David G. Waltrip, LLC v. Sawyers, No. 20-1130 (8th Cir. 2021)
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The Eighth Circuit affirmed the bankruptcy appellate panel's decision upholding the bankruptcy court's order that fully voided Waltrip's judicial lien on debtor's homestead. In this case, after Waltrip filed suit against debtor in October 2016 for breach of contract in Missouri state court, a fire damaged debtor's home. The homeowner's insurance policy paid debtor for damages and Waltrip obtained a consent judgment that gave Waltrip a judicial lien against the homestead property. The parties do not dispute that Waltrip had a valid, avoidable lien that was affixed to debtor's property before she filed her bankruptcy petition. At issue is the extent to which Waltrip's lien impairs debtor's claimed homestead exemption.
The court concluded, under Missouri law, that when property is properly exempted under 11 U.S.C. 522, a debtor is the sole owner of the insurance proceeds covering the property. Without any precedent to support Waltrip's position, the court declined to include the amount of the insurance payout when calculating the fair market value of debtor's home on the petition date, and thus the court affirmed the bankruptcy court's ruling using the $3,000 to $6,000 valuation of the unrepaired, fire-damaged property as determined on the petition date. The court also concluded that, because Waltrip's lien is smaller than the extent of the impairment, the entirety of Waltrip's lien can be avoided. Finally, the court concluded that the bankruptcy court did not abuse its discretion in reopening the case to avoid the lien or in denying Waltrip's requests for attorneys' fees and costs related to the reopening.
Court Description: [Grasz, Author, with Loken and Kobes, Circuit Judges] Civil case - Bankruptcy. Waltrip had a valid, avoidable lien that affixed to Sawyers' property before she filed her Chapter 7 petition; the bankruptcy court did not err in determining the lien impaired Sawyers's claimed homestead exemption; under Missouri law, once a property such as Sawyers's fire-damaged home is properly exempted under Section 522, a debtor is the sole owner of the insurance proceeds covering the property; thus the insurance proceeds is not included in the determining the fair market value of Sawyer's home on the petition date and the bankruptcy court did not err in determining that value to be in the range of $3,000 to $6,000, which is less than the amount a debtor can exempt under Missouri law; therefore,the bankruptcy court did not err avoiding the entirety of Waltrip's lien; the bankruptcy court did not abuse its discretion in reopening the case to avoid the lien or in denying Waltrip;s requests for costs and attorneys' fees associated with the reopening.
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