Reichert v. Koch , 202 Mont. 167 ( 1983 )

No. 82-260
IN THE SUPREME COURT OF THE STATE OF MONTANA
1982
DAVID REICHERT and IRENE REICHERT,
individually and d/b/a THE ECHO INN,
Plaintiff and Appellant.,
RAWLEY C. KOCH, d/b/a SPEAR MEAT CO.,
Defendant and Respondent.
Appeal from: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone
Honorable William J. Speare, Judge presiding.
Counsel of Record:
For Appellant:
Elmer J. Dolve argued, Billings, Montana
For Respondent:
Harold F. Hanser, County Attorney, Billings, Montana
Paul M. Warren argued, Billings, Montana
Frank D. Meglen, Assistant U.S. Attorney, Billings,
Montana
Laura A. Mitchell, Billings, Montana
Bawd-F, H a n s e ~ B u n L I l t t o m e y ~ + 1 4 - i - g s 7
y -Montana
Sidney R. Thomas, Billings, Montana
Submitted: November 10, 1982
Decided: January 6, 1983
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Filed:
Mr. J u s t i c e F r e d J . Weber d e l i v e r e d t h e O p i n i o n of t h e C o u r t .
Appeal i s t a k e n from a n o r d e r o f t h e D i s t r i c t C o u r t of
t h e T h i r t e e n t h J u d i c i a l D i s t r i c t , Y e l l o w s t o n e County, a l l o w -
i n g e x e c u t i o n a g a i n s t homestead p r o p e r t y o f b a n k r u p t p a r t i e s .
W e a f f i r m t h e o r d e r of t h e D i s t r i c t C o u r t .
On September 1 6 , 1980, r e s p o n d e n t Rawley Koch o b t a i n e d
and d o c k e t e d i n Yellows t o n e County a f i n a l judgment a g a i n s t
t h e a p p e l l a n t s , David and I r e n e R e i c h e r t , husband and w i f e .
The judgment was i n t h e amount o f $26,163.54. On May 1 3 ,
1981, a p p e l l a n t s f i l e d i n Y e l l o w s t o n e County a j o i n t d e c l a r a -
t i o n o f homestead c o v e r i n g t h e i r r e s i d e n c e a t 532 M i l t o n
Lane, B i l l i n g s . On August 6 , 1981, a p p e l l a n t s f i l e d a j o i n t
Chapter 7 bankruptcy p e t i t i o n i n t h e B i l l i n g s D i v i s i o n o f
t h e U n i t e d S t a t e s Bankruptcy C o u r t . On December 1 4 , 1981,
a p p e l l a n t s o b t a i n e d a p e r s o n a l d i s c h a r g e from t h e Bankruptcy
Court. On J a n u a r y 7 , 1982, r e s p o n d e n t Koch s o u g h t and had
i s s u e d a w r i t o f e x e c u t i o n and n o t i c e o f s a l e and l e v y upon
t h e a p p e l l a n t s 1 r e s i d e n c e a t 532 M i l t o n Lane. A sheriff's
s a l e was s e t f o r F e b r u a r y 3 , 1982. On J a n u a r y 11, 1982,
appellants f i l e d s u i t against respondent i n the Thirteenth
Judicial D i s t r i c t . The s u i t a l l e g e d t h a t r e s p o n d e n t 1s
judgment had been v o i d e d by t h e d i s c h a r g e i n b a n k r u p t c y , and
s o u g h t damages f o r " w r o n g f u l and m a l i c i o u s e x e c u t i o n . " Also
on J a n u a r y 11, 1982, a p p e l l a n t s f i l e d a n a c t i o n s e e k i n g a n
i n j u n c t i o n a g a i n s t t h e s h e r i f f t o p r e v e n t t h e s a l e of t h e i r
residence. The s h e r i f f ' s s a l e was c a n c e l l e d and t h e s u i t s
were c o n s o l i d a t e d .
On J a n u a r y 28, 1982, r e s p o n d e n t moved t o d i s m i s s and
s o u g h t a d e c l a r a t o r y judgment e s t a b l i s h i n g t h e v a l i d i t y o f
h i s l i e n and t h e p r i o r i t y and s t a t u s o f t h e i n t e r e s t s o f
h i m s e l f , t h e R e i c h e r t s , t h e I.R.S., Y e l l o w s t o n e County,
S e c u r i t y Bank, and t h e b a n k r u p t c y t r u s t e e . Numerous m o t i o n s
to dismiss were filed and a hearing on them had on March 29,
1982. On May 19, 1982, the District Court issued an order
which: (1) dismissed appellants' suit for malicious execu-
tion, (2) dismissed appellants' suit against the sheriff and
dissolved the preliminary injunction, (3) dismissed respon-
dent's complaint for declaratory judgment, (4) acknowledged
the existence of appellants' Montana homestead exemption,
and (5) ordered respondent to proceed with enforcement of
his lien after he had complied with section 70-32-203, MCA.
Reicherts appealed, and raise the following issues:
1. Does a discharge in bankruptcy void a pre-existing
judgment lien against the debtors?
2. If a judgment lien survives the debtors' discharge
in bankruptcy, is section 70-32-203, MCA, the proper
procedure for enforcement?
3. Was it error for the District Court to dismiss
appellants' complaint which alleged "wrongful and malicious
execution?"
Appellants rely in large part upon the language of 11
U.S.C. 5524 to support their position that the judgment lien
is void. That section provides in part that a discharge in
bankruptcy:
" (1) voids any judgment at any time obtained,
to the extent that such judgment is a determin-
ation of the personal liability of the debtor
with respect to any debt discharged under section
727, 944, 1141, or 1328 of this title, whether
or not discharge of such debt is waived;
" (2) operates as an injunction against the
commencement or continuation of an action,
the employment of process, or any act, to
collect, recover or offset any such debt as a
personal liability of the debtor, or from
property of the debtor, whether or not dis-
charge of such debt is waived . .."
It appears that, on its face, S524 would preclude a post-
discharge execution on a judgment lien. However, examination
of other sections of the Bankruptcy Reform Act of 1978 leads
us to a contrary conclusion.
Although S524 provides that discharge voids judgments
to the extent that they are determinations of the personal
liability of debtors, it is silent on the question of the
effect of discharge upon liens which arose out of those
judgments. The question of the survivability of a judgment
lien was discussed in - - Sillani (S.D.Fla. 1981), 9 Bankr.
In re
188,189:
"It is the debtor's position that be-
cause the judgment lien secured a personal
liability . .
. the enforcement of that
lien is discharged by the provisions of
§524(a) (1) ..
.
"This is a common source of confusion.
The quoted provision merely voids judg-
ments to the extent they are unsecured.
The judgment creditor cannot seek any
recovery on his judgment other than that
obtainable against his security. Liens
pass through the bankruptcy case unaffect-
ed unless a party in interest requests the
court to determine and allow or disallow
the claims secured by the lien under 5502
and the claim is not allowed. §506(d);
Collier on Bankruptcy (15th ed.) 11506.03
at pages506-6 and 12."
If Koch had not docketed his judgment in Yellowstone
County in accordance with section 25-9-301, MCA, appellants'
position would be persuasive. However, the docketing of the
judgment created a judicial lien against the Reicherts'
real property in Yellowstone County. That real property was
also the property which the Reicherts subsequently claimed
as their homestead. A homestead is exempt property. Bank-
ruptcy disposition of judicial liens upon exempt property is
governed by 11 U.S.C. 5522.
Section 522(f) provides in part that "the debtor may
avoid the fixing of a lien on an interest of the debtor in
property to the extent that such lien impairs an exemption
to which the debtor would have been entitled . . . if such
lien is - 1 ) a judicial lien." That avoidance is not
automatic. In order to avoid a lien, the debtor must affirm-
atively seek the Bankruptcy Court's review. - - Burkholder
In re
(E.D.Pa. 1981) 11 Bankr. 346, 348, - - Adkins (s.~.Cal. 1980),
In re
7 Bankr. 325, 326. This conclusion is in keeping with the
treatment of non-judicial liens provided for in 11 U.S.C.
§506(d): "To the extent that a lien secures a claim against
the debtor that is not an allowed secured claim, such lien
is void, unless --(I) a party in interest has not requested
that the court determine and allow or disallow such claim
under section 502 of this title."
"Subsection (d) permits liens to pass
through the bankruptcy case unaffected.
However, if a party in interest requests
the court to determine and allow or disallow
the claim secured by the lien under section
502 and the claim is not allowed, then the
lien is void to the extent that the claim
is not allowed." H.R. Rep. No. 595, 95th
Cong., 1st Sess. 357 (1977).
Only personal liability is discharged; liens not avoided
by the bankruptcy code may be enforced notwithstanding dis-
charge of the debtor. 3 Collier - Bankruptcy li524.01 (15th
on
ed. 1979).
"A discharge order does not discharge
valid liens. It accomplishes three things.
First, it releases a debtor from all debts
that arose before the date of the order for
relief (the same date as the filing date of
a voluntary Chapter 7 petition) except
those debts which are nondischargeable by
virtue of 8523, 11 U.S.C. 8727(b). Second,
it voids any judgment obtained at any time
with respect to any debt discharged to the
extent that the judgment is a determination
of the personal liability of the debtor and,
third, it operates as an injunction against
any act to collect any discharged debt as a
personal liability of the debtor or from
property acquired by the debtor after the
commencement of his bankruptcy case. 11
U.S.C. 8524 (emphasis supplied). A creditor
is not prevented by this injunction from
enforcing a valid lien on property of the
debtor existing at the time of the entry of
the order for relief. Property exempted
from the estate is not considered as prop-
erty acquired after the entry of the order
for relief. Section 522 (c)(2) of Title
11 adopted the long-standing rule of
Long v. Bullard, 117 U.S. 617 (1886) that
the security of a creditor is preserved
des~itedebtor's claim of exemptions."
- - Andrews (D.De1. 1982), 9 Bankr. Ct.
1 ;
; e
Dee. (CRR) 589,590.
The Reicherts did not seek avoidance of Koch's judicial
lien in Bankruptcy Court. We hold that the lien survived
the Reicherts' discharge in bankruptcy.
Appellants next contend that there is no procedure for
enforcement of a judgment lien against homestead property.
This contention is without merit. The procedure for execution
on a judgment lien upon homestead property is clearly set
forth at section 70-32-203, et seq., MCA.
Finally, we hold that respondent's attempted execution
was soundly based upon the applicable law and was not an
abuse of process.
The order of the District Court is affirmed.
We concur:
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Chief >ustice
/* /--\
Hon. J61bn S. Henson
Judge, sitting in place
ustice John C. Sheehy