Opinion
Case No. 95-14902-SSM
December 16, 1997
Jeffrey T. Twardy, Esquire, Annandale, VA, of Counsel for the debtor
William R. Feldman, Esquire, Bethesda, MD, of Counsel for Crestar Bank
MEMORANDUM OPINION AND ORDER
This matter is before the court on the debtor's motion to reopen his bankruptcy case in order to avoid two judgment liens under § 522(f), Bankruptcy Code. A hearing was held in open court on December 9, 1997, at which counsel for the debtor and counsel for Crestar Bank appeared. Central Fidelity National Bank, although served with the motion, neither appeared at the hearing nor filed a responsive pleading. At the hearing, the court entered a consent order resolving the debtor's motion as to Crestar. Counsel for the debtor pressed his motion as to Central Fidelity, but the court ruled orally from the bench that the debtor was without any legal basis to avoid the judicial lien, and therefore, reopening the case would be futile. This memorandum opinion and order supplements the court's bench ruling.
This is the debtor's second attempt to reopen this case. On June 9, 1997, the debtor moved to reopen in order to set aside the liens of the first and second deeds of trust against the former marital residence in order "to protect any interest the Debtor's wife may have in [the property]." No statutory basis was alleged as permitting such relief. By order dated July 1, 1997, the court denied the motion to reopen because it did not appear that any legal basis existed upon which the deeds of trust could be avoided.
Facts
Arnold L. Stalker (the "debtor") filed a voluntary petition under chapter 7 of the Bankruptcy Code in this court on November 2, 1995, and was granted a discharge of his dischargeable debts on February 11, 1996. The case was closed on February 22, 1996. The debtor's schedules reflected that he owned an undivided one-half interest in property located at 2905 Hibbard Street, Oakton, Virginia 22124 held in a joint tenancy with his non-debtor wife (the "property"). The debtor's schedule A ("Real Property") reflected that the property had a fair market value of $107,400 and was subject to a first lien deed of trust in favor of Chemical Mortgage for $77,783 and a second lien deed of trust in favor of Fairfax City Employees' Credit Union for $12,138. Despite the apparent equity in the property of over $17,000, the debtor did not claim his half interest as exempt on Schedule C ("Property Claimed Exempt"). The debtor did exempt $5,000 of a 1990 Ford Pickup truck under his homestead exemption.
The debtor lists one dependent; however, it does not appear that he sought to augment the standard homestead exemption of $5,000 by $500 for the dependent. Va. Code Ann. D 34-4.
The debtor filed the motion currently before the court on September 8, 1997. It seeks to reopen the case to avoid two judicial liens against the property under § 522(f), Bankruptcy Code. The motion asserts that one lien is held by "Crestar Bank and Crestar Consumer Finance Group" ("Crestar") in the amount of $3,375.49; the other is in favor of "Central Fidelity National Bank and Central Fidelity Bank" ("Central Fidelity") in the amount of $6,344.81. Neither creditor is listed on the debtor's schedules as a secured creditor, but Crestar is listed as holding a $3,375.49 unsecured claim and Central Fidelity as holding a $6,968.02 unsecured claim.
Conclusions of Law A.
This court has jurisdiction of this controversy under 28 U.S.C. § 1334 and 157(a) and the general order of reference entered by the United States District Court for the Eastern District of Virginia on August 15, 1984. Under 28 U.S.C. § 157(b)(2)(A), this is a core proceeding in which final orders and judgments may be entered by a bankruptcy judge, subject to the right of appeal under 28 U.S.C. § 158.
B.
Under § 350(b), Bankruptcy Code, a closed bankruptcy case "may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." The decision whether to reopen a closed case is discretionary with the court. Hawkins v. Landmark Finance Co. (In re Hawkins), 727 F.2d 324 (4th Cir. 1984) (bankruptcy court did not abuse discretion in denying motion to reopen case to file motion to avoid security interest in furniture 8 months after case was closed). A case should not be reopened when doing so would be futile and a waste of judicial resources. In re Carberry, 186 B.R. 401, 402-03 (Bankr. E.D. Va. 1995) (Tice, J.) (denying motion to reopen case to schedule omitted creditor). The threshold issue, therefore, is whether, if the case were to be reopened, the court could grant meaningful relief.
C.
The court first briefly addresses the debtor's argument that since Central Fidelity has failed to respond to the motion, it is in default, and the debtor is therefore entitled to the relief prayed for. Under Fed.R.Civ.P. 55, as incorporated into bankruptcy proceedings by F.R.Bankr.P. 7055, as well as under Local Rule 9013-1(H)(4), the court may grant relief requested in a motion by default if no responsive pleading is filed. Further, it is well-settled that the court may deem all well-pleaded allegations as admitted for purposes of the motion. Black v. Lane, 22 F.3d 1395, 1399 (7th Cir. 1994); Nishimatsu Constr. Co. v. Houston Nat'l Bk., 515 F.2d 1200, 1206 (5th Cir. 1975). Nevertheless, even in the face of a default, the court may examine the allegations of a motion to determine whether the plaintiff is entitled to the relief requested, or whether the relief requested has any basis in law. In re Wall, 127 B.R. 353, 355 (Bankr. E.D. Va. 1991 (Tice, J.); see also Thomson v. Wooster, 114 U.S. 104, 113, 5 S.Ct. 788, 792-93, 29 L.Ed 105 (1885); Black, 22 F.3d at 1399; Nishimatsu Constr. Co., 515 F.2d at 1206 10 Moore's Federal Practice 3d D 55.12[1], at 55-18 (1997) ("Upon entry of default, the facts alleged by the plaintiff in the complaint are deemed admitted. However, plaintiff's conclusions of law are not deemed established. Thus, the court may grant only the relief for which a sufficient basis is asserted in the complaint.") (Emphasis added); 10 Collier on Bankruptcy, D 7055.02, p. 7055-5 (Lawrence P. King, ed., 15th ed. rev. 1997) ("Upon a default, the court is generally required to deem as true the well pleaded allegations of a complaint, but it is not required to agree that the pleaded facts constitute a valid cause of action. If it finds that no claim is stated, it may, in its discretion, refuse to enter the default judgment."). Accordingly, the court will determine whether the debtor has a legal basis for avoiding Central Fidelity's judicial lien as impairing an exemption.
For the purpose of the following discussion, the court assumes, without deciding, that proper service of the motion has been made on Central Fidelity as required by F.R.Bankr.P. 9014 and 7004, and in particular Rule 7004(h), which governs service on an "insured depository institution." The motion was apparently served by certified mail on a "Judy Norman." Whether Ms. Norman is an" officer "as required by Rule 7004(h) is not shown by the record. The court is also concerned that the motion is ambiguous as to the immediate relief sought. In two places it states that the debtor is seeking simply to reopen the case, but then in the concluding prayer for relief throws in the additional request that the judgment liens in question be avoided. In the court's view, a motion to reopen should not be combined with a lien avoidance motion. Rather, the case should first be reopened, and then a separate motion filed to avoid the lien.
For the purpose of applying the Federal Rules of Civil Procedure in the bankruptcy context, the term "judgment" means "any appealable order." F.R.Bankr.P. 9001(7).
D.
Valid liens ordinarily pass through bankruptcy and are unaffected by a debtor's discharge. Johnson v. Home State Bank, 501 U.S. 78, 111 S.Ct. 2150, 2153, 115 L.Ed.2d 66 (1991). Certain liens, however, may be set aside, or "voided," under specific provisions of the Bankruptcy Code. Relevant to the present motion, § 522(f), Bankruptcy Code, permits a debtor "[to] 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 under subsection (b) of this section, if such lien is . . . a judicial lien." (Emphasis added). It is fundamental that in order to avoid a lien as impairing an exemption, the debtor must have claimed the property subject to the lien as exempt. See, e.g., In re Wall, 127 B.R. 353, 355-56 (Bankr. E.D. Va. 1991) (Tice, J.); In re Ragsdale, 9 B.R. 991, 992 (Bankr. E.D. Va. 1981) (Bonney, J.); In re Dardar, 3 B.R. 641, 642 (Bankr. E.D. Va. 1980) (Bonney, J.); see also Holloway v. John Hancock Mutual Life Ins. Co. (In re Holloway), 81 F.3d 1062, 1069 (11th Cir. 1996); David Dorsey Distributing Inc. v. Sanders (In re Sanders), 39 F.3d 258, 262 (10th Cir. 1994). Here, the debtor did not claim the property subject to the judicial lien D his residence at 2905 Hibbard Street, Oakton, Virginia 22124 " as exempt in his schedules. The debtor used his entire homestead exemption to exempt his 1990 Ford Pickup Truck. Because the debtor's entire homestead exemption was used on the truck, and because there is no other apparent basis under which the debtor could exempt the property, the liens simply do not impair an exemption that the debtor has claimed or is now entitled to claim. Since the judgment liens cannot be avoided, reopening the case to permit the debtor to file a lien avoidance motion would be a futile act and a waste of judicial resources. Since no purpose would be served by reopening the case, the court declines to do so.
For the purpose of this opinion, the court accepts the debtor's representation that his interest in the property was held in a joint tenancy rather than in a tenancy by the entirety. But see In re Zella, 196 B.R. 752, 754 (Bankr. E.D. Va. 1996), aff'd, 202 B.R. 712 (E.D. Va. 1996) (conveyance to husband and wife as joint tenants with common-law right of survivorship created a tenancy by the entirety). Had the property been held in a tenancy by the entirety, and assuming the tenancy had not been severed by divorce prior to the date of the bankruptcy filing or within 180 days thereafter, the property would have been exempt from the claims of non-joint creditors of the debtor and his wife, but not from the claims of their joint creditors. Sumy v. Schlossberg, 777 F.2d 921, 927-28 (4th Cir. 1985); Vasilion v. Vasilion, 192 Va. 735, 740-43, 66 S.E.2d 599, 602-04 (1951).
ORDER
For the foregoing reasons, it is:
ORDERED:
1. The motion to reopen is denied.
2. The clerk will mail a copy of this order to counsel for the debtor, counsel for Crestar Bank, to Central Fidelity National Bank, and to the United States Trustee.