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FILED

MAR 27 2017

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. NC-16-1071-KuBS

)

RICHARD CHIU, ) Bk. No. 4:13-bk-43677

)

Debtor. )

______________________________)

)

MIKE ROSEN, )

)

Appellant, )

)

v. ) MEMORANDUM*

)

RICHARD CHIU, )

)

Appellee. )

______________________________)

Submitted Without Oral Argument

on January 19, 2017**

Filed – March 27, 2017

Appeal from the United States Bankruptcy Court

for the Northern District of California

Honorable Roger L. Efremsky, Bankruptcy Judge, Presiding

 

Appearances: Lawrence D. Miller on brief for appellant Mike

Rosen; Ruth Elin Auerbach on brief for appellee

Richard Chiu.

 

*This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8024-1.

**Oral argument was set for January 19, 2017 in San

Francisco, California, but appellant Rosen did not appear. With

the assent of appellee Richard Chiu, the Panel took the matter

under submission without oral argument.
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Before: KURTZ, BRAND and SPRAKER,*** Bankruptcy Judges.

INTRODUCTION

Creditor Mike Rosen appeals from an order under § 522(f)(1)1

partially avoiding his judgment lien to the extent it impaired

chapter 7 debtor Richard Chiu’s homestead exemption. According

to the bankruptcy court, there was insufficient equity (in excess

of Chiu’s homestead exemption) to fully secure Rosen’s lien. 

Therefore, the bankruptcy court avoided all but $57,468.00 of

Rosen's lien. The bankruptcy court also rejected Rosen’s

argument that he should be allowed to retain the full amount of

his $872,304.95 lien, at least for purposes of permitting the

lien to attach to any postpetition appreciation in the value of

the exempt property. The bankruptcy court held that the

Bankruptcy Reform Act of 1994, Pub.L. 103-394, 108 Stat. 4106,

amended § 522(f) to clarify that any postpetition appreciation in

the value of the exempt property should inure to the benefit of

the estate and/or the debtor and not to the benefit of the

judgment lien creditor.

We agree with the bankruptcy court’s holding, so we AFFIRM.

FACTS

The relevant facts are undisputed. Chiu claimed a

$100,000.00 homestead exemption in his residence on Winant Way in

Alameda, California. At the time of his bankruptcy filing in

***Hon. Gary A. Spraker, Chief United States Bankruptcy Judge

for the District of Alaska, sitting by designation.

1Unless specified otherwise, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and

all "Rule" references are to the Federal Rules of Bankruptcy

Procedure, Rules 1001-9037.

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June 2013, Chiu’s residence had a fair market value of

$750,000.00 and was encumbered by a $592,532.00 first deed of

trust. As for nonconsensual liens, Rosen was the successor in

interest to a judgment lien in favor of Spondulix Company, Inc.

and against Chiu in the amount of $872,304.95. A junior judgment

lien was held by First American Title Insurance Company’s

successor in interest Patrick MacIntyre in the amount of

$200,000.00.

Pursuant to § 522(f)(1), Chiu moved to avoid both judgment

liens because they impaired his homestead exemption. The parties

agreed to resolve the lien avoidance issue by motion rather than

adversary proceeding and further agreed that there was no factual

dispute for the court to decide affecting the application of

§ 522(f)(1). In addition, no one timely objected to Chiu’s

exemption claim, so the exemption claim was allowed in full.

After full briefing and multiple hearings, the bankruptcy

court concluded that Rosen’s judgment lien could be avoided under

§ 522(f)(1), except for $57,468.00 of that lien, which amount did

not impair Chiu’s homestead exemption under the mathematical

formula for determining impairment set forth in § 522(f)(2). 

Even though the amount of the lien exceeding $57,468.00 impaired

Chiu’s homestead exemption under the plain language of

§ 522(f)(2), Rosen argued that the full amount of his lien could

not be stripped down or avoided in a manner that would deprive

him of the right to have the full amount attach to any

postpetition appreciation in the value of Chiu’s residence.

The bankruptcy court disagreed, citing to the text of the

statute and to the legislative history accompanying the 1994

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Bankruptcy Code amendments, which added to § 522(f) the statutory

definition of impairment. The bankruptcy court held that

Congress added that definition, in part, to clarify that any

postpetition appreciation in the value of exempt property should

inure to the benefit of the estate and/or the debtor and not to

the benefit of a judgment lien creditor whose lien had been

partially or wholly avoided under § 522(f)(1).

The bankruptcy court entered an order avoiding all but

$57,468.00 of Rosen’s judgment lien, and Rosen timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b)(2)(K), and we have jurisdiction under

28 U.S.C. § 158.

ISSUE

Did the bankruptcy court correctly construe and apply

§ 522(f) in holding that all but $57,468.00 of Rosen’s judgment

lien impaired Chiu’s homestead exemption and thus should be

avoided?

STANDARDS OF REVIEW

The construction and application of § 522(f) are questions

of law which we review de novo. Culver, LLC v. Chiu

(In re Chiu), 266 B.R. 743, 747 (9th Cir. BAP 2001), aff'd,

304 F.3d 905 (9th Cir. 2002) (citing Katz v. Pike (In re Pike),

243 B.R. 66, 69 (9th Cir. BAP 1999)).

DISCUSSION

Under § 522(f)(1), the debtor may avoid a judgment lien

against his or her property “to the extent that such lien impairs

an exemption to which the debtor would have been entitled. . . .”

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Prior to the 1994 Bankruptcy Code amendments, the Code did not

define what it meant by impairment, so that term was defined by

the courts with varying results. See Hanger v. Bank of Am. Nat'l

Trust & Sav. Ass'n (In re Hanger), 196 F.3d 1292 (9th Cir. 1999),

aff'g & adopting, 217 B.R. 592, 596 (9th Cir. BAP 1997). In the

Ninth Circuit, the definition of impairment for purposes of

§ 522(f) was controlled by City National Bank v. Chabot

(In re Chabot), 992 F.2d 891 (9th Cir. 1993). In Chabot, the

Ninth Circuit specifically rejected the Chabots’ broad

construction of the term “impair” which would have resulted in

the avoidance of any unsecured portion of the judgment creditor’s

lien so as to ensure that any postpetition appreciation would

inure to the benefit of the debtor or the bankruptcy estate. Id.

at 894-95. Instead, Chabot held that the plain and common sense

meaning of the term “impair” necessarily precluded debtors from

avoiding judgment liens over and above the exemption amount. Id.

at 895.

Rosen argues that the 1994 Bankruptcy Code amendments to

§ 522(f) did not overrule the portion of Chabot construing

impairment narrowly and that § 522(f)(2)’s impairment definition

should not be interpreted in a manner that prevents the full

amount of his lien from attaching to any postpetition

appreciation on Chiu’s residence. We disagree. In Hanger, the

Hangers owned a home worth $270,000.00 and claimed a $75,000.00

exemption. In re Hanger, 217 B.R. at 593. The home was subject

to a first-priority consensual lien of $158,000.00 and also was

subject to three judicial liens in the following order of

priority: (1) a $3,817.00 judicial lien in favor of Pacific

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Alternator; (2) a $92,565.00 judicial lien in favor of Bank of

America; and (3) a $32,843.00 judicial lien in favor of Wells

Fargo Bank. Id. The Hangers moved to avoid the judicial liens

to the extent they impaired their homestead exemption. Id. Over

Bank of America’s objection, the bankruptcy court determined that

there was insufficient equity (over and above the Hangers’

exemption) to fully secure Bank of America’s judicial lien and

that the 1994 Bankruptcy Code amendments dictated that a judicial

lien should be disallowed in its entirety if any portion of that

lien impaired the debtors’ exemption. Id. at 594. Therefore,

because Bank of America’s lien was partially unsecured and Wells

Fargo’s lien was wholly unsecured, the bankruptcy court entered

orders avoiding both of these liens in their entirety.

On appeal, this Panel reversed. The Hanger Panel pointed

out that the impairment definition added in 1994 to § 522(f) sets

forth a mathematical formula for determining whether a judgment

lien impairs the debtor’s exemption. Id. at 594-95. More

specifically, a judgment lien impairs the exemption to the extent

that the sum of that lien, all other liens on the exempt

property, and the amount of the applicable exemption, exceed the

value of the property. § 522(f)(2)(A). The Hanger court also

pointed out that the Wells Fargo lien, which was junior to Bank

of America’s lien and wholly avoidable under § 522(f)(2)(A)’s

formula, should be omitted from the impairment calculation with

respect to Bank of America’s lien, pursuant to § 522(f)(2)(B). 

Id. at 595.

Omitting the Wells Fargo lien from the calculation, Hanger

determined that only $59,382.00 of Bank of America’s $92,565.00

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lien impaired the Hangers’ exemption and that the remaining

amount of Bank of America’s lien ($33,183.00) was not avoidable

under § 522(f)(1). Id. at 595. According to Hanger, the

$33,183.00 constituted equity (in excess of the amount of the

Hangers’ exemption) that was available to secure Bank of

America’s lien without impairing or adversely impacting the

exemption. Id. at 595-97. 

In so holding, however, Hanger specified that, to the extent

equity (in excess of the amount of the Hangers’ exemption) did

not exist at the time of the bankruptcy filing, the lien impaired

the exemption, could be avoided under § 522(f)(1), and any

postpetition appreciation would be preserved for the debtors or

the estate free and clear of the avoided lien. As Hanger

explained, when Congress drafted the 1994 amendments:

Congress was concerned because the Chabot holding meant

that any postpetition appreciation would go to the

benefit of the lienholder whose partial lien remained

on the property, even if the debtor had to use his

exempt interest to make the mortgage payments. The new

formula would protect the debtor's interest in any

appreciation because it would not allow a lien to

remain when there was no equity, but hypothetically

there would be equity in the absence of the liens.

Therefore, one need only apply the new formula to

obtain Congress' desired result.

Id. at 597 (citations omitted); see also id. at 596 (stating that

the 1994 amendment “is more favorable for debtors by allowing

them the full benefit of the exemption and the benefit of any

post-avoidance appreciation in the value of the property.”); id.

at 597 (citing Hastings v. Holmes (In re Hastings), 185 B.R. 811,

814 n.3 (9th Cir. BAP 1995), and stating that the 1994 amendment

overruled Chabot and “entitles the debtor to avoid a judgment

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lien in cases where equity has not yet accrued.”).2

The Court of Appeals affirmed and adopted the Panel’s

decision. Hanger v. Bank of Am. Nat'l Trust & Sav. Ass'n

(In re Hanger), 196 F.3d 1292 (9th Cir. 1999). By doing so, the

Panel’s decision became binding Ninth Circuit precedent. See

Gardenhire v. I.R.S. (In re Gardenhire), 209 F.3d 1145, 1148

(9th Cir. 2000); IRS v. Osborne (In re Osborne), 76 F.3d 306, 310

(9th Cir. 1996). This Panel previously has recognized that

Hanger is the law of the circuit. All Points Cap. Corp. v. Meyer

(In re Meyer), 373 B.R. 84, 87 (9th Cir. BAP 2007). 

None of the cases that Rosen relies upon dictate a different

result. Most of them are not on point and none of them trump

Hanger’s pronouncement that, as a result of the 1994 amendments

to § 522(f), any unsecured portion of a judgment lien can be

avoided under the statute to ensure that any postpetition

appreciation inures to benefit of the estate or the debtor.

CONCLUSION

For the reasons set forth above, the bankruptcy court’s

order avoiding all but $57,468.00 of Rosen’s judgment lien is

AFFIRMED.

2These last two quotes from Hanger arguably suggest that

equity (in excess of the debtor’s exemption) should be measured

at the time avoidance is sought. But the blocked quote, above,

correctly focuses on “postpetition appreciation” and not on

“post-avoidance appreciation.” For purposes of applying

§ 522(f), the property value and the lien amounts as they existed

on the bankruptcy petition date control. Mbaba v. Clark Fergus &

Assocs. (In re Mbaba), 2006 WL 6810948, at *5 (9th Cir. BAP

2006); In re Salanoa, 263 B.R. 120, 123 (Bankr. S.D. Cal. 2001).

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