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Kathy Ann Green v. Hapo Community Credit Union (In re Green)

BAP No.: EW-12-1486-PaJuTa; Bankr. No.: 04-07678 (Not for Publication)
In considering whether the Bankruptcy Court erred in denying the debtor’s motion to avoid a judicial lien under § 522(f) in a reopened bankruptcy case, the Bankruptcy Appellate Panel of the Ninth Circuit (the “BAP”) held that: 1) Neither Rule 4003(d) nor any other applicable rule establishes a time limit or deadline for the filing of a lien avoidance motion. 2) In the “absence of prejudice, [§ 522(f)(1)] lien avoidance actions are not barred either by entry of a discharge order or the closing of the bankruptcy case.” In re Green (quoting In re Goswami, 304 B.R. 386, 392 (B.A.P. 9th Cir. 2003). 3) The four elements to avoid a lien under § 522(f)(1)(A) are: 1) there must be an exemption to which the debtor would have been entitled under § 522(b); 2) the property must be listed on the debtor’s schedule and claimed exempt; 3) the lien must impair that exemption; and 4) the lien must be a judicial lien. Goswami, 304 B.R. at 390-91; see also In re Chiu, 304 F.3d 905, 908 (9th Cir. 2002). 4) “[T]here is no absolute right to amend schedules in bankruptcy cases . . . ‘judge-made exceptions’ bar amendment if the debtor has acted in bad faith or if prejudice would result.” In re Green (quoting Goswami, 304 B.R. at 393). 5) The mere passage of time will not prejudice a creditor. Instead, in weighting the debtor’s right to amend a schedule to claim an exemption, prejudice to creditors is clearly present where they suffer an actual economic loss due to debtor’s delay in claiming his exemption. Even if a creditor is harmed by the debtor’s delay, merely showing prejudice does not automatically trigger disallowance of an amendment, the court must balance the prejudices on both sides. In re Green (citing In re Arnold, 252 B.R. 778 (B.A.P. 9th Cir. 2000) (internal citations and quotations omitted). 6) “Avoidance of a judicial lien may be allowed even if the claimed exemption amount is de minimis.” In re Green (quoting Goswami, 304 B.R. 390 n.4). Listing a value of the claimed exemption at “0.00” is sufficient.
Procedural context:
The Bankruptcy Court concluded that: “Since there was no equity in the property on the date the petition for bankruptcy was filed, [Debtor] cannot now claim an exemption in her residence. Without an actual claimed exemption, the lien cannot now be avoided under 11 U.S.C. § 522(f). In addition, there is a need for finality in bankruptcy cases. The length of time between the date of filing the bankruptcy petition and the date of lien avoidance prejudices the creditor.” Upon the filing of a motion for reconsideration, the Bankruptcy Court decided to alter its prior order in part concluding that a judicial lien may impair a debtor’s homestead exemption even when there is no equity in the property, and that such a lien can be avoided under § 522(f). The Bankruptcy Court, however, declined to grant the motion to avoid lien reiterating that the homestead exemption was not initially claimed in Schedule C, and reopening the case and filing an amended Schedule C was simply too late to remedy the issue. Chapter 13 debtor Kathy Ann Green (“Debtor”) appealed the decision of the Bankruptcy Court denying her motion to avoid the judicial lien of HAPO Community Credit Union (“Creditor”) in the reopened bankruptcy case. The BAP reversed and remanded with instructions to enter an order granting Debtor’s motion and avoiding Creditor’s judicial lien in its entirety.
On October 19, 2004, Debtor filed a chapter 13 petition, schedules, and a Statement of Financial Affairs. On Schedule A, Debtor listed a “personal residence” valued at $158,400.00 and encumbered by a mortgage in the amount of $174,886.00. Debtor claimed no homestead exemption on Schedule C. On Schedule F, Debtor listed Creditor as an unsecured judgment creditor based on a deficiency owed to Creditor after the repossession and sale of a motor home owned by Debtor and her spouse (not a party to the instant action). Debtor was not aware that on September 30, 2004, Creditor recorded a $20,072.98 state court judgment lien against her real property. Creditor filed no proof of claim. On January 31, 2005, Debtor’s chapter 13 plan was confirmed; the confirmed plan made no provision for Creditor as a secured creditor. Debtor completed the plan payments and was granted a discharge on October 25, 2007. Approximately four years later, in February 2012, when attempting to refinance her home, Debtor learned of Creditor’s judicial lien. On March 9, 2012, Debtor filed a motion to reopen and a motion to avoid Creditor’s judicial lien under § 522(f). The motion to reopen was granted. Creditor filed an objection to Debtor’s motion and argued Debtor lacked equity in her residence and, thus, could claim no exemption. Debtor responded with a supplemental memorandum in support of her motion and argued that equity is not a pre-requisite for a claim of a homestead exemption.
Pappas, Jury, and Taylor, Bankruptcy Judges; Appeal from Hon. Patricia C. Williams

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