Michael Mark Mulholland and Patricia Mary Mulholland

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	MICHAEL MARK MULHOLLAND and 	No. 7-10-14587 JR
PATRICIA MARY MULHOLLAND,
Debtors.
ORDER GRANTING MOTION TO AVOID JUDICIAL LIEN BASED ON
STIPULATION OF FACTS
THIS MATTER is before the Court on the Motion to Avoid Judicial Lien on Real Estate
(“Motion”) filed by the Debtors, Michael Mark Mulholland and Patricia Mary Mulholland, by
and through their attorney of record, Charles E. Hawthorne. See Docket No. 27. The Motion
seeks to avoid a judicial lien filed by The Ray Bishop Estate and Patricia Bishop (together, the
“Bishops”) against the Debtors’ real property. 	The Debtors assert that the Bishops’ lien is
subject to avoidance under 11 U.S.C. § 522(f) because it impairs the Debtors’ homestead
exemption.
The Bishops, by and through their attorney of record, Richard Hawthorne, filed an
objection to the Motion, asserting that, because the Bishops had filed a complaint objecting to
the Debtors’ discharge, the Court should either deny the Motion or hold the motion in abeyance
pending the resolution of the adversary proceeding to deny the Debtors’ discharge. See Docket
No. 29. 	Following an evidentiary hearing on the merits of the adversary proceeding, the Court
denied the Debtors’ discharge. See Adversary Proceeding No. 10-1154. 	Thereafter, the parties
agreed to submit stipulated facts from which the Court could resolve the pending Motion. See
Docket No. 50. 	On February 6, 2012, the parties submitted a Stipulation of Facts. See Docket
No. 54. 	Based on the Stipulation of Facts, the Court concludes that the Bishops’ judicial lien
may be avoided under 11 U.S.C. § 522(f).
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The Stipulation of Facts includes the following relevant facts necessary to determine the
Motion:
1. 	The Debtors filed a voluntary petition under Chapter7 of the Bankruptcy Code on
September 8, 2010.
2. 	The Debtors claimed a homestead exemption in the amount of $120,000.00 in
their homestead located at 1 Mulholland Lane, Alto, New Mexico (the “Property”).
3. 	The Debtors owned and occupied the Property as their residence on the petition
date.
4. 	No party objected to the Debtors’ claim of homestead exemption.
5. 	As of the petition date, Lending Tree held a mortgage lien against the Property in
the amount of $221,938.12 as of January 28, 2011.
6. 	The Bishops recorded a judicial lien against the Property on November 5, 2009.
7. 	The fair market value of the Property as of the date of the petition is $254,000.00
8. 	The Bishops commenced an adversary proceeding objecting to the discharge of
the Debtors under 11 U.S.C. § 727.
The parties also stipulated that “[a] determination has been made in that adversary
proceeding regarding whether [the Debtors] will receive a discharge.” See Stipulation of Facts, ¶
8. 	Based on that stipulation, the Court finds that the Debtors’ discharge was denied. 	See
Adversary Proceeding No. 11-1154 - Docket No. 24.
DISCUSSION
Pursuant to 11 U.S.C. § 522(f), a debtor may avoid a judicial lien to the extent that the
lien impairs the debtor’s homestead exemption. 	The stipulated facts establish that the lien at
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issue is a judicial lien subject to avoidance under 11 U.S.C. § 522(f).1 Impairment is determined
in accordance with the formula set out in 11 U.S.C. § 522(f)(2)(A), which provides:
[A] lien shall be considered to impair an exemption to the extent that the sum of—
(i) 	the lien;
(ii) 	all other liens on the property; and
(iii) 	the amount of the exemption that the debtor could claim if there were no
liens on the property;
exceeds the value that the debtor’s interest in the property would have in the
absence of any liens.
11 U.S.C. § 522(f)(2)(A).
The amount of the liens and the value of the property are to be determined as of the petition date
for purposes of applying 11 U.S.C. § 522(f).2
Here, the stipulated facts are that Lending Tree’s mortgage lien was $221,938.12 as of
January 28, 2011, and that the fair market value of the Property as of the petition date was
254,000.00. 	The petition date was September 8, 2010. 	Because January 28, 2011 is after the
petition date and there is no evidence of a post-petition pay down of the note secured by the
mortgage, the Court will presume that the amount of Lending Tree’s outstanding mortgage lien
was not less than $221,938.12 as of the petition date. 	Application of these stipulated facts to the
formula found in 11 U.S.C. § 522(f)(2)(A) yields the following result: 	the amount of the
mortgage ($221,938.12) plus the amount of the exemption that the Debtors could claim if there
were no liens on the Property ($120,000.00) exceeds the total value of the Property as of the
1Section 522(f)(1) applies to judicial liens:
. . . the debtor may 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 . . . if such lien
is –
(A) a judicial lien, other than a judicial lien that secures a debtor of a kind that is
specified in section 523(a)(5)[.]
11 U.S.C. § 522(f)(1)(A).
2 See In re Powell, 399 B.R. 190, 198 (Bankr.W.D.Tex. 2008)(stating that “‘[t]he petition date is the operative date
to make all § 522(f) determinations,’ so that the value of the liens, the value of the property and the amount of the
exemption are all measured as of the date of the filing of the petition.”)(quoting In re Salanoa, 263 B.R. 120, 123
(Bankr.S.D.Cal. 2001)(remaining citation omitted); In re Hall, 327 B.R. 424, 427 (Bankr.W.D.Mo. 2005)(stating
that “the appropriate time for determining the value of the property subject to a lien which the Debtors seek to avoid
under § 522(f) is the date on which the petition was filed.”)(citation omitted).
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petition date ($254,000), by more than $87,000.00. 3 Thus, even though the parties did not
stipulate as to the amount of the Bishops’ judicial lien, the Bishops’ judicial lien necessarily
impairs the Debtors’ homestead exemption.4 Consequently, the Debtors are entitled to avoid the
Bishops’ judicial lien.
The Bishops’ argument that the denial of the Debtors’ discharge prevents the Debtors
from avoiding their judicial lien is unavailing. In In re Allen, 217 B.R. 945 (Bankr.M.D.Fla.
1998) a judgment creditor objected to the debtor’s motion to avoid lien, arguing that the prior
denial of the debtor’s discharge precluded the debtor from avoiding the creditor’s lien. The Allen
court held that the debtor was entitled to avoid a judicial lien under 11 U.S.C. § 522, even if the
debtor’s discharge has been denied, reasoning, in part, that the language of 11 U.S.C. § 522(f)
does not include a requirement that the debtor receive a discharge in order to obtain lien
avoidance. Allen, 217 B.R. at 950. The Allen court reasoned further that allowing a debtor to
avoid a lien despite having been denied a discharge “does not produce a result inconsistent with
the policies underlying the Bankruptcy Code” because “protection of the fresh start is not the
exclusive goal of § 522(f).” Id.5 The additional goal of protecting a debtor’s exemptions can be
accomplished regardless of whether the debtor receives a discharge. Id.6 This Court agrees.
A debtor’s ability to avoid a judicial lien consistent with the requirements of 11 U.S.C. §
522(f) “is not dependent upon the debtor receiving a discharge, and consequently, the denial of a
3 $221,938.12 + 120,000.00 = $341,938.12. $341,938.12 - $254,000 (FMV of the Property) = $87,938.12.
4 Cf. In re Gregory Rockhouse Ranch, 380 B.R. 258, 265 (Bankr.D.N.M. 2007)(explaining that the calculation
under 11 U.S.C. § 522(f) is “made by adding the amount of the homestead exemption, the judgment lien, and the
balance of the debt secured by other liens, and avoiding the lien to the extent the sum exceeds the value of the
property.”)(citing In re Pepper, 210 B.R. 480,485 (Bankr.D.Colo. 1997)).
5 Allen also cites several cases that similarly hold with regard to avoidance of judicial liens even when the specific
debt underlying the judicial lien is excepted from the debtor’s discharge under 11 U.S.C. § 523. Allen, 217 B.R. at
949 (collecting cases). Cf. In re Vaughan, 311 B.R. 573 (10 th Cir. BAP 2004), aff’d, 241 Fed.Appx. 478 (10 th Cir.
2007)(unpublished)(holding that the debtors could avoid, on exemption impairment grounds, a judicial lien relating
to a debt the bankruptcy court determined was non-dischargeable, even though the lien was recorded post-petition).
6 See also, Vaughan, 311 B.R. at 579 (observing that “[t]he fact that Section 522(c) expressly excepts a few debts
that are nondischargeable under Section 523, but makes no mention of the others, evidences Congressional intent to
insulate exempt property from most nondischargeable debts.”).
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debtor’s discharge does not bar the debtor from avoiding a lien pursuant to § 522(f).” Allen, 217
B.R. at 949. 	The Bishops’ judicial lien is, therefore, subject to avoidance, even though the
denial of the Debtors’ discharge permits the Bishops to resume collection efforts to realize their
debt against the Debtors following the closing of the Debtors’ bankruptcy case.
WHEREFORE, IT IS HEREBY ORDERED that the Motion is GRANTED. 	The
Bishops’ judicial lien, recorded in Book 2009, page 8527, in the Office of the County Clerk of
Lincoln County, New Mexico, is avoided.
__________________________________________
ROBERT H. JACOBVITZ
United States Bankruptcy Judge
Date entered on docket: 	February 23, 2012
COPY TO:
Charles E Hawthorne
Attorney for Debtors
900 Sudderth Dr
Ruidoso, NM 88345-7224
Richard A Hawthorne
Attorney for the Estate of Ray Bishop and Patricia Bishop
1221 Mechem Dr Ste 2
Ruidoso, NM 88345-7224
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