Opinion
Case No. 18-57954
2019-11-07
IN RE: Laverne Samuel JOHNSON, Debtor.
Michael A. Cox, Columbus, OH, for Debtor.
Michael A. Cox, Columbus, OH, for Debtor.
ORDER DENYING WITHOUT PREJUDICE MOTIONS TO AVOID LIENS UNDER § 522(f) (DOCS. 17, 18, 19 & 20)
John E. Hoffman, Jr., United States Bankruptcy Judge
This matter is before the Court on four motions (collectively, the "Motions") (Docs. 17, 18, 19 & 20) filed by the Debtor to avoid certain judicial liens encumbering his property at 10164 Schoolhouse Road, Canal Winchester, Ohio 43110 (the "Property") under § 522(f)(1) of the Bankruptcy Code. Three of the Motions (Docs. 18–20) seek to avoid the judgment liens of Capital One Bank USA, NA ("Capital One"), and one (Doc. 17) seeks to avoid the judgment lien of Fabricated Structures, Inc. ("Fabricated"). In each of the Motions, the Debtor alleges that the value of (and the value of the Debtor's interest in) the Property is $357,340; that the Debtor is entitled to an exemption in the Property of $136,925 under section 2329.66(A)(1) of the Ohio Revised Code ; and that the Property is subject to a first mortgage in favor of Bank of America in the amount of $207,430 and the following judgment liens (the "Judgment Liens"):
?
The Debtor seeks to avoid each Judicial Lien in its entirety.
Section 522(f) of the Bankruptcy Code allows a debtor to "avoid the fixing of a [judicial] lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled[.]" 11 U.S.C. § 522(f)(1). The formula to calculate whether a lien impairs a debtor's exemption is set forth in the statute:
[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.
11 U.S.C. § 522(f)(2)(A). Put another way, lien avoidance can be calculated by: (1) determining the value of the debtor's interest in property; (2) deducting the value of those liens that are not being avoided; and (3) deducting the value of the debtor's exemption. See Kolich v. Antioch Laurel Veterinary Hosp., Inc. (In re Kolich) , 273 B.R. 199, 204 (8th Cir. BAP 2002) (citing In re Brantz , 106 B.R. 62, 68 (Bankr. E.D. Pa. 1989) ), aff'd , 328 F.3d 406 (8th Cir. 2003). If this results in a positive figure, the judicial liens cannot be avoided to that extent because there is non-exempt equity to which they could attach; if the resulting figure is negative, the judicial liens may be avoided in their entirety. Id.
Section 522(f) "was designed to provide a simple arithmetic test to determine whether a lien impairs an exemption by adopting the formula used in [Brantz ]." Kolich , 273 B.R. at 204 (citing H.R. Rep. No. 835, 103d Cong., 2d Sess. 52–54 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3361–63).
In each of the Motions, the Debtor includes in his § 522(f)(2)(A) calculation the three Judgment Liens that are not the subject of that particular motion. The following table represents the Debtor's proposed impairment calculation in each Motion:?
Because in each instance the resulting figure is negative, each Judgment Lien could be avoided in its entirety.
But the Debtor's proposed calculations set forth above all suffer from a fundamental flaw: they ignore § 522(f)(2)(B), which provides that, "[i]n the case of a property subject to more than 1 lien, a lien that has been avoided shall not be considered in making the calculation under subparagraph (A) with respect to other liens." 11 U.S.C. § 522(f)(2)(B). As many courts have noted, this means that "a debtor must perform a separate calculation under § 522(f)(2)(A) for each judicial lien that a debtor seeks to avoid" and that "[i]t is insufficient to attempt to avoid all liens in one calculation or to use the identical calculation in separate motions seeking to avoid other judicial liens against the same property." In re Derocha , 503 B.R. 553, 557 (Bankr. D.R.I. 2014) ; In re Jochum , 309 B.R. 327, 330 (Bankr. E.D. Mo. 2004) ("The language of [§] 522(f)(1)(A) authorizes the avoidance of one judicial lien at a time, and [§] 522(f)(2)(B) expressly excludes prior avoided liens from the calculations in the formula provided in [§] 522(f)(2)(A)."); see also In re Dickey , No. 13-10318-WCH, 2015 WL 225392, at *9–10 (Bankr. D. Mass. Jan. 15, 2015) (applying separate calculation to each lien sought to be avoided); In re Houser , No. 12-30098, 2015 WL 128232, at *2 (Bankr. E.D. Tenn. Jan. 8, 2015) (same). Accordingly, "where there are pending motions to avoid particular liens, or a lien has already been avoided, such liens are excluded from the calculation." In re White , No. BR 12-11578, 2017 WL 2874486, at *1 (Bankr. D.R.I. July 5, 2017).
Although he filed separate motions, the Debtor factors in the value of all three of the other Judgment Liens in each Motion. This calculation method disregards the plain language of § 522(f)(2)(B) and impermissibly shields non-exempt equity—here, $12,985 —from lien attachment. To comply with § 522(f)(2)(B), the Debtor must instead omit one of the Judgment Liens with each new impairment calculation, even if he files the motions contemporaneously. See Derocha , 503 B.R. at 557–58 ("This Court interprets the language ‘a lien that has been avoided’ contained in § 522(f)(2)(B) to include multiple liens a debtor seeks to avoid, either in a single motion or in separate motions filed with respect to the same property regardless of when they are filed."). As the court in White explained:
$357,340 (value of the Debtor's interest) minus $207,430 (value of the mortgage) minus $136,925 (value of the Debtor's exemption).
For instance, avoiding one of three liens on a property will require including the two other liens in the § 522(b)(2)(A)(ii) portion of the formula in order to successfully avoid the first lien. If the debtor seeks to then avoid the second lien (having already sought to avoid the first lien, whether pending or granted ), the formula would only include the third lien as the first "must be deemed already avoided for purposes of the analysis and excluded from the calculation" assuming the first is avoidable in its entirety.
White , 2017 WL 2874486, at *1 (quoting Derocha , 503 B.R. at 558 ). Because the Debtor's impairment calculations do not comply with § 522(f)(2)(B), the Motions are hereby DENIED . Should the Debtor wish to seek avoidance of the Liens, he will have to file new motions, excluding in each motion's calculation any lien(s) that the Debtor is deemed to have already avoided under § 522(f)(2)(B).
Many courts hold that a debtor must follow the applicable state's priority scheme when avoiding multiple liens and avoid the lowest priority lien first. See, e.g. , Bank of Am. Nat'l Tr. & Sav. Assoc. v. Hanger (In re Hanger) , 217 B.R. 592, 595 (9th Cir. BAP 1997) ("Applying the [§ 522(f) ] formula requires that the liens be subtracted in order of reverse priority and that those which are avoided not be included in the calculation."), aff'd , 196 F.3d 1292 (9th Cir. 1999) ; In re Morrow , No. 07-12142, 2009 WL 1607582, at *4 (Bankr. N.D. Ohio Feb. 12, 2009) ("Pursuant to 11 U.S.C. § 522(f)(2)(B), judgment liens are stripped off a property one at a time from the most junior to the most senior."). The Sixth Circuit has held—although not in the § 522(f)(2)(B) context—that the impairment calculation does not take into account lien priority, Brinley v. LPP Mortg., Ltd. (In re Brinley) , 403 F.3d 415, 421–22 (6th Cir. 2005), which would suggest that the Debtor could avoid the liens in whichever order he chooses. The order here would make a difference: Three of the four liens are less than the $12,985 non-exempt equity available in the Property, meaning that if Fabricated's lien were avoided first (and therefore not considered in the subsequent calculations for the Capital One liens), at least one Capital One lien would not be subject to avoidance and one only partially so. But if Fabricated's lien were avoided last, all three of the Capital One liens would be subject to avoidance and Fabricated would retain a lien on the Property in the amount of $12,985.