In the case of Payne v. Crossroads of Hillsville Assoc., Ltd. the United States Bankruptcy Court at Abington, Virginia, ruled that a judgment creditor's lien was avoided because it impaired a debtor's homestead exemption. In summary, the Court found as fact that although the creditor docketed its judgment lien against the debtor prior to the debtor's filing of a bankruptcy petition and amended bankruptcy schedule that claimed an exemption in "any future equity" in his home, there were several other liens ahead of the judgment lien, and there was no equity left in the property, which had been sold. In particular, the Court found that at the time of filing the petition, local tax appraisals valued the debtor's property at $147,500. The evidence also showed that the creditor's judicial lien was subordinate to numerous prior liens, namely: a first deed of trust to a bank in the amount of $88,362; a second deed of trust to a bank in the amount of $52,000; a judgment lien in favor of another creditor in the amount of $2,513; and a judgment lien in favor of yet another creditor in the amount of $115,473. Also, at the time of filing, this property was subject to past-due taxes in the amount of $4,500. The total amount of liens, including taxes, senior to that of the creditor's was $262,848, thus rendering no equity in the debtor's property to support the plaintiff creditor's lien. The debtor sold this real estate for $185,000. Despite the automatic stay, the creditor's lis pendens caused approximately $10,000 of the proceeds from the sale to be held by the buyer's attorney pending resolution of this matter. The Court further stated that to aid the debtor in his "fresh start," the bankruptcy code provides that a debtor may avoid the fixing of a judicial lien on an interest of the debtor in property to the extent that the lien impairs an exemption to which the debtor would otherwise have been entitled. Thus, a judicial lien must be avoided if it impairs a debtor's exemption. The Court in Payne found that the creditor's judgment lien was not supported by any equity in the debtor's property at the time of the filing of the debtor's petition. To allow such a lien to remain in place would not only impair any exemptions to which the debtor would have been entitled, thus violative of Bankruptcy Code §522(f), but would also undermine the "fresh start" secured to the debtor by the provisions of the bankruptcy code. The Court stated that to the extent the creditor's judicial lien impaired the debtor's exemption, it must be avoided, for, if not, the intended benefit of the homestead exemption itself would be lost. Any remaining portion of the creditor's lien must also be avoided as lacking the supportive equity needed at the time of the filing of the debtor's petition and the debtor's opportunity for a "fresh start" would be frustrated unless he was entitled to avoid the creditor's judicial lien in its entirety. The Court also found it appropriate to note that an alleged lien upon property of a debtor without equity supporting same as of the date the petition is filed was a general unsecured claim discharged by the debtor's discharge order under Bankruptcy Code §727 and enjoined therein from collection. A discharge order provides that any judgment obtained heretofore or hereafter is void as a determination of personal liability of a debtor. A judgment docketed as a lien, not supported by equity, is a judgment only of personal liability, and the dischargeability order specifically enjoins all creditors whose claims are such from seeking collection. The Court also stated the issue of exemptions or exempt property is not the only remedy available to debtors in the area of lien avoidance and nullification. If a judgment or lien on debtors' property has no property or equity support, it is unsecured and discharged by the order of discharge.
