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).
The debtor filed for chapter 7 bankruptcy after International Fidelity Insurance Company (International) obtained a judgment lien against her in the amount of $30,829.26. She listed the debt on her schedules as unsecured and nonpriority. She claimed a homestead exemption in her residence, which was not titled in her name. International did not object to the debtor’s claimed exemption. After the debtor obtained her discharge, International sought to enforce the lien in state court with a Petition for In Rem Declaratory Judgment and Implied Trust. The debtor moved to reopen her bankruptcy seeking to avoid International’s judgment lien under section 522(f) as impairing her exemption.
The parties stipulated that the debtor held an interest in the property when she filed her petition. In addition, the court found that the sum of the judicial lien and the outstanding mortgage exceeded the debtor’s interest in the property. Based on these findings, the court found that the judicial lien impaired the debtor’s exemption within the meaning of section 522(f).
International raised two arguments in opposition to the debtor’s motion to avoid the lien. First, International argued that because her bankruptcy was closed, the motion came too late. The bankruptcy court quickly rejected this argument, finding that there is no deadline for filing a motion to avoid a lien under Rule 4003 and that it is common for a court to reopen a case to address a lien avoidance motion.
International next argued that: “1) her claim of homestead need not be challenged in this forum but is a question for the state court to decide, 2) her discharge was improper because she misled the Court and the Chapter 7 trustee in her bankruptcy petition by stating that her ownership interest in the property was zero or unknown when in fact it was a much greater amount, and 3) she would gain an unfair advantage by avoiding a lien for a debt she clearly owed.”
As an initial matter, the court found that the applicability of a state homestead exemption was within its power to determine. Because Oklahoma exemption law bases a homestead exemption on residency rather than on title, the debtor’s right to the homestead exemption constituted a property right that became part of the bankruptcy estate.
With respect to the debtor’s claimed interest in the property, the court found that, while she listed her interest in the property as zero or unknown, she indicated at the outset that she had a marital interest and she claimed an exemption. Therefore, despite uncertainty as to its value, she did not mislead the court as to her interest in the property, and International’s judicial estoppel argument failed.
International’s argument that it would be unfair to avoid a lien on a debt that the debtor clearly owed, was rejected for the obvious reason that bankruptcy’s promise of a fresh start permits debtors to shed debts they clearly owe but cannot pay.
Tags: Property of Estate, lien avoidance
