Opinion
No. 4:04-CV-2758.
February 25, 2005
ORDER
THE BACKGROUND OF THIS ORDER IS AS FOLLOWS:
On December 21, 2004, the above case involving an appeal to this Court from the decision of a bankruptcy judge was opened for statistical purposes and the case assigned to the undersigned judge. The Appellants are Thomas E. Mollo, doing business as Centre Footcare, and Holly D. Mollo (hereinafter referred to collectively as the "Mollos"). The Appellee is the Internal Revenue Service ("IRS").
The Mollos filed a Chapter 13 petition in bankruptcy on September 18, 2003. On November 17, 2003, the IRS filed a proof of claim in the Mollos's Chapter 13 bankruptcy case. The Mollos filed an objection to the IRS's claim on May 10, 2004, and on November 9, 2004, the Honorable Mary D. France, the bankruptcy judge, entered an opinion and order denying the objection to the claim.
Judge France determined that (1) the IRS's filing of a tax lien prior to the closing of Mollos's prior bankruptcy case did not violate the automatic stay provisions of the Bankruptcy Code and (2) the tax lien and proof of claim were valid. The present appeal is from that decision and involves the Mollos's third bankruptcy case since 1994.
We have appellate jurisdiction over the appeal from the Bankruptcy Court pursuant to 28 U.S.C. § 158(a). We exercise plenary review over the Bankruptcy Court's legal conclusions and review its findings of fact for clear error. See, e.g., Shareholders vs. Sound Radio, Inc., 109 F.3d 873, 878 (3d Cir. 1997). The appeal has been fully briefed and is ripe for disposition.
A reply brief was due on February 17, 2005, but the Mollos's elected not to file one.
The Mollos's first bankruptcy case, which was filed pursuant to Chapter 13 of the Bankruptcy Code, terminated on November 20, 1997. Thirteen days later, on December 3, 1997, the Mollos filed a second Chapter 13 case, which was later converted to one under Chapter 7. In the second bankruptcy case, the Mollos listed certain property as exempt on their schedules. No timely objections to the exemptions were made.
On January 11, 2001, the bankruptcy court issued a discharge in the second case. Subsequently, the trustee in the second bankruptcy case filed a report of no distribution dated Febraury 26, 2001. That report states as follows:
I, CHARLES A. BIERBACH, Trustee, having been appointed trustee of the estate of [the Mollos], report that I have neither received any property nor paid any money on account of this estate except exempt property; that I have made a diligent inquiry into the financial affairs of the debtor(s) and the location of the property belonging to the estate; and that there is no property available for distribution from the estate over and above that exempted by law.
Pursuant to FRBP 5009, I hereby certify that the estate of the [Mollos has] been fully administered.
I request that this report be approved, and that I be discharged from further duties as trustee.
On October 1, 2001, the IRS filed a notice of federal tax lien against "Thomas Holly Mollo." Twenty-nine days later on October 30, 2001, the bankruptcy court (1) granted the trustees' request that he be relieved of further duties as trustee and closed the Mollos's second bankruptcy case. On September 18, 2003, the Mollos's filed the third bankruptcy case.
The Mollos contend that (1) the IRS's act of filing a notice of federal tax lien after the Court had granted a discharge on January 11, 2001, in their second bankruptcy case, but before the Court had closed that case, was an act against property of the bankruptcy estate and therefore violated the automatic stay, and (2) because the filing violated the automatic stay, the notice of federal tax lien is void and the United States' claim is not entitled to secured status.
Judge France in her 4-page opinion issued on November 9, 2004, succinctly explained why the Mollos's contentions are devoid of merit. She stated in relevant part as follows:
In the instant case, Debtors argue that the IRS lien is void because it was filed while the automatic stay was in effect in their 1997 bankruptcy case. Debtors are correct that actions taken in violation of the stay are void. See Raymark Industries v. Lai, 973 F.2d 1125, 1132 (3d Cir. 1992). If the IRS filed its lien before the automatic stay terminated, it lien is void. In re Weisberger, 205 B.R. 727 (Bankr. M.D. Pa. 1997). Although I agree with the point of law advanced by Debtors, I disagree with its application to the facts in this case.
Section 362(c) describes when the stay terminates as to property of the estate and when it terminates as to property of the debtor. The stay against property of the estate terminates when the property is no longer part of the estate. 11 U.S.C. § 362(c)(1). The stay of any other act under Section 362(a), which includes the creation of liens against property of the debtor, terminates in a Chapter 7 case when one of the following events occurs — closure of the case, dismissal of the case, or entry of the debtor's discharge. Therefore, the filing of the lien would not violate the stay if the property subject to the lien were no longer property of the estate and the Debtors had received a discharge.
* * * * * *
In the instant case, the discharge had been granted prior to the filing of the tax lien. Thus, creation of the lien did not violate [the automatic stay].
November 9, 2004, Opinion of the Bankruptcy Court, pages 3-4.
On October 1, 2001, the IRS filed it notice of federal tax lien. At the time the IRS filed its lien, there were no assets in the bankrupt estate. The lien attached not to property of the bankrupt estate but to the Mollos's claimed exempt property and to any other property or rights to property then held by the Mollos. For example, the Bankruptcy Code expressly excludes from property of the estate proceeds which are earnings from post-petition services performed by an individual debtor. See 11 U.S.C. § 541 (a) (6).
Under the circumstances presented, the act of filing the notice of federal tax lien was not an act against property of the bankruptcy estate, the filing of it did not violate the automatic stay provisions and the IRS's claim is entitled to secured status.
We agree with Judge France's legal conclusions. Furthermore, to the extent that the Bankruptcy Judge made factual determinations they are clearly supported by the record.
The United States in its brief has stated that the issue before the court is merely one of law.
NOW, THEREFORE, IT IS ORDERED THAT:
1. The order of the Bankruptcy Court dated November 9, 2004, is affirmed.
2. The Clerk of Court shall close this case.
3. The Clerk of Court shall send a copy of this order to the Honorable Mary D. France.