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Augustine v. United States

decided: April 15, 1982.

PETER C. AUGUSTINE AND NANCY L. AUGUSTINE, APPELLANTS
v.
UNITED STATES OF AMERICA, UNITED STATES DEPARTMENT OF AGRICULTURE, FARMERS HOME ADMINISTRATION, APPELLEE (D.C. CIVIL NO. 80-1768)



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA

Before Gibbons, Sloviter and Becker, Circuit Judges.

Author: Gibbons

Opinion OF THE COURT

As debtors begin to assert their new rights under the Bankruptcy Reform Act of 1978, 11 U.S.C. § 101 et seq. (the Code), the courts have been called upon to define the statutory and constitutional limits of these rights. Of particular concern to secured creditors has been the bankruptcy courts' power under Section 522(f) to avoid certain liens on exempt property as defined in Section 522(b) and (d). This court has recently discussed the applicability to cognovit notes of Section 522(f)(1) permitting the avoidance of judicial liens, and has upheld the retroactive application of that subsection to liens attaching before the new Code was enacted.*fn1 In this case we consider the extent of debtors' right to aggregate exemptions under various provisions of Section 522 for purposes of lien avoidance.

I.

Peter C. and Nancy L. Augustine (Debtors) filed a joint voluntary petition for bankruptcy under Chapter 7 of the Code, 11 U.S.C. § 701 et seq., on November 1, 1979 (after the October 1, 1979 effective date of the Code) in the Bankruptcy Court for the Western District of Pennsylvania. On their Schedule B-4-Property Claimed as Exempt, they listed items of property that concededly constitute tools or implements of the trade of farming valued at $11,800. It has also been stipulated that Peter C. Augustine is a "farmer" as defined in Section 101(17) of the Code and that neither the trustee nor any unsecured creditor objected to any of the claimed exemptions.

The United States, acting through the Farmers Home Administration of the United States Department of Agriculture, had made a series of loans to the Debtors from 1973 until 1977 secured by liens in personal property, including farm animals and equipment. In particular, the United States has held a duly perfected, nonpossessory, nonpurchase-money security interest in all of the farm tools and implements for which exemption is claimed. On February 14, 1980, the United States filed a complaint alleging that the Debtors had defaulted on their secured loans and requesting the court to vacate the automatic stay of enforcement of its liens that is authorized by 11 U.S.C. § 362. The Debtors countered with a complaint seeking avoidance of these liens to the extent of $11,800 in claimed exemptions.

The Bankruptcy Court held that the Debtors could avoid the lien of the United States without violation of the Constitution, but only to the extent of $750. In re Augustine, 7 B.R. 565, (Bkrtcy.W.D.Pa.1980). This decision was affirmed on May 12, 1981, in an appeal taken by the Debtors to the District Court. Augustine v. United States, -- - B.R. -- , 5 C.B.C.2d 542 (Bkrtcy.W.D.Pa.1981). They have appealed again to this court, contending that the Code entitles them to avoid the lien of the United States to the extent of $11,800 in claimed exemptions. We reverse.

II.

In order to give debtors a fresh start, Congress in Section 522 of the Code provided for the exemption of certain property which would otherwise be distributed to unsecured creditors.*fn2 Property on which exemptions may be claimed includes:

(1) The debtor's aggregate interest, not to exceed $7,500 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.

(5) The debtor's aggregate interest, not to exceed in value $400 plus any unused amount of the exemption provided under paragraph (1) of this subsection, in any property.

(6) The debtor's aggregate interest, not to exceed $750 in value, in any implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor....

11 U.S.C. § 522(d). Congress also provided that Section 522 "shall apply separately to each debtor in a joint case." 11 U.S.C. § 522(m). Moreover Congress did not limit the availability of the exemptions to property which would ...


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