No. 82-260 

### IN THE SUPREME COURT OF THE STATE OF MONTANA 1982

DAVID REICHERT and IRENE REICHERT, individually and d/b/a THE ECHO INN, Plaintiff and Appellant.,

RAWLEY 

### C. KOCH, d/b/a SPEAR MEAT CO., Defendant and Respondent.

Appeal from: District Court of the Thirteenth Judicial District, 

### In and for the County of Yellowstone Honorable William J. Speare, Judge presiding. Counsel of Record: For Appellant: Elmer J. Dolve argued, Billings,Montana For Respondent: Harold F. Hanser,County Attorney, Billings,Montana Paul

### M. Warren argued, Billings,Montana Frank D. Meglen,Assistant U.S. Attorney, Billings,

Montana LauraA. Mitchell, Billings,Montana Bawd-F, Hanse~BunLy Ilttomey~+14-i-gs7 -Montana Sidney R. Thomas,Billings, Montana

Submitted: November 10, 1982 Decided: January 

### 6, 1983 

## J G

# IS','] Filed:Mr. JusticeFred J. Weber delivered the Opinion of the Court.

Appeal is taken from an order of the DistrictCourt of the Thirteenth Judicial District, Yellowstone County, allowing execution againsthomestead property of bankrupt parties. We affirm the order of the DistrictCourt. On September 16, 1980, respondent Rawley Koch obtained and docketed inYellowstone County a finaljudgment against the appellants, David and Irene Reichert, husband and wife. The judgment was inthe amount of $26,163.54. On May 13, 1981, appellants filedinYellowstone County a joint declarationof homestead covering their residence at532 Milton Lane, Billings. On August 6, 1981, appellants filed a joint Chapter 7 bankruptcy petition inthe BillingsDivision of theUnited StatesBankruptcy Court. On December 14, 1981, appellants obtained a personal discharge from the Bankruptcy Court. On January 7, 1982, respondent Koch sought and had issued a writof execution and notice of saleand levy upon the appellants1residence at532 Milton Lane. A sheriff's salewas set forFebruary 3, 1982. On January 11, 1982, appellants filed suitagainst respondent inthe Thirteenth JudicialDistrict. The suitalleged thatrespondent1 s judgment had been voided by the discharge inbankruptcy, and sought damages for "wrongful and malicious execution." Also

on January 11, 1982, appellants filed an action seeking an injunction against the sheriff toprevent the saleof their residence. The sheriff's salewas cancelled and the suits

were consolidated. On January 28, 1982, respondent moved todismiss and sought a declaratory judgment establishing the validity of his lienand thepriority and statusof the interestsof himself, the Reicherts, the I.R.S., Yellowstone County, Security Bank, and thebankruptcy trustee. Numerous motionsto dismiss were filed and a hearing on them had on March 29, 1982. On May 19, 1982, the District Court issued an order which: (1) dismissed appellants' suit formalicious execution, (2) dismissed appellants' suit against the sheriff and dissolved the preliminary injunction, (3)dismissed respondent's complaint for declaratory judgment, (4) acknowledged the existence of appellants' Montana homestead exemption, and (5)ordered respondent to proceed with enforcementof his lien after he had complied with section 70-32-203,MCA. Reicherts appealed, and raise the following issues: 1. Does a discharge in bankruptcy void a pre-existing judgment lien against the debtors? 2. If a judgment lien survives the debtors' discharge in bankruptcy, is section 70-32-203,MCA, the proper procedure for enforcement? 3. Was it error for the DistrictCourt to dismiss appellants' complaintwhich alleged "wrongfuland malicious execution?" Appellants rely in largepart upon the language of 11 U.S.C. 5524 to support their position that the judgment lien is void. That sectionprovides in part that a discharge in bankruptcy: 

### " (1) voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor with respect to any debt discharged under section 727, 944, 1141, or 1328 of this title,whether or not discharge of such debt is waived; 

### " (2) operates as an injunction against the commencement or continuation of an action, the employment of process, or any act, to collect, recover or offset any such debt as a personal liability of the debtor, or from property of the debtor,whether or not discharge of such debt is waived 

# .

# . ."

It appears that, on its face, S524would preclude a postdischarge execution on a judgment lien. However, examination of other sections of the Bankruptcy Reform Act of 1978 leadsus to a contrary conclusion. Although S524 provides that dischargevoids judgments to the extent that they are determinations of the personal liability of debtors, it is silent on the question of the effect of discharge upon liens which arose out of those judgments. The question of the survivability of a judgment lienwas discussed in -- In re Sillani (S.D.Fla. 1981), 

### 9 Bankr. 188,189: "It is the debtor's position thatbecause the judgment lien secured a personal liability

# . .

# . the enforcementof that lien is discharged by the provisions of §524(a)(1)

# .. . "This is a common source of confusion. The quoted provisionmerely voids judgments to the extent they are unsecured. The judgment creditor cannot seek any recovery on his judgment other than that obtainable againsthis security. Liens pass through the bankruptcy case unaffected unless a party in interest requests the court to determine and allow or disallow the claims securedby the lien under 5502 and the claim is not allowed. §506(d); Collier on Bankruptcy (15thed.) 11506.03 atpages506-6 and 12." If Koch had not docketed his judgment in Yellowstone County in accordancewith section 25-9-301,MCA, appellants' position would be persuasive. However, the docketing of the judgment created a judicial lien against the Reicherts' realproperty inYellowstoneCounty. That real property was also the property which the Reicherts subsequently claimed as their homestead. A homestead is exemptproperty. Bankruptcy disposition of judicial liens upon exempt property is governed by 11U.S.C. 5522. Section 522(f) provides inpart that "thedebtormay 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 -1)a judicial lien." That avoidance is not automatic. In order to avoid a lien, the debtor must affirmatively seek the Bankruptcy Court's review. 

### -- In re Burkholder(E.D.Pa. 1981) 11Bankr. 346, 348, -- In reAdkins (s.~.Cal.1980), 7 Bankr. 325, 326. This conclusion is in keeping with the treatment of non-judicial liens provided for in 11U.S.C. §506(d): "To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless --(I) a party in interest has not requested that the court determine and allow or disallow such claim under section 502 of this title." "Subsection (d) permits liens to pass through the bankruptcy case unaffected. However, if a party in interest requests the court to determine and allow or disallow the claim secured by the lien under section 502 and the claim is not allowed, then the lien is void to the extent that the claim is not allowed." H.R. Rep. No. 595, 95th Cong., 1st Sess. 357 (1977). Only personal liability is discharged; liens not avoided by the bankruptcy codemay be enforced notwithstanding discharge of the debtor. 

### 3 Collier 

### - on Bankruptcy li524.01 (15th ed. 1979)."Adischarge order does not discharge valid liens. Itaccomplishes three things. First, it releases a debtor from all debts that arose before the date of the order for relief (the same date as the filing date of a voluntary Chapter 7 petition) except those debts which are nondischargeable by virtue of 8523, 11U.S.C. 8727(b). Second, itvoids any judgment obtained at any time with respect to any debt discharged to the extent that the judgment is a determination of the personal liability of the debtor and, third, it operates as an injunction against any act to collect any discharged debt as a personal liability of the debtor or from property acquired by the debtor after the commencement of his bankruptcy case. 11 U.S.C. 8524 (emphasissupplied). 

### A creditor is notprevented by this injunction from enforcing a valid lien on property of the debtor existing at the time of the entry of the order for relief. Property exempted from the estate is not considered as property acquired after the entry of the order for relief. Section 522(c)(2)of Title 11 adopted the long-standing rule of Long v. Bullard, 117 U.S. 617 (1886) that the security of a creditor is preserved des~ite debtor's claim of exemptions." 1; ;e Andrews (D.De1. 1982), 9 Bankr. Ct. 

### -- Dee. (CRR) 589,590.The Reicherts did not seek avoidance of Koch's judicial lien in Bankruptcy Court. We hold that the lien survived the Reicherts' discharge in bankruptcy. Appellants next contend that there is no procedure for enforcement of a judgment lien againsthomestead property. This contention is withoutmerit. Theprocedure for execution

on a judgment lien upon homestead property is clearly set forth at section 70-32-203, et seq., MCA. Finally,we hold that respondent's attempted execution

was soundly based upon the applicable law and was not an abuse of process. The order of the District Court is affirmed.

We concur: 

# 7%".* 

# $.@ Chief>ustice 

# &A-

/* /--\

Hon. 

### J61bn 

### S. Henson Judge, sitting in place ustice John C. Sheehy