Finance Company Lien - Mobile Home

    In the case of American General Finance Co. v. Hoss, the United States District Court at Abingdon, Virginia, overruled a Bankruptcy Court decision avoiding a creditor’s lien on the debtor’s mobile home.  While all agreed that the creditor’s lien was a nonpossessory, non-purchase money security interest, there was a dispute as to whether Bankruptcy Code §522(f)(1) allowed for the avoidance of the lien.  The Bankruptcy Court concluded that the lien on the mobile home could be avoided as the Bankruptcy Code permits the avoidance of certain liens which would impair an exemption to which a debtor is entitled to pursuant to Bankruptcy Code §522(b).  Virginia Code §34-4 permits a debtor householder to exempt up to $5,000 of property as a homestead exemption.  The $4,000 homestead deed filed by debtor qualified for this exemption in the instant case.  Property claimed as exempt pursuant to Bankruptcy Code Bankruptcy Code §522(b) is not liable for any debt of debtor which arose before the commencement of a bankruptcy case, but an exception under §522 (c)(2)(A)(I) allowed such exempted property to remain liable for the preexisting debts of a debtor if the debt is secured by a lien which could not be avoided under Bankruptcy Code §522(f).

The Bankruptcy Court found that Bankruptcy Code §522(f)(1)(B)(i) provides for avoidance of nonpossessory, non-purchase money security interests on household furnishings or households goods that are held primarily for the personal, family or household use of the debtor or a dependent of the debtor.

Citing its prior decision in the case of  In re Goad  the Bankruptcy Court implicitly found that a mobile home is either a household furnishing or good under Bankruptcy Code §522(f)(1)(B)(i).

The District Court, on appeal, decided that a mobile home was in no manner a household good or furnishing, as required under that subsection.  Neither of those terms is defined by the Bankruptcy Code.  The 4^th Circuit Court of Appeals has explained that household goods under this subsection are those items of personal property that are typically found in or around the home and are used by debtor or his dependents to support and facilitate day-to-day living within the house.  The District Court stated that it was clear that a mobile home is virtually incapable of itself being contained within a home.  In addition, a mobile home was not the type of thing used “around the home” which facilitates … living within the home.”

The District Court examined several cases from across the country dealing with this same issue and discovered only one other court which had agreed with the Bankruptcy Court that a mobile home is a household good.  Thus, the District Court concluded that the Bankruptcy Court improperly applied Bankruptcy Code §522(f) and that a proper application of that subsection resulted in the lien in question being unavoidable.  The Goad case was overruled in that district and is no longer good law before that District Court.

In summary, the debtor was not entitled to avoid the lien on her mobile home held by the finance company.