ORDER SUSTAINING CREDITOR’S OBJECTION TO CONFIRMATION OF CHAPTER 13 PLAN
ROBERT F. FUSSELL, Bankruptcy Judge.
Pending before the court is an objection to the confirmation of the debtors’ joint Chapter 13 plan of arrangement filed by Westark Production Credit Association
(hereinafter “Westark”). The matter came on for hearing September 6, 1983. The following relevant facts are not disputed.
The debtors, Charles and Beverly Lillard, propose pursuant to their Chapter 13 plan to retain possession of a Datsun 310X automobile titled to “Charles or Beverly Lil-lard”, the admitted value of which is $2900.00. The plan reveals that both debtors have claimed state exemptions, among which is a $1200.00 per debtor exemption in this automobile. They propose to apply these exemptions against the ear’s $2900.00 value and pay Westark the $500.00 difference over the life of the plan.
Westark
has a nonpossessory nonpurchase money security interest in the vehicle. The debtors owe Westark more than $19,000 and the Datsun automobile is the only remaining security originally pledged against the indebtedness. The debtors owned the car prior to granting Westark a security interest, and it was but one of many items of collateral taken as security when Westark refinanced a loan on real property for the debtors. All other collateral has been returned to this creditor including a house and acreage and a pickup truck. The plan also calls for payment of $1,518.00 over the life of the plan to Westark as partial payment of the unsecured portion of its claim.
Westark asserts that the debtors should be required to relinquish the security or pay out the full $2,900.00 value of the collateral over the term of the plan. The creditor specifically argues that since the outstanding indebtedness exceeds the value of the car there is no equity to which the debtors’ exemptions may attach and hence the automobile exemption is unavailable to them. Westark also contends that valid liens are preserved despite the claimed exemption by the debtors unless the lien can be avoided. They assert that the debtors have filed no motion to avoid Westark’s valid lien and, even if such motion had been properly filed, the creditor contends that the subject lien is not one which may be avoided.
The debtors do not challenge the validity of Westark’s lien nor have they filed a motion to avoid the lien but argue instead that they should be allowed to claim exemptions in the automobile even though they have no equity therein. They contend no equity is necessary because, pursuant to Arkansas’ exemption statute, their “interest” in the first $1200.00 (or $2,400.00 for both) of value of the automobile is exempt from Westark’s nonpurchase money security interest. They thus assert that their plan can be confirmed as proposed.
Upon a review of all the files and pleadings in this Chapter 13 proceeding as well as the briefs submitted by both parties the court concludes that Westark’s objection to confirmation of the debtors’ proposed Chapter 13 plan must be sustained. The court uniquely is not agreeing per se with the primary arguments of either side as set out above but relies on the plain language of the Bankruptcy Code in reaching its conclusion.
In the Bankruptcy Reform Act of 1978, Congress made a fundamental change in the approach to exempt property by providing that it first passes into the bankruptcy estate and then is exempted from it. Section 522(b) of the Bankruptcy Code authorizes an individual debtor to “exempt from property of the estate” either property specified in the new federal bankruptcy exemption list (11 U.S.C. Section 522(d)) or property exempt from execution under non-bankruptcy law.
The provision in the old
Act under Section 70(a) specifically excepting exempt property from the estate has been deleted, so that the estate is now compromised of “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. Section 541(a)(1). The committee report's of • both Houses of Congress specifically point out:
Paragraph (1) [of 11 U.S.C. 541(a)] has the effect of overruling
Lockwood v. Exchange Bank,
190 U.S. 294 [23 S.Ct. 751, 47 L.Ed. 1061] (1903), because it includes as property of the estate
all property of the debtor, even that needed for afresh start.
After the property comes into the estate, then the debtor is permitted to exempt it under proposed 11 U.S.C. 522, and the court will have jurisdiction to determine what property may be exempted and what remains as property of the estate, [emphasis added]
S.Rep. No. 95-989, 95th Cong. 2d Sess. 82 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5868; H.Rep. No. 95-595, 95th Cong. 1st Sess. 368 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6324. Thus, Section 541 takes every possible “interest” of the debtor under consideration when the estate is created, but Section
522(b)
qualifies and limits that section by permitting the debtor to exempt certain property from the reach of Section 541.
The next step then is for the debtor to claim his exemptions. The Code provides that he may choose the exemptions under the Code listed in Section 522(d) unless the state wherein he resides has chosen to enumerate its own exemptions by specifically forbidding the use of the federal exemptions. Arkansas chose to “opt out” of the federal exemptions provided in 11 U.S.C. Section 522(d) by providing that an individual debtor who is a resident of the state of Arkansas is prohibited from using the federal exemptions provided in Section 522(d), the applicable exemptions to be only those permitted by the Constitution and laws of the State of Arkansas. Acts 1981, No. 419, Sec. 1, p. 743 See, Ark.Stat.Ann. Section 36-210 et seq., and Article 9, Section 1, Arkansas Constitution.
Thus, under the new Code, the debtor may look to a specified list of possible exemptions and enumerate those he wishes to claim. Provisions of the Bankruptcy Code, however, also now require that a more careful analysis of the claimed exemptions be made where that “exemption” is encumbered. Ordinarily liens survive the bankruptcy, however Section 522(f) of the Code specifically permits a debtor to avoid judicial liens and certain nonpossesso-ry, nonpurchase money security interests in certain types of exempt property notwithstanding any waiver of exemptions.
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ORDER SUSTAINING CREDITOR’S OBJECTION TO CONFIRMATION OF CHAPTER 13 PLAN
ROBERT F. FUSSELL, Bankruptcy Judge.
Pending before the court is an objection to the confirmation of the debtors’ joint Chapter 13 plan of arrangement filed by Westark Production Credit Association
(hereinafter “Westark”). The matter came on for hearing September 6, 1983. The following relevant facts are not disputed.
The debtors, Charles and Beverly Lillard, propose pursuant to their Chapter 13 plan to retain possession of a Datsun 310X automobile titled to “Charles or Beverly Lil-lard”, the admitted value of which is $2900.00. The plan reveals that both debtors have claimed state exemptions, among which is a $1200.00 per debtor exemption in this automobile. They propose to apply these exemptions against the ear’s $2900.00 value and pay Westark the $500.00 difference over the life of the plan.
Westark
has a nonpossessory nonpurchase money security interest in the vehicle. The debtors owe Westark more than $19,000 and the Datsun automobile is the only remaining security originally pledged against the indebtedness. The debtors owned the car prior to granting Westark a security interest, and it was but one of many items of collateral taken as security when Westark refinanced a loan on real property for the debtors. All other collateral has been returned to this creditor including a house and acreage and a pickup truck. The plan also calls for payment of $1,518.00 over the life of the plan to Westark as partial payment of the unsecured portion of its claim.
Westark asserts that the debtors should be required to relinquish the security or pay out the full $2,900.00 value of the collateral over the term of the plan. The creditor specifically argues that since the outstanding indebtedness exceeds the value of the car there is no equity to which the debtors’ exemptions may attach and hence the automobile exemption is unavailable to them. Westark also contends that valid liens are preserved despite the claimed exemption by the debtors unless the lien can be avoided. They assert that the debtors have filed no motion to avoid Westark’s valid lien and, even if such motion had been properly filed, the creditor contends that the subject lien is not one which may be avoided.
The debtors do not challenge the validity of Westark’s lien nor have they filed a motion to avoid the lien but argue instead that they should be allowed to claim exemptions in the automobile even though they have no equity therein. They contend no equity is necessary because, pursuant to Arkansas’ exemption statute, their “interest” in the first $1200.00 (or $2,400.00 for both) of value of the automobile is exempt from Westark’s nonpurchase money security interest. They thus assert that their plan can be confirmed as proposed.
Upon a review of all the files and pleadings in this Chapter 13 proceeding as well as the briefs submitted by both parties the court concludes that Westark’s objection to confirmation of the debtors’ proposed Chapter 13 plan must be sustained. The court uniquely is not agreeing per se with the primary arguments of either side as set out above but relies on the plain language of the Bankruptcy Code in reaching its conclusion.
In the Bankruptcy Reform Act of 1978, Congress made a fundamental change in the approach to exempt property by providing that it first passes into the bankruptcy estate and then is exempted from it. Section 522(b) of the Bankruptcy Code authorizes an individual debtor to “exempt from property of the estate” either property specified in the new federal bankruptcy exemption list (11 U.S.C. Section 522(d)) or property exempt from execution under non-bankruptcy law.
The provision in the old
Act under Section 70(a) specifically excepting exempt property from the estate has been deleted, so that the estate is now compromised of “all legal or equitable interests of the debtor in property as of the commencement of the case.” 11 U.S.C. Section 541(a)(1). The committee report's of • both Houses of Congress specifically point out:
Paragraph (1) [of 11 U.S.C. 541(a)] has the effect of overruling
Lockwood v. Exchange Bank,
190 U.S. 294 [23 S.Ct. 751, 47 L.Ed. 1061] (1903), because it includes as property of the estate
all property of the debtor, even that needed for afresh start.
After the property comes into the estate, then the debtor is permitted to exempt it under proposed 11 U.S.C. 522, and the court will have jurisdiction to determine what property may be exempted and what remains as property of the estate, [emphasis added]
S.Rep. No. 95-989, 95th Cong. 2d Sess. 82 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5868; H.Rep. No. 95-595, 95th Cong. 1st Sess. 368 (1977), U.S.Code Cong. & Admin.News 1978, pp. 5787, 6324. Thus, Section 541 takes every possible “interest” of the debtor under consideration when the estate is created, but Section
522(b)
qualifies and limits that section by permitting the debtor to exempt certain property from the reach of Section 541.
The next step then is for the debtor to claim his exemptions. The Code provides that he may choose the exemptions under the Code listed in Section 522(d) unless the state wherein he resides has chosen to enumerate its own exemptions by specifically forbidding the use of the federal exemptions. Arkansas chose to “opt out” of the federal exemptions provided in 11 U.S.C. Section 522(d) by providing that an individual debtor who is a resident of the state of Arkansas is prohibited from using the federal exemptions provided in Section 522(d), the applicable exemptions to be only those permitted by the Constitution and laws of the State of Arkansas. Acts 1981, No. 419, Sec. 1, p. 743 See, Ark.Stat.Ann. Section 36-210 et seq., and Article 9, Section 1, Arkansas Constitution.
Thus, under the new Code, the debtor may look to a specified list of possible exemptions and enumerate those he wishes to claim. Provisions of the Bankruptcy Code, however, also now require that a more careful analysis of the claimed exemptions be made where that “exemption” is encumbered. Ordinarily liens survive the bankruptcy, however Section 522(f) of the Code specifically permits a debtor to avoid judicial liens and certain nonpossesso-ry, nonpurchase money security interests in certain types of exempt property notwithstanding any waiver of exemptions. Section 522(f) is not a separate exemption statute, but provides a limited mechanism for avoiding certain types of liens which impair an exemption that the debtor would have been entitled to receive under Section 522(b). See
In Re Evans,
25 B.R. 105, 109-10 (Bkrtcy.N.D.Tex.1982).
Thus, whether Section 522(f) may be invoked by a debtor is dependent upon whether a debtor may be legally entitled to an exemption in and to that item of personal property under Section 522(b) and whether the item of personal property, encumbered by a lien which the debtor seeks to avoid, falls within the described categories of Section 522(f)(2).
Westark argues that the debtors’ interest in the Datsun automobile includes only the debtors’ equity in the property listed. The creditor argues that since the amount of its lien exceeds the value of the property the debtors have no “interest” in the property and hence nothing to which an exemption may attach. This court rejects that argument. If the court were to adopt the interpretation urged by Westark, 11 U.S.C. Section 522(f)(2)(A), providing for lien avoidance, would be a meaningless provision. The Arkansas provision exempting $1200.00 in value in one motor vehicle is identical in relevant part to the corresponding federal provision in 11 U.S.C. Section 522(d)(2). If the phrase “debtor’s interest” in U.S.C. Section 522(d) outlining the federal exemption means only the debtor’s equity, then a debtor could, under the federal scheme, avoid liens on property only to the extent the property was free of liens and Section 522(f) in the same section of the Code would be wasted verbiage. Likewise the court rejects as equally absurd the debtors’ argument that they may claim all their state exemptions regardless of liens encumbering the exemptions.
The mere claiming of exemptions by the debtor does not relieve property from the operation of contractual pre-bankruptcy liens. See
In Re Ray,
26 B.R. 534 (Bkrtcy D.Kan.1983), wherein that court stated at 547: “were it not for the fact that liens do survive exemption
unless avoided
by the sections mentioned in Section 522(c) or by Section 522(f) there would by no reason for a discussion of reaffirmation and lien enforceability.” [emphasis added] See, also
In Re Pierce,
29 B.R. 612 (Bkrtcy D.N.C. 1983).
Congress enacted 11 U.S.C. Section 522(f) to protect the certain of the debtor’s property, his discharge, and ultimately his fresh start by permitting him to avoid cer
tain types of liens on specifically enumerated exemptable property. H.R.Rep. No. 595, 95th Cong. 1st Sess. 362 (1977), U.S. Code Cong. & Admin.News 1978, p. 5787. Congress looked to the practice of creditors with judicial liens and nonpurchase money security interests under the Bankruptcy Act and concluded that these creditors had an unfair advantage over the debtor. Congress intended that the debtor use the avoiding power under Section 522(f) of the Bankruptcy Code to eliminate this unfair advantage. See, in this regard,
In Re Hill,
4 B.R. 310, 315 (Bkrtcy.N.D.Ohio 1980). See, also
In Re Kursh,
9 B.R. 801, 803-04 (Bkrtcy.W.D.Mo.1981).
Congress did not, however, decide that debtors could avoid nonpossessory, nonpur-chase money security interests in
all
possible exemptions on the federal or the optioned state lists. Rather, Congress set out three specific categories of items under Section 522(f):
(A)household furnishings, household goods, wearing apparel, appliances, books, crops, musical instruments, or jewelry that are held primarily for their personal, family, or household use of the debtor or a dependent of the debtor; (B) implements, professional books, or tools of the trade of the debtor or the trade of a dependent of the debtor; or (C) professionally prescribed health aids for the debtors or a dependent of the debtor.
Further, the fact that Arkansas has opted out of the federal exemption plan does not mean that an Arkansas debtor would not be empowered, pursuant to 11 U.S.C. Section 522(f), to avoid judicial liens and nonpossessory, nonpurchase money security interests in certain goods to the extent of the exemptions allowed under state law. The power to avoid liens against those interests specifically enumerated in Section 552(f) operates independently of a state’s choice regarding its exemption scheme.
O’Malley vs. Rapidan River Farm,
24 B.R. 900, 903 (D.C.E.D.Va.1982). See, also
Beneficial Finance Co. of Virginia Inc. vs. Rodgers,
5 B.R. 761, 764 (Bkrtcy.W.D.Va.1980). See, generally, 3 Collier on Bankruptcy, Section 522.29 (15th 1979).
Thus, even though the debtors have no equity in the items they are attempting to claim exempt, they are entitled to claim the exemptions. The Code provides the method. The item must be among the enu
merated items, whether on the federal or state list. In the instant case the item is on the state list. The claimed exemptions, if encumbered, are then subjected to a further scrutiny before the debtor may claim the item free and clear of liens. Here the indebtedness owed the secured creditor is represented by a nonpossessory, nonpur-chase money lien which far exceeds the value of the collateral. The Code addresses that eventuality in Section 522(f) and provides a method of avoiding certain types of liens on specific types of property in order that a debtor might claim free and clear certain enumerated, albeit encumbered, exemptions. A court, then, must look to the nature of the security to determine whether the nonpossessory, nonpur-chase money lien may be avoided by the debtor. 11 U.S.C. Section 522(f)(2)(A) through (C).
The court reiterates its earlier observation that the debtors have made no attempt to avoid the subject lien and such step is a necessary prerequisite to returning the property free of liens to the debtors. See
In Re Ray, supra
and
In Re Kursh, supra.
That is not the case herein, but even if it was this court has spent sufficient time researching the subject to conclude that an automobile, unless it qualifies as a tool of the trade, lies beyond the reach of Section 522(f).
See
Smith v. Avco Financial Services,
29 B.R. 345, 346 (Bkrtcy.M.D.Pa.1983);
In Re Zaicek,
29 B.R. 31, 32 (Bkrtcy.W.D.Ky.1983);
In Re Martinez,
22 B.R. 7, 8 (Bkrtcy.D.N.M.1982) and
In Re Abt,
2 B.R. 323, 325 (Bkrtcy.E.D.Pa.1980). The creditor has raised this is sue secondarily in its argument and the debtors have chosen not to respond. The court thus addresses the issue of lien avoidance and finds that the subject collateral, the Datsun automobile, lies beyond the reach of the lien avoidance provisions of the Bankruptcy Code.
Accordingly, for the foregoing reasons, it is hereby
ORDERED that the objection to confirmation of the debtors proposed Chapter 13 plan be sustained. It is further
ORDERED that the debtors be given an additional 20 days from the date of the entry of this Order to modify their plan in accordance with the findings of this court set out hereinabove.