KEARSE, Circuit Judge:
Defendant Virginia M. Dellinger, a state court judgment creditor of plaintiff Barbara Bex Brown, appeals from an order of the United States District Court for the Northern District of New York, 39 B.R. 83, Howard G. Munson, Chief Judge, affirming an order of the bankruptcy court which, pursuant to the Bankruptcy Reform Act of 1978, 11 U.S.C. §§ 101-1330 (Supp. IV 1980) ("Bankruptcy Code" or "Code"), allowed Brown to (a) include in her bankruptcy estate $7,543.38 in surplus funds generated by a prebankruptcy foreclosure sale of certain real estate owned by Brown, (b) claim an exemption under Bankruptcy Code § 522(b) for those funds, and (c) invoke Bankruptcy Code § 522(f)(1) to avoid the fixing of Dellinger's judicial lien on the funds. On appeal, Dellinger contends that Brown had no right to include the funds in her bankruptcy estate, no right to an exemption, and, in any event, no exemption that could defeat Dellinger's lien. We disagree, and we affirm the order of the district court.
The relevant details of this controversy, though somewhat complex, are apparently undisputed. On September 19, 1978, Dellinger obtained a judgment for $1,710.15 against Brown. The judgment was docketed by Dellinger in the Onondaga County Clerk's Office and, under New York law, became a lien on any real property of Brown in that county. In an unrelated series of events, the First Federal Savings and Loan Association of Rochester ("First Federal"), as mortgagee of Brown's residence in Onondaga County, instituted a mortgage foreclosure proceeding in September 1979 which resulted in the February 1980 sale of Brown's residence. First Federal's foreclosure judgment was satisfied out of the proceeds of the sale, leaving a $8,667.02 surplus. By operation of law, upon the sale of Brown's residence, Dellinger's lien was transferred automatically to the surplus funds. See, e.g., Federal Land Bank of Springfield v. United
In March 1980, Brown filed in the Onondaga County Clerk's Office, pursuant to N.Y.Real Prop.Acts Law § 1442 (McKinney 1979),
In the meantime, on April 3, 1980, Brown and her husband had filed a joint petition in bankruptcy under Chapter 7 of the Bankruptcy Code, listing the surplus funds among Brown's assets. Brown also listed the surplus funds on her bankruptcy exemption schedules as property exempt under New York law, and thereby exempt under the Code, see Bankruptcy Code § 522(b)(2)(A), from her estate.
On the premise that the surplus funds were exempt property, Brown then moved in New York Supreme Court to have the Commissioner transfer the surplus funds to her. Dellinger opposed this motion, claiming that she possessed a superior right to the surplus funds because of her 1978 judgment lien. The New York Supreme Court granted Brown's motion, and ordered the Commissioner to release to her the surplus funds, minus $1,123.64 to satisfy an uncontested claim of the Internal Revenue Service. Pursuant to this order, the Commissioner paid Brown $7,543.38, which she apparently has retained until the present. On appeal by Dellinger, however, the Appellate Division reversed, ruling that N.Y.Civ.Prac.Law § 5206 did not allow the exemption of the proceeds of a foreclosure sale of a homestead. See First Federal Savings and Loan Association of Rochester v. Brown, 78 A.D.2d 119, 122-23, 434 N.Y.S.2d 306, 309-10 (4th Dep't 1980) ("First Federal I"). The court stated, however, that its decision "should not be construed as foreclosing any right ... [Brown] may possess within the purview of
Upon learning that the state homestead exemption was unavailable, Brown sought and obtained permission in the bankruptcy court to amend her exemption schedules to claim the surplus funds as exempt under the federal
In the meantime, despite the bankruptcy court's order granting Brown a federal exemption, Dellinger returned to the New York Supreme Court in June 1981, and, pursuant to N.Y.Real Prop.Acts Law § 1361(2), successfully moved for the appointment of a referee to decide the proper distribution of the surplus funds. Brown appealed, contending that the appointment of a referee violated both the bankruptcy court's exclusive jurisdiction over the property of her estate and the automatic stay provision of Bankruptcy Code § 362(a). The Appellate Division affirmed. It construed the term "property of the estate," as used in § 541 of the Bankruptcy Code, to "include only the debtor's equity in property which has been the subject of foreclosure proceedings." First Federal Savings & Loan Association of Rochester v. Brown, 86 A.D.2d 963, 963, 448 N.Y.S.2d 302, 303 (4th Dep't 1982) ("First Federal II"). The court ruled as follows:
Brown promptly returned to the bankruptcy court, seeking a declaration that the surplus funds were exempt property and were accordingly free of any right, title, or interest asserted by Dellinger. In an opinion reported as In re Brown, 22 B.R. 844 (Bkrtcy.N.D.N.Y.1982), the bankruptcy court ruled that although the surplus funds had been deposited with the Commissioner and title to these funds had vested in the Commissioner "for the benefit of interested parties," N.Y.Civ.Prac.Law § 2601(c), Brown had a sufficient interest in the funds within the meaning of Bankruptcy Code § 541(a)(1) to entitle her to bring the funds into her bankruptcy estate. The bankruptcy court thus disagreed with the ruling of the Appellate Division in First Federal II and refused to give it effect. The bankruptcy court ruled further that Brown was entitled to exempt the surplus funds from her bankruptcy estate pursuant to § 522(d)(5), and to invoke § 522(f)(1) to avoid the fixing of Dellinger's judicial lien on the funds.
Dellinger appealed to the district court, which, agreeing with the reasoning of the bankruptcy judge, affirmed the bankruptcy court's order.
This appeal followed.
On appeal Dellinger's tersely stated positions (consisting of four brief headings, with a total of seven citations, and no argument) appear to be (1) that the surplus funds did not become property of Brown's bankruptcy estate — and thus could not be claimed by Brown as exempt property — because (a) the funds had been deposited with the state court's Commissioner for distribution to claimants, or (b) the prebankruptcy docketing of Dellinger's judicial lien deprived
A. The Surplus Funds as "Property of the Estate"
We reject Dellinger's contention that the surplus did not become a part of Brown's bankruptcy estate by reason of either Dellinger's judgment lien or the transfer of the funds to the Commissioner because we conclude that notwithstanding these events Brown retained a sufficient interest in the funds to constitute an "equitable interest" within the meaning of § 541(a)(1) of the Bankruptcy Code. Under § 541(a)(1), the filing of a petition in bankruptcy creates an estate consisting of "all legal or equitable interests of the debtor in property as of the commencement of the case." The phrase "all legal or equitable interests of the debtor in property" has been given the broadest possible interpretation, and the term "equitable interest" has generally not been interpreted as limited to a debtor's equity in property. Rather, the overwhelming weight of authority holds that even if liens on the property exceed the market value of the property, leaving the debtor with no equity in it, the debtor nonetheless has an "equitable interest" in the property. See, e.g., In re Chesanow, 25 B.R. 228, 230 (Bkrtcy.D.Conn.1982); In re Cole, 15 B.R. 322, 323-25 (Bkrtcy.W.D.Mo.1981); In re Lovett, 11 B.R. 123, 124-25 (D.C.W.D.Mo.1981), vacated on other grounds, 23 B.R. 760 (D.C.W.D.Mo.1982); In re Kursh, 9 B.R. 801, 802-04 (Bkrtcy.W.D.Mo.1981) (collecting cases); In re Curry, 5 B.R. 282, 291-92 (Bkrtcy.N.D.Ohio 1980), aff'd, 11 B.R. 716 (D.C.N.D.Ohio 1981), rev'd on other grounds, 698 F.2d 298 (6th Cir.1983). Contra In re Miller, 8 B.R. 43, 46-47 (Bkrtcy.W.D.Mo.1980) ("interest" in property confined to equity in property). As the court in Lovett observed, "[w]hile the equity is thus an `interest,' it is not necessarily the only interest of the debtor in the property." 11 B.R. at 125.
Further, the "legal or equitable interests" of a debtor have been held to encompass an interest that is strictly contingent. See, e.g., In re Greer Stump Plumbing, Inc., 9 B.R. 181, 183-85 (Bkrtcy.Ariz.1981); cf. In re McConaghy, 15 B.R. 480, 481 (Bkrtcy.E.D.Va.1981). See also Segal v. Rochelle, 382 U.S. 375, 379-81, 86 S.Ct. 511, 514-15, 15 L.Ed.2d 428 (1966) (ruling under § 70a of the Bankruptcy Act of 1898 that debtor's interest in tax refunds that might be generated through tax carry-backs constitutes property of debtor even though interest is contingent).
These broad interpretations of "equitable interest" find strong support in the legislative history of the Bankruptcy Code. In describing § 541, the reports of the Senate and House of Representatives Committees on the Judiciary observed that "[t]he scope of this paragraph is broad. It includes all kinds of property, including tangible or intangible property [and] causes of action ...." H.R.Rep. No. 595, 95th Cong., 1st Sess. 367 (1977), reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6323; S.Rep. No. 989, 95th Cong., 2d Sess. 82 (1978), reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5868. These reports went on to approve specifically the result reached in Segal v. Rochelle, supra, which held that the debtor had a cognizable interest in contingent claims for tax refunds. H.R.Rep. No. 595, 95th Cong., 1st Sess. 367 (1977), reprinted in 1978 U.S.Code Cong. & Ad. News 5963, 6323; S.Rep. No. 989, 95th Cong., 2d Sess. 82 (1978), reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5868.
In the present case, we agree with the district and bankruptcy courts that Brown had an equitable interest in the surplus funds within the meaning of § 541 of the Code. The funds were generated by the bank's foreclosure on her home. To the extent that no other creditors had an
The fact that title to the funds had previously passed to the Commissioner did not prevent the funds from becoming part of Brown's bankruptcy estate upon the filing of her petition. Section 541(a)(3) of the Code includes within its definition of "property of the estate" any property of the debtor, or the proceeds thereof, recovered from a "custodian" of the debtor's property. A "custodian" is defined in § 101(10) as a "trustee, receiver, or agent under applicable law ... that is appointed or authorized to take charge of property of the debtor for the purpose of ... general administration of such property for the benefit of the debtor's creditors." Since in this case the Commissioner had received the funds and title to them "for the benefit of interested parties," N.Y.Civ.Prac.Law § 2601(c), we conclude that the Commissioner was a "custodian" of Brown's property within the meaning of § 101(10) of the Code. Hence, the surplus funds held by the Commissioner were the property of the bankruptcy estate. See also 4 Collier on Bankruptcy ¶ 543.01, at 543-2 (15th ed. 1983); H.R.Rep. No. 595, 95th Cong., 1st Sess. 370 (1977), reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6326; S.Rep. No. 989, 95th Cong., 2d Sess. 84-85 (1978), reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5870-71.
We thus agree with the bankruptcy court and district court that the orders of the state courts for the appointment of a referee to determine the appropriate distribution of the surplus funds, see First Federal II, intruded on the bankruptcy court's exclusive jurisdiction to resolve competing claims to the property of the estate. See, e.g., In re State of Missouri, 7 B.R. 974, 980 (D.C.E.D.Ark.1980), aff'd, 647 F.2d 768 (8th Cir.1981). The bankruptcy court was therefore justified in denying any effect to those orders. See Kalb v. Feuerstein, 308 U.S. 433, 439, 60 S.Ct. 343, 346, 84 L.Ed. 370 (1940).
B. The Exemption
Dellinger next appears to argue that Brown was not entitled to exempt the surplus funds from her bankruptcy estate because the state court ruled in First Federal I that the state homestead exemption did not apply. Her argument must be rejected because Brown was permitted to amend her bankruptcy petition to claim an exemption under federal, rather than state, law. Dellinger has not challenged the order permitting this amendment, and her argument based on the unavailability of the state exemption is thus moot.
C. Effect of the Exemption on the Judicial Lien
Finally, Dellinger apparently suggests that since the judgment lien preceded Brown's bankruptcy, under Bankruptcy Code § 522(c)(2)(A) the lien survives both Brown's exemption of the funds and her discharge in bankruptcy. It is true of course that upon the filing of a petition in bankruptcy, the bankruptcy estate can have no greater interest in property included in it than the debtor had when the petition was filed. See, e.g., 4 Collier on Bankruptcy, supra, ¶ 541.01, at 541-6. It is also true that under § 522(c)(2)(A) many prebankruptcy liens will survive both the
Section 522(f)(1) provides, in pertinent part, that "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 a lien is ... a judicial lien." Nearly all of the courts that have construed this section have concluded that it should be applied according to its terms. That is, the debtor is permitted, even if he lacks an equity interest in the property, to avoid the fixing of a judicial lien on the property if that avoidance would allow him to enjoy an exemption provided by § 522(b). See, e.g., In re Chesanow, supra, 25 B.R. at 230-31; In re Cole, supra, 15 B.R. at 325; In re Lovett, supra, 11 B.R. at 124-25; In re Kursh, supra, 9 B.R. at 802-04 (collecting cases); In re Curry, supra, 5 B.R. at 291-92 (same conclusion as to certain nonjudicial liens). Contra In re Miller, supra, 8 B.R. at 46-47 & n. 2. This interpretation is supported by the legislative history of the Code. Congress plainly expressed its intent to protect a debtor's ability to exempt property under § 522(d) by providing that a debtor may avoid any judicial lien under § 522(f)(1) "to the extent that the property could have been exempted in the absence of the lien." H.R.Rep. No. 595, 95th Cong., 1st Sess. 362 (1977), reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6318; S.Rep. No. 989, 95th Cong., 2d Sess. 76 (1978), reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5862. See generally In re Kursh, supra, at 803-04; In re Hill, 4 B.R. 310, 315-16 (Bkrtcy.N.D.Ohio 1980).
Since Dellinger's lien was a judicial lien, and since in the absence of that lien Brown would have been able to exempt the surplus funds from her bankruptcy estate, we conclude that Brown was empowered by the terms of § 522(f)(1) to avoid the lien in order to enjoy the exemptions provided by § 522(b).
The order of the district court is affirmed.
Section 1444 of N.Y.Real Prop.Acts. Law provided that after the filing of petitions and the determinations of the amount due each petitioner and the priorities of the petitions, the court shall make an order "for the distribution of the surplus money, as justice requires."
But no exempt homestead shall be exempt from taxation or from sale for non-payment of taxes or assessments.