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SIMONSON v. FIRST BANK GREATER PITTSTON (03/25/85)

March 25, 1985

IN RE SIMONSON, WILLIAM M. I/T/A SIMONSON'S SPORTING GOODS AND SIMONSON, MAUREEN P., HIS WIFE, DEBTORS. SIMONSON, WILLIAM M. AND SIMONSON, MAUREEN P., APPELLANTS
v.
FIRST BANK OF GREATER PITTSTON, APPELLEE



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA - SCRANTON (D.C. Civil No. 83-0030).

Gibbons and Becker, District Judges, and Katz, District Judge*fn* .

Author: Gibbons

Opinion OF THE COURT

GIBBONS, Circuit Judge:

William M. and Maureen P. Simonson, debtors, appeal from an order of the district court, affirming a bankruptcy judge's decision denying them relief from the lien of certain judgments pursuant to 11 U.S.C. § 522(f) (1982). The Simonsons are debtors under Chapter 7 of the Bankruptcy Code, who in adversary proceedings against First Bank of Greater Pittston, sought to have its judgment liens against their residence in Luzerne County, Pennsylvania set aside because the liens impaired their exemption under section 522(b) of the Code. 11 U.S.C. § 522(b) (1982). The bankruptcy court denied that relief and the district court affirmed. We, too, affirm.

When the Simonsons filed their Chapter 7 petition their residence was encumbered as follows:

LIEN DATE FILED AMOUNT

(1) First Mortgage, First 5/3/74 $25,145.95

Bank of Greater Pittston

(2) Judgment No. 1964 3/5/79 $13,361.33

First Bank of Greater

Pittston

(3) Judgment No. 1416 6/9/80 $1,050.00

First Bank of Greater

Pittston

(4) Second Mortgage 1/12/81 $41,314.84

First Bank of Greater

Pittston*fn1

Total encumbrances $80,872.12

Because 11 U.S.C. § 522(d)(1) provides that each debtor may exempt "the . . . aggregate interest not to exceed $7,500 in value, in real . . . property that the debtor . . . uses as a residence," the Simonsons sought to exempt their residence to the extent of $15,000. The parties stipulated that the fair market value of the house was less than $80,872.12. They also agreed that it should be sold for $58,250.00 and the proceeds distributed to the interested parties.

The Simonsons contend that $25,145.95 should go to the first mortgagee, and the next $14,411.33 to them, leaving the balance of the $58,250.00, less interest, for the second mortgage. Their theory is that under 11 U.S.C. § 522(f)(1) judicial liens may be set aside to the extent that they impair exemptions, and that under 11 U.S.C. § 522(i)(2) "a transfer avoided under . . . subsection (f) . . . of this section [522] . . . may be preserved for the benefit of the debtor to the extent that the debtor may exempt such property under subsection (g) of this section or paragraph (1) of this subsection." Read together, according to the Simonsons, section 522(f)(1) and section 522 (i)(2) produce the result that they may "avoid the fixing" of the two judgment liens, totalling $14,411.33, on their residence, but "preserve" those liens so that their $15,000 exemption becomes, to the extent of $14,411.33, a lien superior to the second mortgage.

The bankruptcy judge rejected this contention, reasoning that while the two judgment liens could be avoided under section 522(f), the priority position of those liens could not be preserved so as to give the Simonsons' exemptions priority over the second mortgage. We also reject the Simonsons' contention, but approach the problem somewhat differently.

Section 522(f)(1) permits avoidance of judicial liens, which are by nature non-consensual. Section 522(f)(2) permits avoidance of nonpossessory, nonpurchase-money security interests on designated personal property. In either case the debtor may avoid "the fixing of a lien on an interest of the debtor in property . . . . "The section does not define "interest of the debtor in property." We think, however, that "an interest of the debtor in property" was intended to mean an interest ...


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