Opinion
No. 88-00364-CT
January 24, 1991
Avoidance of Liens — Taxes — Dischargeable Debts — Tax liens on exempt assets, securing dischargeable tax debts, survive bankruptcy.
See Sec. 522(c)(2) at ¶ 9204.
Avoidance of Liens — Taxes — Statutory Liens — Under Section 552(f)(1), judicial liens are avoidable, not statutory liens such as the Internal Revenue Service holds here.
See Sec. 522(f)(1) at ¶ 9218.
Avoidance of Liens — Taxes — Dischargeability Distinction — Section 522(c)(2)(B), which specifically allows exempt property to be used to satisfy tax liens, makes no distinction between dischargeable and nondischargeable claims.
See Sec. 522(c)(2) at ¶ 9204 and Sec. 1141 at ¶ 12,201.
This matter comes before the Court upon the Motion of the Debtor to Avoid Lien That Impairs and Exemption. Essentially, the Debtor contends that the IRS cannot enforce its lien against property he has exempted after his Chapter 11 plan is confirmed because the obligation secured by such liens will be discharged under 11 U.S.C. § 1141(a)(1)(A) upon plan confirmation. The IRS does not dispute that the tax obligations in question are dischargeable, but contends nonetheless that the statutory liens securing such obligations are excepted from avoidance pursuant to 11 U.S.C. § 522(c)(2)(B).
Section 522(c)(2)(B) of the Bankruptcy Code states as follows:
Unless the case is dismissed, property exempted under this section is not liable during or after the case for any debt of the debtor that arose, or that is determined under section 502 of this title as if such debt had arisen, before the commencement of the case, except —
(1) a debt of a kind specified in section 523(a)(1) or section 523(a)(5) of this title; or
(2) a debt secured by a lien that is — . . .
(B) a tax lien, notice of which is properly filed.
This section clearly states that a debtor may not avoid a statutory tax lien by exempting the property to which the lien would otherwise attach. Accord, In re Verma, 91 B.R. 17, 18 (Bankr. W.D. Pa. 1987). Additionally, as a general rule, courts have consistently held that a discharge in bankruptcy does not invalidate a pre-bankruptcy lien. See, e.g., Estate of Lellock v. Prudential Insurance Company, 811 F.2d 186, 188 (3rd Cir. 1987); United States v. Marlow, 48 B.R. 261, 262-63 (Bankr. D. Kan. 1984) and cases cited therein. This outcome is consistent with the legislative history of Section 506(d) which states that the section "permits liens to pass through the bankruptcy unaffected." H.R. Rep. No. 595, 95th Cong., 1st Sess. 357 (1977).
In contrast to the Debtor's argument, the tax liens he seeks to avoid are statutory, rather than judicial liens, and are therefore expressly excepted from avoidance under § 522(c)(2)(B). Debtor also argues that the cases cited by the IRS in their memorandum filed in this case are inapposite because the liens in such cases secured nondischargeable tax claims. There is, however, no discussion in these cases that the tax claims subject to the liens therein were non-dischargeable, rather than dischargeable tax claims, and the courts in these cases make no such distinction. The Debtor also argues that allowing the tax liens to survive the bankruptcy is inconsistent with Section 1141(d) of the Bankruptcy Code. The Court finds no such inconsistency, however, since this section deals only with the personal liability of a debtor and does not affect a creditor's right to execute on property subject to its lien post-confirmation.
Finally, the legislative history to Sections 522(f) and 522(c)(1), cited by the Debtor in support of his argument, is inapplicable in the present case. Section 522(f) applies to judicial and not statutory liens and is thus irrelevant. Section 522(c)(1) does state that exempt property may not be liable for the debtor's prepetition debts unless such debts are for nondischargeable tax claims or alimony or support. By negative implication, then, exempt property may not be used to satisfy dischargeable tax claims, as is clearly reflected in the legislative history to this section. However, the Debtor has ignored Section 522(c)(2)(B) which specifically states that a debt secured by a valid tax lien may be satisfied from exempt assets. No distinction is made in this section as to whether such lien must secure a nondischargeable, rather than a dischargeable tax obligation. The legislative history to this section states as follows:
The bankruptcy discharge will not prevent enforcement of valid liens. The rule of Long v. Bullard, 117 U.S. 617 (1886) is accepted with respect to the enforcement of valid liens on nonexempt property as well as on exempt property. . .
H.R. Rep. No. 595, 95th Cong., 1st Sess. 361 (1977). Thus, Congress clearly intended for valid tax liens to survive the bankruptcy, whether or not such liens secured dischargeable or nondischargeable tax obligations of a debtor.
Accordingly, the Debtor's Motion to Avoid Lien That Impairs an Exemption be, and hereby is DENIED and the lien of the Internal Revenue Service shall continue in effect in the event that the Debtor's plan of reorganization is confirmed by this Court.
It is SO ORDERED.