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…] about No Deadline for Lien Avoidance Motion
Change of Beneficiary Not Avoidable Transfer
The chapter 7 debtor’s change of beneficiary in his life insurance policy from his employer to his wife was not an avoidable property transfer where the debtor retained his interest in the policy and the transfer did not diminish the bankruptcy estate. Harden v. Harrison (In re Harrison), 2021 WL 739533, No. 19-5730, Adv. Proc. No. 20-113 (Bankr. E.D. N.C. Feb. 22, 2021). [Read more…] about Change of Beneficiary Not Avoidable Transfer
Debtor May Avoid County Tax Foreclosure Sale
A county’s tax sale of the debtor’s farm was avoidable as constructively fraudulent under section 548, where the debtor was insolvent at the time of the title transfer and the tax debt was substantially less than the fair market value of the property. DuVall v. County of Ontario, No.19-20179, Adv. Proc. No. 19-2011 (Bankr. W.D. N.Y. Feb. 18, 2021). [Read more…] about Debtor May Avoid County Tax Foreclosure Sale
Transfer of Funds Divided between Creditor and Creditor’s Agent Fully Avoidable
Garnished wages divided between the creditor and his agent in accordance with their fee agreement were an avoidable transfer in their entirety even though the creditor never received the portion withheld by the agent. Hooker v. Wanigas Credit Union, No. 20-2252 (6th Cir. Jan. 26, 2021) (unpublished).
During the ninety-day preference period,Wanigas Credit Union, through its agent, Shek Law Offices, garnished $884.13 from the debtor’s wages in satisfaction of a judgment Wanigas had against the debtor. Shek retained $452.60 of the garnished wages and sent the remaining $431.53 to Wanigas. After filing for bankruptcy the debtor sought turnover of the funds under section 547(b)(1) as a preferential transfer. Wanigas turned over only the funds it received. It argued that the portion retained by Shek was not subject to turnover because Wanigas never received the funds, and in the alternative, because the funds were subject to an attorney-charging lien. The bankruptcy court denied Wanigas’s motion for summary judgment and ordered the turnover of the funds. The district court granted leave to appeal and affirmed. [Read more…] about Transfer of Funds Divided between Creditor and Creditor’s Agent Fully Avoidable
Lien for Incarceration Costs Is Avoidable Judicial Lien
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…] about Lien for Incarceration Costs Is Avoidable Judicial Lien
Proceeds from Sale of Fraudulently Transferred Property May Be Recovered from Third Party
The chapter 7 trustee may “recover money from the entity who received the proceeds from the sale of fraudulently transferred property, but to whom the property itself was never transferred.” Rajala v. Husch Blackwell LLP, No. 08-20957, Adv. Proc. No. 18-6016; Rajala v. Spencer Fane LLP, Adv. Proc. No. 18-6020 (Bankr. D. Kans. Aug. 14, 2019).
Three couples started GRHC, a company designed to explore the possibilities of wind-generated electricity. GRHC initiated a wind-energy project in Pennsylvania called Lookout Windpower. The three couples then created the Lookout Windpower Holding Company (LWHC) and transferred Lookout Windpower from GRHC to LWHC rendering GRHC insolvent. LWHC then sold Lookout Windpower to Edison Mission Energy for over $6.7 million, and GRHC filed for chapter 7 bankruptcy. From the Lookout Windpower sale proceeds, LWHC paid the law firms of Husch Blackwell over $1.3 million and Spencer Fane over $700,000. The trustee in GRHC’s bankruptcy case successfully avoided the transfer of Lookout Windpower from GRHC to LWHC and sought to recover the funds paid to the law firms out of the proceeds from LWHC’s subsequent sale of the property. The law firms moved to dismiss the adversary complaints.
[Read more…] about Proceeds from Sale of Fraudulently Transferred Property May Be Recovered from Third PartyMortgage Deficiency Judgment Liens Are Avoidable
Section 522(f)(2)(C) does not create an exception to lien avoidance for mortgage deficiency judgment liens. In re Pace, No.16-8036 (B.A.P. 6th Cir. June 20, 2017).
Antoinette Pace filed a Chapter 13 petition in which she scheduled her residence with a value of $147,630 and claimed a homestead exemption for $132,900. At that time, Farmers National Bank (FNB) held two judicial liens resulting from post-foreclosure deficiency judgments (though the two liens appeared duplicative, the bankruptcy court and the BAP treated them as separate liens). There were also two liens on the house held by Midland Credit Management (MCM) and Matthew Giannini, as well as a county lien against the property for unpaid real estate taxes. Ms. Pace converted to Chapter 7 and moved to avoid the non-tax liens as impairing her homestead exemption. The motion was unopposed. The bankruptcy court granted the motion to avoid the MCM and Giannini liens but denied the motion to avoid the liens held by FNB.
On appeal, the Bankruptcy Appellate Panel began by rejecting Ms. Pace’s argument that because her motion was uncontested it should have been granted with respect to all the liens. The court found that a movant has the burden of demonstrating the merits of her motion and a court has the authority and obligation to assess its merits without regard to whether it is opposed.
Ms. Pace next argued that FNB’s liens were avoidable under section 522(f)(1) in accordance with the specification in 522(f)(2)(A) that a lien impairs an exemption when the sum of all liens plus the amount of the exemption “exceeds the value that the debtor’s interest in the property would have in the absence of any liens.” It was undisputed that, based on this calculation alone, Ms. Pace would have been entitled to judgment in her favor.
The bankruptcy court, however, interpreted section 522(f)(2)(C), which provides that “[t]his paragraph shall not apply with respect to a judgment arising out of a mortgage foreclosure,” as an exception to the larger avoidance provision and found that FNB’s liens were not avoidable.
The BAP disagreed, noting that, while the Sixth Circuit has not addressed the issue, the majority of courts have found that deficiency judgments are not “judgment[s] arising out of a mortgage foreclosure.” The panel walked through the various analyses courts have used to reach this conclusion, beginning with courts that have found that deficiency judgments are incidental to the judgment of foreclosure to which section 522(f)(2)(C) actually applies. Other courts have examined state foreclosure laws to determine that deficiency judgments are based on the promissory note rather than the security interest and do not, therefore, fit within the meaning of the avoidance exception.
Still other courts, notably the First Circuit in Banknorth, N.A. v. Hart (In re Hart), 328 F.3d 45 (1st Cir. 2003), have found that the text of section 522(f)(2)(C) does not create an exception to avoidance at all, and that, therefore, resort to state law to determine the nature of a deficiency judgment is unnecessary. The Hart court reasoned that section 522(f)(1) generally authorizes avoidance of judicial liens that impair exemptions. Section 522(f)(2)(A) provides, for “purposes of this subsection,” a method for determining whether a lien is subject to avoidance under section 522(f)(1). Subparagraph (f)(2)(C), however, is limited to “this paragraph,” and serves to further define the terms within paragraph (f)(2) rather than carve out a separate exception to the lien avoidance provision. The Hart court found that section 522(f)(2)(C) “clarifies that the entry of a foreclosure judgment does not convert a consensual mortgage into a judicial lien which may be avoided.” A deficiency judgment lien, on the other hand, is a judgment lien like any other for purposes of avoidance.
The BAP agreed with and adopted the reasoning set forth by the First Circuit in Hart. The panel reasoned further that had Congress intended section 522(f)(2)(C) to create an exception to avoidance, it would have made section 522(f)(1) subject to paragraph (2)(C), as it did with the exception set forth in paragraph (3). The panel concluded that “522(f)(2)(C) can and must be applied in accordance with its plain meaning; it does not preclude avoidance of mortgage deficiency judgment liens.”
Trustee May Not Reform Avoided Mortgage
While a trustee has leeway to compromise an avoidance claim under bankruptcy law, he does not have the right to change the terms of an avoided mortgage to make it more marketable for sale or settlement. In re Dupuis, No. 12-30380 (Bankr. D. Mass. Jan. 8, 2015). [Read more…] about Trustee May Not Reform Avoided Mortgage
Lien Avoidance Four Years after Discharge
How late is too late to amend schedules to include a secured creditor and claim a homestead exemption for purposes of section 522(f) lien avoidance? The BAP for the Ninth Circuit addressed the question in the case of Green v. HAPO Community Credit Union (In re Green), No. 12-1486 (Aug. 12, 2013), in which it reversed the bankruptcy court’s dismissal of the debtor’s motion to avoid lien and ordered that, upon remand, the lower court grant the motion. [Read more…] about Lien Avoidance Four Years after Discharge
Traverse v. DeGiacomo, No. 13-9002 (1st Cir.)
Type: Amicus
Date: July 10, 2013
Description: Whether trustee steps into shoes of debtor upon avoidance of lien and can sell debtor’s residential property.
Result: Judgment reversed and remanded, May 23, 2014