United States Court of Appeals
For the First Circuit
No. 02-2033
IN RE DAVID G. GARRAN,
Debtor.
DAVID G. GARRAN,
Appellant,
v.
SMS FINANCIAL V, LLC, ASSIGNEE OF
CITIZENS BANK OF MASSACHUSETTS,
Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Edward F. Harrington, Senior U.S. District Judge]
Before
Selya, Circuit Judge,
Stahl, Senior Circuit Judge,
and Lipez, Circuit Judge.
William G. Billingham, with whom Billingham & Marzelli were on
brief, for appellant.
Kevin P. McRoy, with whom Thomas E. Pontes and Wynn & Wynn,
P.C. were on brief, for appellee.
July 28, 2003
LIPEZ, Circuit Judge. In this bankruptcy appeal arising
from a Chapter 7 proceeding, we are asked to determine whether two
Massachusetts homestead exemptions can be "stacked" to permit a
double exemption for a debtor who claims on the basis of such
stacking that a judicial lien impairs the value of his exemption.
Citizens Bank of Massachusetts holds a judicial lien on the
property owned by David Garran, the debtor in this petition, and
his wife. At issue is whether David Garran is entitled to claim
both his $300,000 exemption as a disabled person, pursuant to Mass.
Gen. Laws Ann. ch. 188, § 1A (West Supp. 2003), and the $300,000
exemption of his non-debtor spouse, pursuant to Mass. Gen. Laws
Ann. ch. 188, § 1 (West Supp. 2003). If Garran can "stack" the
exemptions and claim, in total, the $600,000 homestead exemption,
he will be able to avoid entirely Citizens' judicial lien on the
property. Applying the plain language of the Massachusetts
statutes, we affirm the decision of the district court affirming
the bankruptcy court's denial of Garran's motion to avoid the
judicial lien.
I.
The material facts of this case are undisputed. David
Garran owns a single-family home in Hingham, Massachusetts, in
Plymouth County, as a tenant by the entirety1 with his wife,
1
A tenancy by the entirety is a "joint tenancy that arises
between husband and wife when a single instrument conveys realty to
both of them but nothing is said in the deed or will about the
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Judith. In February 1996, David Garran executed and delivered a
promissory note for $50,000 to the United States Trust Company.
Three years later, Garran executed another promissory note to the
United States Trust Company in the amount of $5,000. Citizens Bank
of Massachusetts ("Citizens") is the successor in interest to the
notes.
In August 2000, Citizens commenced an action against
David Garran in the Superior Court of Massachusetts subsequent to
Garran's default under the two promissory notes. Citizens also
obtained a writ of attachment against the Hingham property on
August 18, 2000, and perfected that writ on August 29, 2000, by
recording it in the Plymouth County Registry of Deeds. After the
court entered judgment in favor of Citizens on the promissory
notes, Citizens recorded the execution on the Hingham property in
the amount of $59,697.50.2 On August 9, 2000, Garran recorded a
declaration of homestead on the Hingham property as a disabled
person pursuant to Mass. Gen. Laws ch. 188, § 1A. Judith Garran3
later recorded a declaration of homestead on the same property
pursuant to Mass. Gen. Laws ch. 188, § 1.
character of their ownership." Black's Law Dictionary 1477 (7th
ed. 1999).
2
The judgment included the $55,000 value of the promissory
notes plus interest. On April 2, 2001, the date Garran filed for
bankruptcy, the value of Citizens' lien on the property was
$62,739.79.
3
Judith Garran is not a debtor in this case.
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On April 2, 2001, Garran filed a Chapter 7 petition for
bankruptcy. In Schedule A (Real Property) of his petition, he
listed the Hingham property as having a value of $560,000. In
Schedule C (Property Claimed as Exempt), Garran listed two
homestead exemptions under Massachusetts state law -- his § 1A
exemption for $300,000 and his wife's § 1 exemption for $300,000 --
thereby seeking a total exemption of $600,000 on the Hingham
property.
Citizens filed an Objection to the Debtor's Claim of
Exemption, arguing that Garran could claim only one of the state
law homestead exemptions. Garran filed a motion under 11 U.S.C. §
522(f) (2003) seeking to avoid Citizens' judicial lien, claiming
that it impaired his exemption in property. Citizens objected to
the motion. The bankruptcy court ruled that Garran could claim
only the later filed homestead exemption of his wife, thereby
limiting him to a $300,000 homestead exemption. In re Garran, No.
01-12676-JNF, slip op. at 10 (Bankr. D. Mass. Mar. 15, 2002).
Concluding that Citizens' judicial lien did not impair this
$300,000 exemption, the court denied Garran's motion to avoid the
lien. Id. at 12. On appeal, the district court affirmed. Garran
v. Citizens Bank of Mass. (In re Garran), No. 02-10833-EFH, slip.
op. at 3 (D. Mass. July 10, 2002). Garran now appeals.
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II.
We review the decision of the bankruptcy court directly,
affording de novo review to the court's resolution of the legal
question presented. Rutanen v. Baylis (In re Baylis), 313 F.3d 9,
16 (1st Cir. 2002).
A debtor is permitted to exempt a limited amount of
certain property from the bankruptcy estate pursuant to 11 U.S.C.
§ 522(b) (2003) to protect those types of assets from creditors.
As part of the bankruptcy petition, a debtor must file a list of
property claimed as exempt. 11 U.S.C. § 522(l); Bank. R. 4003(a).
In Massachusetts, a debtor can choose between the federal
exemptions -- those listed in § 522(d) -- or the exemptions
enumerated in state law. Patriot Portfolio v. Weinstein (In re
Weinstein), 164 F.3d 677, 679 (1st Cir. 1999); see also §
522(b)(2)(A) (permitting a debtor to select either federal or state
exemptions). Garran chose the state exemptions.
Along with exemptions for certain types of personal
property, Massachusetts law has established two homestead
exemptions. Under § 1 of the Homestead Act, any owner of a home
may acquire "[a]n estate of homestead to the extent of $300,000 in
the land and buildings." Mass. Gen. Laws Ann. ch. 188, § 1.
Entitlement to a homestead exemption is not automatic under
Massachusetts law. An owner of property must file the necessary
declaration of homestead before the exemption can be claimed. Id.
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§ 2. Garran's wife filed the necessary declaration of homestead as
an owner of the Hingham property. Only one member of a family is
permitted to file a declaration under § 1, and the filing of any
member of a family protects the entire family. Id. § 1.
The other type of homestead exemption is available only
to the elderly and disabled. According to § 1A, "[t]he real
property or manufactured home of . . . a disabled person, as herein
defined, shall be protected against attachment, seizure or
execution of judgment to the extent of $300,000." Garran filed the
necessary declaration of homestead under § 1A. A declaration of
homestead under this section is available only to individuals; a
declaration filed by one member of a family will not protect the
non-filing members of that family. The parties do not dispute
Garran's disability status.
Once property is exempted under § 522(b), it is immunized
from creditors while the outstanding debts are being discharged in
bankruptcy. See Owen v. Owen, 500 U.S. 305, 308 (1991) (explaining
the concept of exemptions). A bankruptcy discharge, though, voids
only those judgments "to the extent that such judgment is a
determination of the personal liability of the debtor." 11 U.S.C.
§ 524(a)(1). Since a judicial lien attached to property is a
liability in rem, it is not routinely discharged at the conclusion
of the bankruptcy case. Wrenn v. Am. Cast Iron Pipe Co. (In re
Wrenn), 40 F.3d 1162, 1164 (11th Cir. 1994). However, because
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judicial liens may interfere with the "fresh start" the Bankruptcy
Code seeks to give debtors, such liens may be avoidable under a
separate provision of the Bankruptcy Code, § 522(f).
That provision permits a debtor to avoid a judicial lien
to the extent it "impairs an exemption to which the debtor would
have been entitled." 11 U.S.C. § 522(f)(1). Pursuant to this
section, the debtor can avoid a particular judicial lien if, in
order to satisfy it, he would have to use assets he is otherwise
entitled to set aside from the bankruptcy estate as exemptions.
Section 522(f)(2) establishes a formula for determining whether a
lien impairs an exemption:
[A] lien shall be considered to impair an
exemption to the extent that the sum of --
(i) the lien;
(ii) all other liens on the property;
and
(iii) the amount of the exemption that
the debtor could claim if there were no
liens on the property;
exceeds the value that the debtor's interest
in the property would have in the absence of
any liens.
Id. § 522(f)(2)(A). See Snyder v. Rockland Trust Co. (In re
Snyder), 279 B.R. 1, 4 (B.A.P. 1st Cir. 2002). Avoidance of
judicial liens under § 522(f) is not an "all-or-nothing matter"; a
debtor is permitted to avoid only that portion of the judicial lien
that infringes upon the exemption to which he is entitled. East
Cambridge Savings Bank v. Silveira (In re Silveira), 141 F.3d 34,
35-36 (1st Cir. 1998). If the judicial lien does not impair the
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exemption -- if the value of the property is greater than the sum
of the liens attached to it and the exemption -- then the debtor
cannot avoid the lien and it will remain attached to the property.
Garran filed a motion to avoid Citizens' judicial lien on
the Hingham property in its entirety on the ground that it impaired
the homestead exemptions to which he was entitled. At the time the
motion was filed, Citizens' lien on the property (component (i) of
the formula) was valued at $62,739.79. In addition to this lien,
there were two mortgages on the property with a combined value of
$194,857.91 (component (ii) of the formula). In order to determine
whether the sum of the liens and the exemptions exceeds the value
of the property, we must determine "the amount of the exemption
that the debtor could claim." § 522(f)(2)(A)(iii). This is the
single issue of dispute in this appeal.4
III.
As the Massachusetts courts have not yet addressed the
interplay between a § 1 exemption declared by a non-debtor spouse
and a § 1A exemption declared by a debtor, we must predict how the
Massachusetts Supreme Judicial Court would interpret the statute.
Caron v. Farmington Nat'l Bank (In re Caron), 82 F.3d 7, 9 (1st
Cir. 1996). Because homestead laws are "designed to benefit the
4
Whether Garran is entitled to a $600,000 or a $300,000
exemption will determine whether Citizens' lien is avoided entirely
or not at all. The table in the Appendix outlines the differing
calculations the parties propose under § 522(f)(2)(A).
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homestead declarant and his or her family by protecting the family
residence from the claims of creditors," Massachusetts courts have
"construed the State homestead exemptions liberally in favor of
debtors." Shamban v. Masidlover, 705 N.E.2d 1136, 1138 (Mass.
1999). Nevertheless, liberal construction does not mean that
courts can extend the protection of the homestead exemptions when
doing so would contradict the "plain and unambiguous" language of
the statute. See id. at 1139 (finding the debtor's homestead
declaration invalid for failure to file the proper documentation as
the statute explicitly required). Consequently, we must turn to
the words of the statute in question.
Section 1 states, in pertinent part:
An estate of homestead to the extent of
$300,000 in the land and buildings may be
acquired pursuant to this chapter by an owner
or owners of a home or one or all who
rightfully possess the premise by lease or
otherwise and who occupy or intend to occupy
said home as a principal residence. . . .
. . . .
For the purposes of this chapter, an owner of
a home shall include a sole owner, joint
tenant, tenant by the entirety or tenant in
common; provided, that only one owner may
acquire an estate of homestead in any such
home for the benefit of his family. . . .
Mass. Gen. Laws Ann. ch. 188, § 1. Section 1A states, in pertinent
part:
The real property or manufactured home . . .
of a disabled person, as herein defined, shall
be protected against attachment, seizure or
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execution of judgment to the extent of
$300,000; provided, however, that such person
has filed [a] . . . disabled person's
declaration of homestead protection . . . .
Each individual having an ownership interest
in the real property or manufactured home
which serves as that individual's principal
residence and who qualifies under the
provisions of this section shall, upon filing
of an elderly or disabled person's declaration
of homestead protection, be eligible for
protection of such ownership interest up to a
maximum amount of $300,000 per individual,
regardless of whether such declaration is
filed individually or jointly with another.
. . . .
The . . . disabled person's estate or claim of
homestead shall be terminated . . . pursuant
to section two.
Id. § 1A (emphasis added). Regarding the acquisition and
termination of homesteads, the pertinent part of section two
states:
To acquire an estate of homestead in real
property, the fact that it is designed to be
held as such shall be set forth in the deed of
conveyance by which the property is acquired;
or, after the title has been acquired, such
design may be declared by a writing duly
signed, sealed and acknowledged and recorded
in the registry of deeds for the county or
district in which the property is situated. .
. . The acquisition of a new estate or claim
of homestead shall defeat and discharge any
such previous estate.
Id. § 2 (emphasis added).
Citizens argued before the bankruptcy court that § 2
ensures that no individual can claim more than one homestead
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exemption by stating that the acquisition of a new claim of
homestead defeats and discharges a previously-filed claim of
homestead. The court agreed with Citizens, holding that the plain
language of § 2 meant that Garran's § 1A declaration and
corresponding homestead exemption was defeated and discharged by
his wife's subsequent § 1 declaration. We agree that this is the
proper reading of the statutory language.
Garran's wife filed a declaration of homestead under § 1
on February 21, 2001. The declaration of homestead under § 1 is an
acquisition of a homestead "for the benefit of [the] family." Id.
§ 1. Therefore, by his wife's filing of a § 1 declaration, Garran,
as her spouse and member of her family, "acquired" a homestead on
February 21, 2001. See In re Roberts, 280 B.R. 540, 547 (Bankr. D.
Mass. 2001) (recognizing that a "declaration filed under subsection
1 protects even the non-filing debtor"). Section 2 states that
"the acquisition of a new . . . claim of homestead" discharges any
such previous estate. Therefore, Garran's acquisition of a new
homestead on February 21, 2001, through his wife's filing, defeated
his prior declaration of homestead filed pursuant to § 1A on August
9, 2000. The fact that the homesteads were acquired under
different sections is irrelevant, as § 1A states explicitly that a
homestead declared under that section "shall be terminated"
pursuant to § 2, the same provision that governs the acquisition
and discharge of § 1 homesteads. Even though the language of § 2
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existed prior to the enactment of § 1A, the specific invocation of
§ 2 in the text of § 1A indicates that the drafters were aware of
the existing termination procedures and intended them to apply to
the newly amended portions of the statute.
Garran suggests that § 2 does not apply when a new
declaration of homestead is filed on the same property -- that an
"acquisition of a new estate or claim of homestead" means a "new
estate or claim of homestead on a new home or piece of property."
Certainly § 2 would have the effect of discharging a prior
declaration of homestead on an old home when a Massachusetts
resident purchases a new home and files a new declaration of
homestead. But there is nothing in the statute that limits § 2 to
a new home purchase situation. Given that Judith Garran had not
previously declared a homestead on the Hingham property, her filing
under § 1 was a new "claim of homestead" under § 1, just as it
would have been if she had purchased a new home.
Alternatively, Garran argues that the statutes must be
interpreted as permitting a disabled person to stack the § 1 and 1A
exemptions because the purpose of enacting § 1A was to provide
additional protection in bankruptcy to those who qualify for a § 1A
exemption. But at the time of the enactment of the amendment, § 1A
did provide an extra benefit to disabled debtors. Prior to the
2000 amendments to the homestead statutes, §§ 1 and 1A provided
different levels of exemptions -- the § 1 general homestead
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exemption provided protection only up to $100,000 while the § 1A
exemption provided a $200,000 exemption. Mass. Gen. Laws Ann. ch.
188, §§ 1, 1A (West 1991). The amendments in 2000 both raised the
monetary value and equalized the §§ 1 and 1A exemptions. Moreover,
§ 1A still provides protections unavailable under § 1. Under § 1A,
a debtor retains his homestead exemption even given a judgment
against him based on fraud, mistake, duress, undue influence or
lack of capacity, while under § 1 the debtor does not. Mass. Gen.
Laws Ann. ch. 188, § 1 (West Supp. 2003). Rejecting Garran's
proffered interpretation of the homestead statutes -- by holding
that disabled debtors do not have the right to "stack" their § 1A
exemptions onto their § 1 exemptions -- does not eliminate the
value of the § 1A enactment.
IV.
Having predicted that the Massachusetts Supreme Judicial
Court would conclude that the plain language of the Massachusetts
homestead statutes prohibits the stacking of the exemption
available to disabled debtors on top of the exemption available to
all other residents of Massachusetts, and that Garran is entitled
only to a maximum of $300,000 provided by his non-debtor spouse's
declaration of homestead under § 1, we now must return to the
formula laid out in 11 U.S.C. § 522(f)(2)(A) to determine whether
Citizens' lien impairs Garran's homestead exemption of $300,000.
The sum total of Citizens' lien at the time of the bankruptcy
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petition ($62,739.79), the other liens on the property at the time
of the bankruptcy petition ($194,857.91) and Garran's homestead
exemption ($300,000.00) is $557,597.70. This total is less than
the value of the Garrans' property at the time of the bankruptcy
petition ($560,000.00). The Citizens' lien therefore does not
impair Garran's homestead exemption because Garran can both satisfy
the liens on the property and still retain the $300,000 homestead
exemption to which he is entitled under Massachusetts law. Because
the Citizens' lien does not impair Garran's exemption, it cannot be
avoided under § 522(f).
Affirmed.
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Appendix
This table sets forth the differing calculations the
parties propose under 11 U.S.C. § 522(f)(2)(A):
Garran's Theory Citizens' Theory
Citizens' lien 62,739.79 62,739.79
(undisputed)
Other liens (undisputed) 194,857.91 194,857.91
Exemption 600,000.00 300,000.00
Sum of 522(f)(2)(A)(i)- 857,597.70 557,597.70
(iii)
Value of property 560,000.00 560,000.00
(undisputed)
Exemption impaired? Yes: sum of (i)-(iii) No: sum of (i)-(iii)
exceeds value of does not exceed value of
property. property.
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