Opinion ID: 773215
Heading Depth: 3
Heading Rank: 1

Heading: The Henrichsen Debt

Text: 27 Although the bankruptcy court computed $75,973.09 of the $208,000 Henrichsen debt as secured by the residence, Henrichsen argues that the entire $208,000 claim is unsecured for eligibility purposes. We agree. 28 In Schedule A, Debtors valued their residence at $325,000, encumbered by a first trust deed in favor of Great Western Bank of $249,026.91 as well as the Henrichsen judgment lien of $208,000. In Schedule C, Debtors listed a $100,000 homestead exemption, allowed under California law. See Cal. Civ. Proc. Code §§ 704.730(a)(3) (1996). Henrichsen was listed again, this time under Schedule D, showing $132,026.91 of the $208,000 judgment lien as unsecured. Although Debtors clearly recognized that at least $132,026.91 of the Henrichsen judgment lien was undersecured debt, Debtors failed to list this amount as an unsecured non-priority claim under Schedule F. 29 To determine the status of Henrichsen's $132,026.91 non-priority claim, we must look to 11 U.S.C. §§ 506(a). Through the inclusion of a §§ 506(a) analysis to define secured and unsecured in the §§ 109(e) context, a vast majority of courts, and all circuit courts that have considered the issue, have held that the unsecured portion of undersecured debt is counted as unsecured for §§ 109(e) eligibility purposes. See, e.g., In re Balbus, 933 F.2d 246, 247 (4th Cir. 1991); Miller v. United States, 907 F.2d 80, 81-82 (8th Cir. 1990); In the Matter of Day, 747 F.2d 405, 407 (7th Cir. 1984); Soderlund, 236 B.R. at 273-74 (BAP 9th Cir. 1999). Section 506(a) provides in pertinent part: 30 An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, . . . is an unsecured claim to the extent that the value of such creditor's interest or the amount so subject to setoff is less than the amount of such allowed claim. It is true that although §§ 506(a) speaks in terms of an allowed claim, applying §§ 506(a) to §§ 109(e) is necessary to prevent raising form over substance and manipulation of the debt limits to achieve Chapter 13 eligibility. Soderlund, 236 B.R. at 274. By merely looking at the value of Debtors' residence, the first deed trust, and the judgment lien, it is clear that Henrichsen's judgment lien is undersecured to a significant extent. The listed value of Debtors' residence is $325,000. After considering the $249,026.91 first deed trust, only $75,973.09 remains as possible equity to which liens could attach. Since Henrichsen's judgment lien is for $208,000, at least $132,026.91 of the judgment lien is undersecured. There is no question that this undersecured debt is to be counted as unsecured for eligibility purposes. 31 Likewise, a claim secured only by a lien which is avoidable by a declared exemption is unsecured for §§ 109(e) eligibility purposes. Debtors argue that the $100,000 homestead exemption listed in Schedule C does not render the remaining $75,973.09 of Henrichsen's judgment lien unsecured for eligibility purposes since eligibility must be determined as of the petition date and Henrichsen's judgment lien was not avoided, under 11 U.S.C. §§ 522(f) as impairing the homestead, until later. We do not agree. In In re Slack, 187 F.3d at 1074-75, we stated: 32 [I]f the amount of the creditor's claim at the time of the filing the petition is ascertainable with certainty, a dispute regarding liability will not necessarily render a debt unliquidated. . . . Even if a debtor disputes the existence of liability, if the amount of the debt is calculable with certainty, then it is liquidated for the purposes of §§ 109(e). . . . [A] debt is liquidated if the amount is readily ascertainable, notwithstanding the fact that the question of liability has not been finally decided. 33 Although we were defining the term liquidated  and not secured, we included in the eligibility determination readily ascertainable amounts, even though liability on the debt had not been finally decided. See id. This principle of certainty carries equal force in the present context, where the homestead exemption's effect on the status of Debtors' debt as secured or unsecured is readily ascertainable. Debtors declared the $100,000 California homestead exemption on their originally filed schedules, and at the same time listed Henrichsen's lien as secured by the exempted residence. Even though the lien was not judicially avoided until after the Chapter 13 petition was filed, the fact that Debtors listed both the homestead exemption and the lien on the schedules provides the bankruptcy court with a sufficient degree of certainty to regard the judgment lien as unsecured for eligibility purposes. Thus, the Henrichsen debt should be treated as wholly unsecured on the petition date. 1 34 This view is also consistent with the Supreme Court's statement that [a]n exemption is an interest withdrawn from the estate (and hence from the creditors) for the benefit of the debtor. Owen v. Owen, 500 U.S. 305, 308 (1991). By listing the homestead exemption in the originally filed schedules, Debtors have excluded their equity interest in the house from the reach of their creditors, absent a successful objection.