GORDON B. KAHN, Bankruptcy Judge.
Plaintiffs, John P. Day and Dorothy P. Day, have petitioned for relief from the automatic stay in order to proceed with the sale of the Debtors' residence to satisfy a judgment rendered in their favor against James K. Boteler, Jr., by the United States District Court, Mobile, Alabama, in Civil Action No. 78-420-H. Debtor filed a Motion to Dismiss the Plaintiffs' petition and also filed a pleading entitled Debtor's Avoidance of Judicial Lien. The Motion to Dismiss the Plaintiffs' petition was denied and the pleading entitled "Debtor's Avoidance of Judicial Lien" will be resolved by this decision.
The Debtor claims an exemption on his residential property pursuant to the provisions of Section 522(d)(1), Bankruptcy Code. Debtor argues that he should be allowed the Section 522(d)(1) exemption, and that he should also be allowed to avoid the plaintiffs' judicial lien pursuant to Section 522(f)(1), Bankruptcy Code, even though he has no equity in the residential property. His position is that no equity is necessary because he has an interest in the property which rests upon the importance of the "homestead exemption" and its allowing the Debtor to emerge from a Chapter 7 case with sufficient property to commence a fresh start.
The Plaintiffs contend that the allowance of the claimed exemptions would exceed the permissible scope of Section 522(d)(1), supra, because there is no equity and Section 522(f)(1), supra, is inapplicable because their judicial lien does not impair an exemptable interest to which the Debtor would have been entitled.
FINDINGS OF FACT
1. On November 4, 1974, Debtor's residence located at 7639 Adobe Ridge Road South, Mobile, Alabama, was mortgaged to Johnson-Rast-Hays Co. The mortgage was duly recorded. The balance due on the mortgage in favor of Johnson-Rast-Hays Co. is $30,751.86.
2. On July 18, 1979, a Judgment dated July 17, 1979, against James K. Boteler, Jr. (Debtor herein) and Jack W. Schoener was recorded in Probate Court, Mobile, Alabama. This judgment resulted in a judicial lien in the amount of $14,235.54 plus costs against all property of debtor subject to levy and execution pursuant to Title 6-9-211, Code of Alabama, 1972.
4. Debtor filed a petition under Chapter 7, Bankruptcy Code, on March 21, 1980.
5. On June 6, 1980, an amendment to Debtor's original Schedule B-4 was filed claiming an exemptable interest in the above-described real property.
6. The current fair market value of the property at issue is $45,500.00.
CONCLUSIONS OF LAW
A homestead exemption, like any other exemption claimed by a Chapter 7 debtor or debtors, must be carved out of the estate that is created upon the filing of the petition. Section 541, Bankruptcy Code, provides as follows:
There has been little judicial interpretation of this section. (See, e.g., Matter of Upright, 1 B.R. 694, N.D.N.Y. (1979) at p. 702 and Matter of Levy Ford, 3 B.R. 559, 6 BCD 202 (D.Md.1980)). However, the legislative history of Section 541 does provide guidelines as to its application.
Hence, in spite of the breadth of Section 541, Congress has instructed not only that the right claimed must exist when bankruptcy is filed, but also that the right must be claimed via Section 522, Bankruptcy Code.
Section 522 is the statutory authority that enables the debtor to divest the trustee of certain property which falls under his supervision at the inception of the case:
The legislative history aids in interpreting the legislative enactment:
Thus while the debtor is given the right to an exemption, that right is not without limitation. Rights which did not exist as of the date of bankruptcy are not created by either Section 541 or Section 522. Section 541 takes every possible interest of the debtor under consideration when the estate is created, but Section 522(b)(1) qualifies and limits that section by permitting the debtor to exempt certain property from the reach of Section 541. To be exemptable, the property must be unencumbered to the extent of that interest. Therefore, in granting or allowing a claimed exemption, this Court is of the opinion that it is compelled to find an "unencumbered portion".
In the case at bar, in addition to the Plaintiffs' judicial lien, there are two mortgages with a total balance far in excess of the fair market value of the property which preclude the existence of any "unencumbered portion".
Debtor nevertheless moves to avoid the intervening judicial lien claiming that it impairs an exemptable interest. The debtor's argument is based upon his interpretation of Section 522(f) of the Bankruptcy Code.
While Section 522(f)(1) provides the debtor under the Bankruptcy Code with clout he did not previously enjoy, Congressional intent to limit this power is expressed in the legislative history as follows:
There are two mortgages encumbering the property upon which the exemption is claimed. In the absence of a judicial lien, the presence of these two mortgages reduces the exemptable interest of the debtor to zero.
The debtor argues that he would be entitled to the exemption and relies upon Matter of Levy Ford, 3 B.R. 559, 6 BCD 202 (D.Md., 1980) which this Court finds inapplicable to this case. The Ford case dealt with a situation involving property held in tenancy by the entireties where only one spouse filed bankruptcy and where that spouse elected to exempt personal and real property. The rationale is limited to an interpretation of Maryland law, and that is not the case here.
The property at issue is subject to two valid mortgages and a judicial lien. In the absence of the judicial lien, the two mortgages remain in excess of the fair market value. The judicial lien must impair an interest of the debtor in property to which the debtor would have been entitled under Section 522(b), supra. Where there is no impairment of the debtor's interest, the judicial lien is not subject to avoidance.
Now therefore, it is ORDERED that the automatic stay imposed by 11 U.S.C. Sec. 362(a) be, and the same hereby is TERMINATED insofar as it relates to the enforcement of the judicial lien held by John P. Day and Dorothy P. Day, against the following described real property, to-wit:
and John P. Day and Dorothy P. Day may proceed to enforce said lien against the above-described real property in accordance with the laws of the State of Alabama; and it is
FURTHER ORDERED that Debtor's petition entitled Avoidance of Judicial Liens be and it hereby is DENIED.