This publication addresses the extent to which a debtor may avoid a judicial lien under section 522(f) of the Bankruptcy Code. A valid judicial lien may or may not survive a bankruptcy. In order to prevent the judicial lien from "com[ing] back to haunt the debtor" post-discharge, the lien must be dealt with during the bankruptcy proceedings. Subsequent to the 1992 Supreme Court decision in Dewsnup v. Timm, a judicial lien may only be avoided in bankruptcy under section 522(f) of the Bankruptcy Code.
The main purpose of the enactment of section 522(f) was to provide debtors additional protection for their exempt property, and ensure the debtor's fresh start. However, this avoiding power may be used only to "avoid the fixing of a lien on an interest of the debtor in property to the extent such lien impairs an exemption." 11 U.S.C. § 522(f)(1). There are three requirements which must be met for a debtor to avoid a judicial lien under section 522(f). There must be a judicial lien, an exemption that is "impaired," and the fixing of a lien on an interest of the debtor's property. In re Vanzant, 210 B.R. 1011, 1015 (Bankr. S.D Ill. 1997). It is imperative for the debtor to actually claim the property exemption, otherwise the lien against the property is not avoidable under section 522(f). In re Berryhill, 254 B.R. 242, 243 (Bankr. N.D. Ind. 2000).
There are three prevailing fact patterns which may arise in the course of avoidance of judicial liens. The first two fact patterns have been resolved by Congress with the 1994 Amendments to the Bankruptcy Code. In the first fact pattern, a judicial lien will be entirely avoided if there is no equity beyond any unavoidable encumbrances. Similarly, a judicial lien will be entirely avoided if there is no equity beyond the unavoidable encumbrances and exemptions. The third fact pattern arises where there is equity beyond the unavoidable encumbrances and exemptions, but the equity is less than the amount of the judicial lien. In that situation, the majority of courts have embraced the full avoidance approach which requires courts to completely avoid the portion of a judicial lien that exceeds the amount of equity remaining in the property.
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