11 U.S.C. §522; Judicial Lien; Lien Avoidance
In re Smith, 2006 Bankr. LEXIS 877, Case No. 05-60736 (Bankr. M.D.Ga. May 16, 2006) (Laney)
Prior to filing of the debtors’ joint bankruptcy petition, the judgment creditor caused a judicial lien on the debtors’ real property. The judicial lien, securing a debt of $27,394, was subordinate to a first mortgage of $35,000 and senior to a second mortgage in the amount of $155,521. The value of the property, without deductions for liens or exemptions, was $187,455. Debtors filed a motion to avoid the second-priority judicial lien pursuant to § 522(f) on the grounds that the lien impaired the debtors’ exemption; however, debtors did not actually claim the exemption on their schedules.
The issue before the court was “whether the judicial lien of the judgment creditor’s lien may be avoided in its entirety where the judicial lien was subordinate to a consensual, non-avoidable first mortgage lien, is senior to consensual, non-avoidable second mortgage lien, and there remains no equity in the property.”
The exemption was impaired under the formula set forth in § 522(f)(2)(A), as the sum of the judicial lien, all other liens and the debtors’ exemptions exceed the value of debtors’ interest in the property in the absence of any liens. Accordingly, the court held that if the debtors amended their schedules to claim their state-law exemptions in the real property, they could avoid the judicial lien in its entirety pursuant to §522(f)(2).