Posted by NCBRC - April 22nd, 2022
The City’s possessory lien on the chapter 7 debtor’s vehicle was judicial rather than statutory and could therefore be avoided under section 522(f). City of Chicago v. Mance, No. 21-1355 (7th Cir. April 21, 2022).
After the chapter 7 debtor incurred several unpaid traffic tickets, the City of Chicago impounded her car subject to a possessory lien of $12,245, comprising the amount of the outstanding tickets, storage and towing costs, and the City’s attorney fees. The lien in this case was more than four times the car’s value. The debtor’s monthly income was $197 in food stamps. The bankruptcy court held that the lien was avoidable, and the district court affirmed. City of Chicago v. Howard, 625 B.R. 384, 390 (N.D. Ill. 2021). Read More
Posted by NCBRC - February 16th, 2022
A debtor may avoid a judgment lien impairing her homestead exemption under section 522(h) even though she did not meet the requirements for lien avoidance under section 522(f). In re Garbo, No. 21-11053 (Bankr. W.D. N.Y. Jan. 27, 2022).
Prior to filing for chapter 7 bankruptcy, the debtor and her husband divorced. Their divorce settlement stipulated that the husband would quit claim to the debtor his half-interest in their marital residence. Before he executed the quitclaim deed, however, Discover Bank obtained a judgment lien against him for $3,310.63. He then quitclaimed the property to the debtor. When the debtor filed for bankruptcy, the value of the home was $170,000 and was security for a first mortgage in the amount of $90,640. The debtor claimed her New York homestead exemption in the amount of $89,975, leaving no equity to cover Discover Bank’s lien. She sought to avoid Discover Bank’s lien as a lien against her homestead exemption under section 522(f)(1). Read More
Posted by NCBRC - November 17th, 2021
The county’s tax foreclosure sale of the debtor’s real property was avoidable as a fraudulent conveyance, and the debtor’s annuity was properly excluded from the calculation of the debtor’s insolvency for avoidance purposes where the creditor failed to object to the debtor’s claim of exemption with respect to the annuity. DuVall v. County of Ontario, NY, No. 21-6236 (W.D.N.Y. Nov. 9, 2021).
In May, 2017, the debtor’s real property was sold to the Doe appellants in a tax foreclosure sale. In March, 2019, before title transferred, the debtor filed a chapter 13 bankruptcy petition, listing an annuity of an undisclosed amount. The debtor claimed the annuity as exempt under section 522(d)(11)(E) and proposed a 100% plan including paying off the county’s tax claim. The debtor then filed a petition to avoid the tax lien under sections 522(h) and 548(a)(1)(B). The county failed to object to the claimed exemption for the annuity but filed a motion in limine to admit evidence as to its value. The bankruptcy court denied the motion in limine, and, in a separate order, granted the debtor’s motion to avoid the lien. DuVall v. County of Ontario, 2021 Bankr. LEXIS 369 (W.D.N.Y. Bankr. 2021). Read More
Posted by NCBRC - November 12th, 2021
Where tax liens are specifically excepted from the debts to which a debtor’s exempt property cannot be liable, the debtors here could not exercise the trustee’s avoidance powers under section 522(h) to avoid their tax debt, nor could they benefit from the trustee’s successful avoidance action. Hutchinson v. IRS, No. 19-60065, amended opinion (9th Cir. Dec. 23, 2021).
When the debtors filed for chapter 7 bankruptcy, they owed taxes to the IRS. Of that debt, $162,000 represented penalties and was secured by a lien on the debtors’ home. The debtors filed a two-count adversary complaint. In the first count they alleged that because the IRS claim was tax penalty under section 726(a)(4), the lien securing it was avoidable by the trustee under section 724(a). They alleged that because the trustee had not avoided the lien, they could do so themselves under section 522(h), to the extent the lien encumbered their homestead. In the second count they sought to have the avoided lien preserved for their benefit rather than for the benefit of the estate. The trustee responded asserting his right to avoid the lien for the benefit of the estate. The IRS separately moved to dismiss the debtors’ complaint. The bankruptcy court granted the IRS motion to dismiss. Later, the court entered an order avoiding the lien upon motion by the trustee pursuant to section 724(a). The debtors appealed dismissal of their complaint, and the Bankruptcy Appellate Panel for the Ninth Circuit affirmed. Read More
Posted by NCBRC - October 11th, 2021
A state default judgment lien was avoidable in bankruptcy under the court’s inherent power to police attorney conduct where the lien was security for unpaid attorney fees which were unreasonable. Moore v. Sanchez (In re Sanchez), No. 20-1267 (D. N.M. Sept. 22, 2021).
The debtor hired the creditor, Moore, to represent him in his divorce case. The case went two months without a fee agreement, then Moore presented the debtor with a bill for fees and costs in the amount of $15,000. The debtor paid him $7,000 and they reached a compromise as to the remaining portion of the bill. They entered into a retainer agreement providing for a 2% monthly interest rate on unpaid fees and an automatic lien on the debtor’s personal and real property as security. In January, 2011, Moore sued the debtor in state court to collect unpaid fees. The court awarded Moore a default judgment of $18,732.64 at 24% interest per year. By February, 2018, the debt had grown to $50,073.90, and Moore moved for foreclosure on the debtor’s home. The debtor filed for chapter 7 bankruptcy. In his petition, the debtor valued the house at $55,300.00 and claimed it as fully exempt. He also listed the debt to Moore as secured and disputed. He moved to avoid the judicial lien against his exempt property. Read More
Posted by NCBRC - July 8th, 2021
Insurance proceeds for the repair of the debtor’s fire-destroyed house are not considered when calculating impairment to the debtor’s homestead exemption where the debtor had not made any repairs on the house prior to filing for bankruptcy. Waltrip v. Sawyers, No. 20-1130 (8th Cir. July 2, 2021). Read More
Posted by NCBRC - June 19th, 2021
Under sections 724(a) and 551, the chapter 7 trustee could avoid the penalty portion of a federal tax lien on the debtor’s homestead property and preserve the value of the avoided lien for the benefit of the bankruptcy estate. United States of America v. Warfield, 2021 WL 1530094 (D. Ariz. April 19, 2021) (case no. 3:20-cv-8204). Read More
Posted by NCBRC - May 21st, 2021
The debtor was not required to file her motion to avoid a judicial lien while her case was still open, and to assert a homestead exemption in Oklahoma, the debtor need only reside on the property. In re Rose-Brownfield, 2021 WL 809767, No. 18-80342 (Bankr. E.D. Okla. Feb. 22, 2021). Read More
Posted by NCBRC - December 23rd, 2020
The State Treasurer’s lien based on a statute authorizing the state to seek reimbursement from a prisoner for the costs of his incarceration was not a statutory lien but a judicial lien which the debtor could avoid as impairing his exemptions. State Treasurer v. Wigger, No. 19-732 (W.D. Mich. Nov. 16, 2020).
The debtor was a prisoner in the Central Michigan Correctional Facility. The Michigan State Treasurer sought to recover some of the costs of his incarceration under the State Correctional Facility Reimbursement Act (SCFRA). After a bench trial, the state court found the State Treasurer was entitled to reimbursement from the debtor’s IRA funds and from proceeds from a judgment the debtor had against his son. The debtor initiated a chapter 7 bankruptcy and filed an adversary proceeding seeking to have the state’s lien voided as a judicial lien impairing his exemptions under section 522(f)(1). The bankruptcy court granted the debtor’s lien avoidance motion finding that the lien impaired his exemption for retirement funds under section 522(d)(12), and his exemption for property valued up to $13,100 under section 522(d)(5). Read More
Posted by NCBRC - April 4th, 2020
In an unusual path, the Ninth Circuit affirmed the bankruptcy court’s dismissal of the debtor’s lien avoidance action where it found the underlying lien, based on an abstract of judgment which did not “substantially comply” with state requirements, to be invalid. Sanger v. Ahn (In re Ahn), No. 18-16794 (9th Cir. Feb. 28, 2020) (unpublished).
Ms. Ahn filed an adversary complaint in her bankruptcy seeking declaratory judgment that the Sangers’ lien was invalid because it was based on an abstract of judgment which did not comply with state law notice requirements. In the alternative, Ms. Ahn sought to avoid the judicial lien as impairing her homestead exemption. The bankruptcy court granted summary judgment to Ms. Ahn on the declaratory judgment count and dismissed the lien avoidance claim as moot.
On appeal, the district court found that the bankruptcy court lacked subject matter jurisdiction to reach the declaratory judgment claim and reversed that holding. Rather than remanding to the bankruptcy court to address the issue of lien avoidance, however, the district court instead went on to determine that the underlying judicial lien was invalid and, therefore, the debtor’s homestead exemption was not impaired under section 522(f). The district court, therefore, affirmed the bankruptcy court’s dismissal of the lien-avoidance claim. Read More
