WILLIAM T. BODOH, Bankruptcy Judge.
On August 21, 1987, the Debtors filed a joint Petition for Reorganization under Chapter 13 of the Bankruptcy Code. In their Petition, the Debtors stated that their residence, located at 333 Alameda Avenue, Youngstown, Ohio, was jointly owned. The first mortgage on the property, owed to SOCIETY BANK OF EASTERN OHIO, N.A., ("SOCIETY") is Twenty-Eight Thousand & 00/100 Dollars ($28,000.00). A judgment lien is held by FORD MOTOR CREDIT COMPANY ("FORD") in the amount of Three Thousand, Eight Hundred Seventy-Eight & 69/100 Dollars ($3,878.69). It has been stipulated that the fair market value of the encumbered property is Thirty-Two Thousand & 00/100 Dollars ($32,000.00). On September 11, 1987, the Debtors filed a Motion to avoid the lien held by FORD on their residential property, claiming that the lien impaired their joint homestead exemption of Ten Thousand & 00/100 Dollars ($10,000.00). FORD filed an objection to the Motion on September 28, 1987, and a hearing on the Motion was held on October 1, 1987. Post-hearing briefs were submitted by the close of business on November 2, 1987.
11 U.S.C. Sec. 522(f)(1) provides:
This passage prescribes three requirements which must be fulfilled before a debtor may avoid a judicial lien under this Section.
11 U.S.C. Sec. 101(30) defines a judicial lien as a "lien obtained by judgment, levy, sequestration, or other legal or equitable process or pleading." FORD obtained a deficiency judgment against the Debtors as a result of the repossession and sale of the Debtors' automobile. Thus, there is no question that FORD holds a judicial lien
To determine whether the Debtors' exemption is impaired by a creditor's judicial lien, two considerations must be evaluated. The Debtors initially must show they are entitled to an exemption. If successful, the Debtors then must show actual impairment. Therefore, the initial question is whether the Debtor qualifies for an exemption under subsection (b). That subsection delineates the exemptions to which the Debtors are entitled. This subsection reads, in pertinent part:
Under this subsection, a debtor is permitted to apply either the federal or the state exemptions, unless state law provides otherwise. The state could choose to opt out of the federal exemptions contained in Sec. 522(d) and restrict its residents to those exemptions provided under state law. In Ohio Revised Code Ann., Sec. 2329.662, (Anderson 1981 & Supp.1986) (hereinafter "O.R.C.A.".), Ohio chose to exercise its option and proscribed its domiciliaries from using the federal exemptions contained in Sec. 522(d). Consequently, an Ohio debtor is restricted to the state exemptions afforded by state law. These exemptions are enumerated in O.R.C.A., Sec. 2329.66(A).
One of the most important exemptions is found in O.R.C.A., Sec. 2329.66(A)(1) which allows each debtor to claim a homestead exemption of Five Thousand & 00/100 Dollars ($5,000.00) on one parcel of real property. It provides:
FORD contends that this exemption is available only in the face of execution, garnishment, attachment, or judicial sale. The leading case to endorse this position was In re Peck, 55 B.R. 752 (N.D.Ohio 1985). In that case, the Court held that O.R.C.A., Sec. 2329.66(A), specified an exemption was impaired only upon an involuntary disposition of the debtor's property. Thus, the Court reasoned, a Chapter 13 debtor was not entitled to any exemptions in the absence of execution, garnishment, attachment or involuntary sale. While questioning the underlying analysis in Peck, several subsequent court decisions have limited Peck by ruling that Chapter 7 debtors can avail themselves of the exemptions since the filing of a Chapter 7 Petition places all of the debtor's non-exempt property subject to sale to satisfy the debts of the estate. In re Brown, No. 84-00840-Y, slip op. at 4 (Bankr.N.D.Ohio, 1985), aff'd. 81 B.R. 432 (N.D.Ohio 1985), In re Stiger, 56 B.R. 81, 83-4 (Bankr.N.D. Ohio 1985). Likewise, this Court has elected to follow the District Court decision in In re Brown in Chapter 7 cases believing that Brown better reflects the intentions of Congress, the rehabilitative policies of the Bankruptcy Code, and Ohio law than does Peck. In the present case, a Chapter 13 debtor has petitioned the Court for avoidance of the judicial lien held by FORD. This action has prompted this Court to undertake
At the outset, the dispositive nature of state law should be noted. The Bankruptcy Code in 11 U.S.C. Sec. 522(b)(2)(A) demands that state law be applied when it has opted out of the federal exemptions. Moreover, although not dispositive on the issue at hand, the Sixth Circuit's decisions in In re Pine, 717 F.2d 281 (6th Cir.1983), cert. denied 466 U.S. 928, 104 S.Ct. 1711, 80 L.Ed.2d 183 (1984), and In re Spears, 744 F.2d 1225 (6th Cir.1984), indicate the determinative nature which construction of state law should play in delineating the scope of state exemptions for debtors. Indeed, the decision in Peck depended upon a narrow construction of O.R.C.A., Sec. 2329.66(A). It is almost axiomatic that a federal court will defer to the judgment of state courts concerning an interpretation of state law in an area of state concern. Simpson v. Jefferson Standard Life Ins. Co., 465 F.2d 1320, 1323 (6th Cir.1972). Because of a study of Ohio law, this Court respectfully declines to follow the District Court's decision in Peck because it is persuaded that Peck mischaracterized Ohio law.
In the first place, Ohio law requires that state exemption statutes be interpreted beneficially for the debtor. In Hart & Co. v. Cole, 73 Ohio St. 267, 76 N.E. 940 (1906), the Ohio Supreme Court said: "It is the well-settled rule in Ohio that the homestead and exemption laws of this state are to be liberally construed in favor of the claimant." Id. 76 N.E. at 942. The same sentiment was revealed recently in an opinion announcing the decision of the Seventh District Court of Appeals of Ohio when they quoted language from 45 O.Jur.3d 17, which reads:
Mike v. Rendono, No. 84-CA-672, slip op. at 5 (7th Dist.Ct.App. Aug. 5, 1985).
The District Court in Peck considered the language in O.R.C.A., Sec. 2329.66(A) to be clear and unambiguous. However, Ohio courts apparently have considered the language in this passage as being descriptive or directory and have refused to find that the statutory language limits the availability of state exemptions as the Peck court found. In State Savings & Loan Co. v. Parker, No. 11-162, slip op. at 3 (11th Dist.Ct.App. Nov. 11, 1986) [Available on WESTLAW, OH-CS database], the Court found the appellant was entitled to a homestead exemption without requiring an involuntary disposition of the property as the Peck court had demanded. While the mortgagee had initiated foreclosure action in Parker, all parties, including the appellant, had agreed to the sale. Id. In Daugherty v. Central Trust Co., No. CA-6747 (5th Dist.Ct.App. Jan. 27, 1986) [Available on WESTLAW, OH-CS database], the court ruled the appellee was entitled to an exemption under O.R.C.A., Sec. 2329.66(A)(13), despite the fact that the bank had failed to commence judicial procedures (i.e., garnishment, attachment, or sale) against the appellee for collection of its judgment. The bank's argument in Daugherty is very similar to the position FORD has taken in this case. The bank contended that the debtor could not claim an exemption because the bank's act of setoff did not trigger the exemption statute,
Furthermore, these Ohio appellate decisions are consistent with the construction of similar language in a prior statute by the United States District Court in In re Hewitt, 15 Ohio L.Rptr. 457 (N.D.Ohio 1917). In that case, the Court dealt with a predecessor statute of O.R.C.A., Sec. 2329.66, which was Ohio General Code, Sec. 11730, which employed similar language to that language presently under consideration. Sec. 11730 provided that "a husband answering the description of a person entitled to a homestead may hold exempt from sale on judgment or order a family homestead not exceeding One Thousand & 00/100 Dollars ($1,000.00) in value." Noted in id. at 460. Although this statute appears to restrict use of the homestead exemption to situations in which a creditor obtained a court judgment or order for sale, the court found otherwise. The court wrote:
Id. at 461, 463.
Finally, the Peck decision is contrary to the principle of statutory construction that the expression of one thing is the exclusion of another (expressio unius est exclusio alterius), commonly accepted throughout American jurisprudence. The Ohio Supreme Court recently indicated its acceptance of the principle in Montgomery Cty. Bd. of Commrs. v. Public Util. Comm., 28 Ohio St.3d 171, 175, 503 N.E.2d 167, 170 (1986). O.R.C.A. Sec. 2329.661 explicitly lists those claims to which exemptions will not apply. Since judicial liens are not specifically included in the list of excepted liens, judicial liens must necessarily be included within those liens against which exemptions may apply. Thus, it appears that Ohio courts have expanded the applicability of Ohio exemptions beyond that which is initially perceived in a reading of the statutory language.
In In re Spears, 744 F.2d 1225 (6th Cir. 1984), the Sixth Circuit refused to allow the avoidance of a nonpossessory, nonpurchase-money security interest in the debtor's household goods. The Spears court wrote that "[u]nder Ohio law, a debtor may exempt only an interest in property that is not subject to any third party liens." Ohio Rev.Code Ann. Secs. 2329.66, 2329.661 (Page 1981) (sic). However, the District Court limited this language in Spears to household goods when it wrote in Buroker v. Raybourn, 61 B.R. 10 (S.D.Ohio 1986):
Even if the Debtors are generally entitled to use of the exemptions under state law, the judicial liens must impair a
For the reasons hereinbefore set forth, FORD's Objection is overruled, and the Motion of Debtors is sustained. The judicial lien of FORD impairs Debtors' homestead exemption and is avoided upon the authority of Title 11, U.S.C. Sec. 522(f)(1).