Bankruptcy: Lien Avoidance Case Review: Judicial Liens Larger than Available Exemptions

     In the case of Andrews Distributing Co. v. Stanley the United States District Court at Big Stone Gap, Virginia, held that a creditor's lien must be avoided in the amount of the debtors' homestead exemption, but the amount not avoided would remain a lien against the debtors' real property. The District Court's decision overruled a bankruptcy court's decision avoiding the entire lien. The Bankruptcy Court had concluded that the debtors' homestead exemption was impaired by the presence of the creditor's lien, and thus avoided the lien in full. The creditor, on appeal to the District Court, contended that the Bankruptcy Court erred, in that the clear language of Bankruptcy Code §522(f) mandated that the lien be avoided only to "the extent that" it impaired the exemption. The District Court agreed with the creditor and ruled that under the plain meaning of Bankruptcy Code §522(f), only the amount of the judicial lien which impaired the exemption should be avoided. The District Court stated that the Court of Appeals for the 4th Circuit, in strongly worded dicta, had addressed this issue in the case of In re Opperman. The Court of Appeals in Opperman concluded that a lien larger in amount than the exemption available to the debtor did not impair that exemption. Thus, in Andrews the District Court found for the creditor and decided that only that part of a lien which actually interfered with the debtor's homestead exemption may be avoided.