Ferguson v. First National Bank of Pennsylvania (In re Ferguson) , 1981 Bankr. LEXIS 2919 ( 1981 )

MEMORANDUM IN SUPPORT OF ORDERS ON CONSTITUTIONAL ASPECTS AND VALIDITY OF SECTION 522(f) OF THE REVISED BANKRUPTCY CODE PROVIDING FOR THE AVOIDANCE OF LIENS TO THE EXTENT THEY IMPAIR EXEMPTION RIGHTS PROVIDED IN SAID CODE

WILLIAM B. WASHABAUGH, Jr., Bankruptcy Judge.

We have arrived at the conclusions hereinafter set forth in respect to the operation and constitutionality of Section 522(f) of the Bankruptcy Code of 1978 providing for the avoidance of judicial and other liens to the extent they impair the exemption rights of debtors under Section 522(b) and (d) of said Code. In view of the exhaustive opinions filed in other Courts on said questions, the writing of extensive memoranda in elaboration of our conclusions would serve no useful purpose, and we therefore state them with approved supporting authorities as follows and direct that a copy hereof shall be filed in each of the proceedings in which Orders have been made on the subject and, unless we are persuaded to modify our views, in proceedings that come before us in the future in which said matters are involved:

1. The Congress intended the provisions of Section 522(f) permitting debtors to avoid the fixing of liens to the extent they impair an exemption to which they are entitled to apply retroactively in respect to liens obtained before the date on which the Code was signed into law by the President of the United States, November 6, 1978 and/or the effective date of said Code, October 1,1979: In re Rodrock, 642 F.2d 1193, (10th Cir. 1981); In re Ambrose, 4 B.R. 395 B.L.R. ¶67,589, 6 BCD 454 (Bkrtcy.N.D. Ohio 1980); In re Paden, 10 B.R. 206 (Bkrtcy.E.D.Pa.1981).

2. The provisions are constitutional in respect to liens obtained or perfected during the so-called “gap period” between November 6,1978 when the Act was signed and October 1, 1979 when it went into effect, and said liens may be pro tanto avoided as the creditor was on notice of the imminent right of the debtor to accomplish that result at the time they were obtained: In re Bradford, 6 B.R. 741, 3 C.B.C.2d 39 (D.Nev.1980); In re Pockat, 6 B.R. 24, 3 C.B.C.2d 1 (Bkrtcy.W.D.Wis.1980); In re Alston, 11 B.R. 184, 7 BCD 894 (Bkrtcy.W. D.Tn.1981); In re Head, 4 B.R. 521, 2 C.B. C.2d 366, 6 BCD 489 (Bkrtcy.E.D.Tn.1980); In re Bruntz, 10 B.R. 444, B.L.R. ¶ 68,020 (Bkrtcy.N.D.Iowa 1981); In re Teske, 9 B.R. 18, B.L.R. ¶ 67,844 (Bkrtcy.E.D.Mieh. 1981); U.S. Life Credit Corporation v. Stei-nart, 4 B.R. 354, 2 C.B.C.2d 166, B.L.R. ¶ 67,457 (Bkrtcy.W.D.La.1980); and In re Wells, 7 B.R. 875, 7 BCD 11 (Bkrtcy.Colo. 1980). Contra: In re Johnson, 11 B.R. 909, 7 BCD 1017 (Bkrtcy.D.Kan.1981); In re Lucero, 4 B.R. 659, 6 BCD 477, infra. (Bkrtcy.D.Colo.1980); and In re Bibb, 10 B.R. 40, B.L.R. ¶ 67,797 (Bkrtcy.E.D.Mieh. 1981).

3. The referred to provisions of Section 522(f) permitting debtors to avoid liens are unconstitutional in respect to liens perfected before November 6,1978 when the Code was signed by the President and enacted into law, and said liens may not be avoided under said Section:

a. Cases involving non-possessory, non-purchase money security interests in household furnishings and/or tools of the debtor’s trade, etc. In re Rodrock, 642 F.2d 1193 (10th Cir. 1981); In re Lovett, 11 B.R. 123, 7 BCD 585 (W.D.Mo.1981); In re Hawley, 4 B.R. 147, 2 C.B.C.2d 80, B.L.R. ¶ 67,431, 6 BCD 365 (Bkrtcy.Ore.1980); In re Pierce, 4 B.R. 671, B.L.R. ¶ 67,651, 6 BCD 484 (Bkrtcy.W.D.Okla.1980); In re Jackson, 4 B.R. 293, 2 C.B.C.2d 91, 6 BCD 612 (Bkrtcy. Colo.1980); In re Oldam, 7 B.R. 124, 3 C.B. C.2d 290, B.L.R. ¶ 67,782, 7 BCD 246 (Bkrtcy.N.Mex.1980); In re Schulte, 8 B.R. 12, 7 BCD 231 (Bkrtcy.D.Kan.1980); In re Parker, B.L.R. ¶ 67,975 (Bkrtcy.M.D.Ala. 1981); In re Carroll, B.L.R. ¶ 68,035 (Bkrtcy.E.D.N.Y.1981). See especially Rosemary Louise Hoops v. Freedom Finance and Industrial Bank, 3 B.R. 635, 640, 6 BCD 273 (Bkrtcy.Colo.1980) where it was said (page 276):

“... the Court recoils from the notion that dollar value is the measure of due process. A lien is a substantive property right for purposes of the Fifth Amendment. See United States v. Armstrong [364 U.S. 40, 80 S.Ct. 1563, 4 L.Ed.2d 1554] supra; Kuehner v. Irving Trust Co., 299 U.S. 445 [57 S.Ct. 298, 81 L.Ed. 340] (1937). If the government destroys it in other than an emergency situation, it violated due process whether the collateral is worth $5 or $5 million.”

Contra: In re Boulton, 4 B.R. 498, B.L.R. ¶ 67,403, 6 BCD 233 (Bkrtcy.S.D.Iowa 1980); In re Ambrose, 4 B.R. 395, B.L.D. ¶ 67,589,6 BCD 454 (Bkrtcy.N.D.Ohio 1980); In re Sweeney, 7 B.R. 814, 3 C.B.C.2d 523, B.L.R. ¶ 67,834, 6 BCD 454 (Bkrtcy.E.D.Wis.1980); In re Rutherford, 4 B.R. 510, B.L.R. ¶ 67,-534, 2 C.B.C.2d 728 (Bkrtcy.S.D.Ohio 1980); and In re Joyner, 7 B.R. 596, B.L.R. ¶ 67,819, 3 C.B.C.2d 436 (Bkrtcy.M.D.Ga. 1980).

b. Judicial Liens — In re Lucero, 4 B.R. 659, 6 BCD 477 (Bkrtcy.D.Colo.1980), supra, in which the Act was held unconstitutional in respect to liens obtained during the so-called “gap period” between the date of enactment and the effective date as to which we hold the law is constitutional under the authorities cited at proposition No. 2, supra, but we approve the reasoning of said case as applied to liens obtained before the passage of the Act as to which we conclude the provisions are unconstitutional in this proposition No. 3. Contra: In re Clark, 11 B.R. 828 (Bkrtcy.W.D.Pa.1981); In re Jenkins, 11 B.R. 958 (Bkrtcy.N.D.Ga. 1981); and In re Burkholder, 11 B.R. 346 (Bkrtcy.E.D.Pa.1981). We are of the opinion also that general liens of judgments against all real estate of the debtor in the county in which entered are property rights of equal dignity with the liens against specific assets involved in Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593 (1934) and the cases following it referred to in Paragraph 3a. supra, in respect to their entitlement to the protections accorded all rights of property by the Constitution of the United States. Contra: In re Ashe, 10 B.R. 97 (Bkrtcy.M.D.Pa.1981).