Daily Development for
Monday, June 22, 1998
By: Ira Meislik
Daily Developments normally are edited and prepared by Prof. Patrick A. Randolph, who is in China until late July. Ira Meislik will file periodic developments reports in Professor Randolph's absence.
Please note: The Reporter's comments are those of James R. Stillman of Murphy, Sheneman, Julian & Rogers.
BANKRUPTCY; LIEN AVOIDANCE; IMPAIRMENT OF EXEMPTION: A judgment creditor's lien would be avoided, under Bankruptcy Code § 522(f), only in part, and not in toto, where necessary to protect the debtor's exemption.
In re Silveira, ___ F.3d ___ (1st Cir. 1998), 1998 U.S. App. LEXIS 7754.
Section 522(f) permits a debtor to avoid the fixing of the lien on the interest of the debtor in property to the extent that such lien impairs an exemption. If Congress had meant that the lien would be avoided in toto, it would have used the word "if" instead of the words "to the extent that," the First Circuit held. In this case, to protect the debtor's exemption of $15,000, the bank's $209,500 judicial lien was reduced to $24,320, which was the amount of excess equity beyond the exemption amount and the senior mortgage. The First Circuit found that it was difficult to draw any reliable inferences from the House Report's negative references to In re Gonzalez and In re Chabot (at page 13), because the First Circuit felt that its conclusion in this case was similar to the ones reached in those cases, supposedly criticized by Congress.
REPORTER'S COMMENT: This case represents the clearly-emerging majority and common sense view, certainly after the 1994 Amendments, that section 522(f) does not require avoidance of the judicial lien in toto. The harder questions are, is the lien really stripped down to the amount that section 522(f) allows? Does all future appreciation in the property therefore goes to the debtor? Should the Court permit the judicial lienor to sell the property at a sheriff's sale and remit the exemption amount in cash to the debtor? These questions and others are the subject of an array of Bankruptcy Court decisions, in recent years, reaching various results.
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