United States District Court, N.D. Alabama, Northeastern Division
MEMORANDUM OPINION AND ORDER
MADELINE HUGHES HAIKALA, UNITED STATES DISTRICT JUDGE.
Federal Credit Union appeals from the Bankruptcy Court's
order overruling Redstone's objection to Mr. Manuel
Whited and Ms. Connie Whited's claim of exemptions and
the Bankruptcy Court's order denying Redstone's
motion to alter or amend judgment. For the following reasons,
the Court affirms the Bankruptcy Court's orders.
JURISDICTION AND STANDARD OF REVIEW
Court has jurisdiction over Redstone's appeal under 28
U.S.C. § 158(a)(1). Section 158(a)(1) states:
“[t]he district courts of the United States shall have
jurisdiction to hear appeals from final judgments, orders,
and decrees . . . of bankruptcy judges entered in cases and
proceedings referred to the bankruptcy judges under section
157 of this title.” 28 U.S.C. § 158(a)(1).
reviews final decisions of a bankruptcy court, the district
court functions as an appellate court. In re Piper
Aircraft Corp., 362 F.3d 736, 738 (11th Cir. 2004).
“In reviewing a bankruptcy court judgment as an
appellate court, the district court reviews the bankruptcy
court's legal conclusions de novo.” In
re Englander, 95 F.3d 1028, 1030 (11th Cir. 1996).
PROCEDURAL HISTORY AND FACTUAL BACKGROUND
October 23, 2013, Redstone obtained a $76, 768.02 judgment
against the Whiteds. (Doc. 1-4, p. 2, ¶ 1). On December
2, 2013, Redstone recorded the judgment in Jackson County,
Alabama. (Doc. 1-4, p. 2, ¶ 1). By recording the
judgment, Redstone obtained a lien on Mr. Whited's
homestead property. (Doc. 5, p. 6). Mr. Whited owned the
homestead property before Redstone obtained and recorded the
judgment. (Doc. 5, p. 6). When Redstone obtained and recorded
the judgment, Alabama's homestead exemption was $5, 000
for individuals and $10, 000 for jointly owned property.
(Doc. 1-4, p. 2, ¶ 1); Ala. Code § 6-10-2.
11, 2015, the Alabama Legislature increased the state's
homestead exemption amounts to $15, 000 for individuals and
$30, 000 for jointly owned property. (Doc. 1-4, p. 2, ¶
2). The same day, the Alabama Legislature enacted Alabama
Code § 6-10-12, which provides that every three years,
the State Treasurer shall adjust the homestead exemption
amount “to reflect the cumulative change in the
consumer price index . . . . The adjusted amounts apply to
exemptions claimed on or after April 1 following the
August 25, 2016, the Whiteds filed a Chapter 13 bankruptcy
petition in the United States Bankruptcy Court for the
Northern District of Alabama. (Doc. 1-4, p. 2, ¶ 2).
Creditors filed proofs of claim in the Whiteds' Chapter
13 case for debts that arose both before and after the
effective date of Alabama's new homestead exemption.
(Doc. 1-4, p. 9, ¶ 27). On September 2, 2016, Redstone
filed in the Whiteds' Chapter 13 case a proof of claim
secured by the judgment lien on Mr. Whited's property.
(Doc. 1-4, p. 2, ¶ 6).
September 7, 2016, the Whiteds claimed the $30, 000 jointly
owned property homestead exemption in the property encumbered
by Redstone's judgment lien. (Doc. 1-4, p. 2,
¶¶ 3, 5). On October 7, 2016, Redstone objected to
the Whiteds' claim of the $30, 000 homestead exemption.
(Doc. 3-3). In its objection, Redstone argued that the
Whiteds' homestead exemption should be limited to $10,
000, the exemption amount for jointly owned property in force
when Redstone obtained and recorded its judgment. (Doc. 3-3,
p. 1, ¶ 6). As support for its objection, Redstone
asserted that because Alabama Code § 6-10-1
“specifically states: ‘The right of homestead or
other exemption shall be governed by the law in force when
the debt or demand was created, '” the Whiteds
could only claim the homestead exemption in force when the
judgment lien fixed to Mr. Whited's property. (Doc. 3-3,
p. 1, ¶ 5).
Whiteds opposed Redstone's objection. (Doc. 3-4). The
Whiteds argued that they incurred debt after July 11, 2015,
the effective date of the new homestead exemption. (Doc. 3-4,
p. 1, ¶ 1). Pursuant to In re Middleton, 544
B.R. 449 (Bankr. S.D. Ala. 2016), the Whiteds assert that
they are entitled to the $15, 000 homestead exemption in
force when they filed for bankruptcy. (Doc. 3-4, p. 1, ¶
1). And pursuant to Owen v. Owen, 500 U.S. 305
(1991), the Whiteds assert that the Bankruptcy Court should
“utilize the State Court exemptions to which the
Debtors would be entitled but for the existence of the
lien.” (Doc. 3-4, p. 1, ¶ 2). According to the
Whiteds, “[u]nder this standard, the [Bankruptcy] Court
should apply a $15, 000 homestead exemption.” (Doc.
3-4, p. 1, ¶ 2).
February 2, 2017, the Bankruptcy Court overruled
Redstone's objection. (Doc. 1-4). The Bankruptcy Court
found “pursuant to [Owen] that Alabama's
‘new' homestead exemption in effect on the petition
date is controlling for purposes of any action the [Whiteds]
may file to avoid Redstone's judgment lien pursuant to 11
U.S.C. § 522(f).” (Doc. 1-4, p. 1). The Bankruptcy
Court noted that 11 U.S.C. § 522(f)(1) states that
“the debtor may avoid the fixing of a lien on
an interest of the debtor in property to the extent that such
lien impairs an exemption to which the debtor would have
been entitled . . . .” (Doc. 1-4, p. 3, ¶ 7)
(emphasis in original). The Bankruptcy Court held that the
exemption amount to which the debtor “would have been
entitled” is the exemption amount “on the date of
filing the petition.” (Doc. 1-4, p. 5, ¶ 14). The
Bankruptcy Court found that the Whiteds would have been
entitled to the $15, 000 exemption on the date they filed
their petition. (Doc. 1-4, p. 10, ¶ 30).
Bankruptcy Court reasoned that “in ‘mixed
debt' cases, ” where debts are incurred before and
after the effective date of the new homestead exemption,
“the exemption limits on the petition date should be
applied despite § 6-10-1's ‘date of debt'
provision.” (Doc. 1-4, p. 7, ¶ 20). The Bankruptcy
Court discussed and agreed with the reasoning in
Middleton. The Middleton court held that
applying the petition date exemption in mixed debt cases is
consistent with the Bankruptcy Code which establishes rights
as of the petition date and with the Code's “fresh
start” policy. (Doc. 1-4, pp. 8-9, ¶¶ 25-26).
February 10, 2017, Redstone asked the Bankruptcy Court to
alter or amend the order overruling Redstone's objection
in light of the Eleventh Circuit's holding on remand in
In re Owen, 961 F.2d 170 (11th Cir. 1992). (Doc.
3-8, p. 1). Redstone stated that “the [Eleventh]
Circuit, on remand, . . . ruled that, since the Debtor had no
interest in the property prior to the fixing of the lien,
there was no exemption available.” (Doc. 3-8, p. 2).
Redstone asked the Bankruptcy Court to “consider
whether the change in the exemption amount altered [Mr.
Whited's] interest in the property [versus] that of
Redstone and to what extent.” (Doc. 3-8, p. 2).
Redstone argued that “[i]f the change in the exemption
amount increased [Mr. Whited's] interest, then the proper
response to that increase is to note that, since
Redstone's lien attached prior to that increase, the lien
cannot be avoided to that extent, as [Mr. Whited] did not
have this interest ‘prior to the fixing of the
lien.'” (Doc. 3-8, p. 2).
March 17, 2017, the Bankruptcy Court denied Redstone's
motion to alter or amend judgment. (Doc. 1-3). The Bankruptcy
Court found that “the controlling issue in this case
remains whether Redstone's lien impairs an exemption to
which [the Whiteds] would have been entitled on the petition
date but for the lien itself.” (Doc. 1-3, p. 3). The
Bankruptcy Court repeated that the Whiteds would be entitled
to the $15, 000 homestead exemption but for Redstone's
lien. (Doc. 1-3, p. 7).
March 29, 2017, Redstone appealed from the Bankruptcy
Court's order overruling Redstone's objection to the
claim of exemption and the Bankruptcy Court's order
denying Redstone's motion to alter or amend ...