the estate has an interest . . ."); and In re Pees, 2013 Bankr. LEXIS 2958, at *6-7 (Bankr. N.D. Ohio July 22, 2013) (discussing § 522(f)(1) lien avoidance and stating that "as a prerequisite to a lien's avoidance, the debtor [must] have an interest in the liened property at the time the lien arises").
Despite the court's finding that the "judicial lien" asserted by Bryan cannot be avoided under either Bankruptcy Code § 522(f)(1)(A) or § 506, Bryan is not without a remedy. Bryan notes the use of "motions to compel" the release of such liens, citing the Blakely decision from the Eastern District of Kentucky. The Blakely decision follows a line of cases which hold, not that a certificate of judgment can be avoided under § 506 or otherwise as an avoidable lien when the debtor owns no real property, but rather, that under those circumstances the holder of such an instrument and of the underlying judgment can be compelled to cancel and release the instrument as impairing the debtor's discharge granted under 11 U.S.C. § 524 if the underlying debt has been discharged in the debtor's bankruptcy.
As Bryan notes, since Cavalry's debt has been discharged through his bankruptcy, the judgment underlying Cavalry's Certificate of Judgment is void pursuant to § 524(a)(1). Furthermore, § 524 provides that Bryan's discharge "operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor[.]" 11 U.S.C. § 524(a)(2). Thus, since Calvary's underlying judgment has been discharged, Calvary no longer has a debt which may support its Certificate of Judgment and the Certificate of Judgment cannot be re-filed to lien property which Bryan might obtain in the future. Jarrett v. State of Ohio, Dep't of Tax'n (In re Jarrett), 293 B.R. 127, 132 (Bankr. N.D. Ohio 2002).
The issue of the impact on a debtor's discharge of a recorded certificate of judgment when the underlying debt has been discharged and the debtor does not have any pre-petition real property is not a new one. In Norvell, the court was faced with these circumstances. In re Norvell, 198 B.R. 697, 699 (Bankr. W.D. Ky. 1996). The court concluded that it would not "avoid" judgment liens on real property when the debtor did not own any real property. However, it proceeded to address the question of "whether we should enter a comfort order releasing void judgment liens so they will not 'encumber' the hypothetical real estate which a debtor might acquire after the filing of their bankruptcy case." Id. at 699. The court determined that "under the unique facts" of the case, it would grant the relief and ordered that the "lien" be released from the property records. Id. The court noted that it would "leave to bankruptcy practitioners and the real estate bar the task of devising a specific method . . . to have these void judgments formally removed from the real estate records." Id.
Since Norvell, a number of other courts have similarly concluded that an outstanding judgment and certificate judgment under these circumstances can serve no purpose other than to impede the debtor's fresh start by clouding the debtor's credit history and, therefore, have ordered that similar certificates of judgment be cancelled and released. In re Jarrett, 293 B.R. at 132 (Bankr. N.D. Ohio 2002) ("[W]hen a creditor seeks to renew a post-petition lien so as to bring within the lien's scope property acquired by a debtor post-petition . . . courts uniformly find that a violation of the discharge injunction of § 524 has occurred."); In re Kitzinger, 1999 U.S. Dist. Lexis 16577 (N.D. Ill. Oct. 21, 1999) (Under Illinois law, "a lien cannot attach after discharge of the underlying debt."). See also In re Paeplow, 972 F.2d 730, 738 (7th Cir. 1992) (Creditor was enjoined by the debtor's discharge from collecting on a discharged debt or seeking a lien on the debtor's property post-petition); In re Turner, 2009 Bankr. Lexis 3000 (Bankr. S.D. Ind. Sept. 15, 2009) (Post-discharge, creditor cannot proceed in rem if the creditor had no lien prior to the bankruptcy).
Section 105 of the Bankruptcy Code also supports the issuance of such an order. That section permits bankruptcy courts to "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of" the Bankruptcy Code and also provides that:
No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.11 U.S.C. § 105(a); Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 421 (6th Cir. 2000). In Pertuso the Sixth Circuit found that § 524 does not provide for a private right of action by debtors, but may be enforced through a bankruptcy court's contempt power. The Pertuso court emphasized that § 105 "does not authorize the bankruptcy courts to create substantive rights that are otherwise unavailable under applicable law . . ." Id. at 423 n. 1 (citation omitted). However, while § 105 cannot be used to create rights where they do not exist, the purpose of that section is to "to enable the court to do whatever is necessary to aid its jurisdiction, i.e., anything arising in or relating to a bankruptcy case." Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236, 1242 (6th Cir. 1993) (citations omitted). Bryan is entitled to the full benefit of his discharge under § 524. An order compelling the cancellation and release of the judgment and Certificate of Judgment will not create a right which does not exist, but rather, will implement § 524 by enabling Bryan to get his fresh start free from the negative effect which the discharged judgment would have if the Certificate of Judgment remained in the county's records and on Bryan's credit history.
Given the number of times the issue has been raised and addressed in the bankruptcy courts since Norvell was issued, it would appear that, despite the suggestion in that decision that the bankruptcy and real estate bar find a mechanism to effect the release of such "void liens" without the need for court orders effecting the release of such "liens," the problem continues. Accordingly, this court will issue orders to release certificates of judgments and authorizing the filing of orders to effect the release of certificates of judgments. Such an approach fully embraces the debtors' discharges and ensures their unimpeded fresh start and serves to ward off any unnecessary post-discharge litigation relating to the debtors' discharges.
Conclusion
For the foregoing reasons, the court is contemporaneously entering an order requiring the judgment creditor, Cavalry SPV I, LLC, or its successor, to release and cancel the certificate of judgment which it holds against the Debtor, Kevin F. Bryan, recorded as Montgomery County Common Pleas Court Certificate of Judgment number 2015-CJ-195631, within thirty (30) days after this order is entered. In the event Cavalry fails to do so, Bryan may file or record a copy of the order with any appropriate agency to effect the release and cancellation of the Certificate of Judgment.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/ _________
Guy R. Humphrey
United States Bankruptcy Judge Dated: October 13, 2016 Copies to: Default List Cavalry Spv I, LLC, % CT Corporation, Statutory Agent, 1300 E. 9th Street, Cleveland, OH 44114 Cavalry Spv I, LLC, % Christian Parker, Executive VP and General Counsel, 500 Summit Lake Drive, Suite 400, Valhalla, NY 10595 Lloyd and McDonald, PLC, P.O. Box 23200, Louisville, KY 40223