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White v. Commercial Bank and Trust Co. (In re White)

8th Cir. BAP E.D.Arkansas (Case No.: 11-6032)
The Bankruptcy Appellate Panel reversed the bankruptcy court's ruling. In its reversal, the BAP ruled that the creditor's judicial liens are avoidable, reversed the bankruptcy court's denial of debtor's motion to avoid its liens, and that the order from relief from the automatic stay is moot. Specifically, the BAP held that the creditor had no interest in the property until was awarded a judicial lien on debtor's property which impairs exemptions the debtor's would otherwise be entitled. Because the debtor's are entitled to their exemption, the creditor's liens are avoidable.
Procedural context:
Creditor (Commercial Bank) objected to debtor's homestead exemption and moved for relief from stay in two separate bankruptcy cases. The debtors (Jennifer Gay White and Jeffrey Lewis White) then moved to avoid the creditor's judicial liens. All the motions were consolidated that the parties all moved for summary judgment. The bankruptcy court overruled the creditor's objection to debtor's exemption, denied the debtor's motion to avoid the creditor's liens and granted the creditor relief from the automatic stay to allow it to foreclose its judicial liens. The debtors in both cases have appealed and those cases have been consolidated.
Debtors, when married, acquired a piece of property in Wilmar, Arkansas of approximately 220 acres in 1991. They sold some acreage reducing the size to approximately 160 acres, thereby resulting in the remaining 160 acres to be owned with out any encumbrances. Between 2004 and 2007, Debtors borrowed money from creditor with security interest in personal and real property, other than the Wilmar property. The debtors later defaulted on their loans resulted in bank foreclosed liens. The deficiency judgment against the debtors became a lien on the debtors' jointly held Wilmar property. In 2009, creditor started its foreclosure action on its judgment lien. In 2010, the debtor's divorce and divided the property equally by quit claim deed thereafter. The property was set for foreclosure sale on September 14, 2010 and the debtors both filed for bankruptcy petitions before the sale could occur. From their filing, creditor filed an objection to the claim of homestead exemptions. Additionally, the creditor sought a motion for relief from the automatic stay. In response, the debtor's each filed a motion to avoid the creditor's lien. The parties agreed to consolidate the cases. Additionally, all the parties agreed there were no issues of material fact, and that all the motions could be decided by summary judgement. The Bankruptcy Court overruled the creditor's objection to debtor's homestead exemption, denied the debtors' motion to avoid creditor's judicial lien and granted creditor's relief from the automatic stay.
Chief Judge - KRESSEL Bankruptcy Judges - SCHERMER and SALADINO

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