《楊清泉律師專欄》LIEN AVOIDANCE DOES NOT REQUIRE EXEMPTION CLAIM(Part II)
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LIEN AVOIDANCE DOES NOT REQUIRE EXEMPTION CLAIM(Part I)
In Re Botkin, the Chapter 7 debtor’s home was worth $22,500 and subject to a mortgage of $24,124. Her residence had a judicial lien of $9,800 held by Du Pont Community Credit Union. Under Virginia law, she was entitled to exempt up to $5,500 for her equity in her residence. But she did not claim an exemption for any portion of her residence because she had no equity in the property. After the meeting of creditors was concluded, the debtor asked the court to avoid the judicial lien pursuant to 522 (f). The bankruptcy court denied the request because the debtor failed to claim an exemption in her residence. The district court reversed and remanded, concluding that the Bankruptcy Code does not require a debtor to actually claim an exemption in the property subject to the judicial lien to be avoided. Although DuPont did not respond to the debtor’s motion, the credit union appealed the district court’s ruling. The 4th Circuit affirmed, stating that the Supreme Court’s decision in Owen v. Owen was instructive. In Owen, the Court said, “To determine the application of Section 522 (f) (court) ask not whether the lien impairs an exemption to which the debtor is in fact entitled, but whether it impairs an exemption to which he WOULD HAVE BEEN entitled but for the lien itself.”
Subsequent to Owen, Section 522 (f) was amended to add a mathematical test for determining whether a judicial lien impaired an exemption. “Importantly, one of the components is “the amount of the exemption that the debtor COULD CLAIM if there were no liens on the property,” the court said further. In conclusion, the court said that “As was the case with the statutory language on which Owen relied, this language reflects Section 522’s focus not on any actual claim of exemption, but rather on the hypothetical exemption that the debtor would have been entitled to in the absence of the lien.”
Hence, debtors do not have to claim property as exempt in order to avoid judicial liens.
Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.
In Re Botkin, the Chapter 7 debtor’s home was worth $22,500 and subject to a mortgage of $24,124. Her residence had a judicial lien of $9,800 held by Du Pont Community Credit Union. Under Virginia law, she was entitled to exempt up to $5,500 for her equity in her residence. But she did not claim an exemption for any portion of her residence because she had no equity in the property. After the meeting of creditors was concluded, the debtor asked the court to avoid the judicial lien pursuant to 522 (f). The bankruptcy court denied the request because the debtor failed to claim an exemption in her residence. The district court reversed and remanded, concluding that the Bankruptcy Code does not require a debtor to actually claim an exemption in the property subject to the judicial lien to be avoided. Although DuPont did not respond to the debtor’s motion, the credit union appealed the district court’s ruling. The 4th Circuit affirmed, stating that the Supreme Court’s decision in Owen v. Owen was instructive. In Owen, the Court said, “To determine the application of Section 522 (f) (court) ask not whether the lien impairs an exemption to which the debtor is in fact entitled, but whether it impairs an exemption to which he WOULD HAVE BEEN entitled but for the lien itself.”
Subsequent to Owen, Section 522 (f) was amended to add a mathematical test for determining whether a judicial lien impaired an exemption. “Importantly, one of the components is “the amount of the exemption that the debtor COULD CLAIM if there were no liens on the property,” the court said further. In conclusion, the court said that “As was the case with the statutory language on which Owen relied, this language reflects Section 522’s focus not on any actual claim of exemption, but rather on the hypothetical exemption that the debtor would have been entitled to in the absence of the lien.”
Hence, debtors do not have to claim property as exempt in order to avoid judicial liens.
Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.
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