Since Creditor’s Lien Could Not Impair Debtor’s Homestead Exemption, the Court Denied his Motion to Avoid Judicial Lien

Since Creditor’s Lien Could Not Impair Debtor’s Homestead Exemption, the Court Denied his Motion to Avoid Judicial Lien

This case poses a frequently-posed issue – how a judgment should be treated in bankruptcy when the judgment is recorded against a debtor’s property held in a tenancy by the entirety. To what extent does the judgment creditor have a lien, and can the debtor avoid that lien under section 522(f) of the Bankruptcy Code, 11 U.S.C. § 522(f)? Here, the Debtor seeks to avoid a judgment lien that Creditor says she holds against the residence the Debtor and his wife owned on the petition date as tenants by the entirety. The Debtor contends the lien impairs an exemption he claimed on the property as a tenant by the entirety. And his case has an added wrinkle: post-petition, the Debtor’s wife died, terminating the tenancy.

The Debtor is a lawyer who was suspended from the practice of law in 2001 and has not been reinstated. The Debtor and his wife owned a residence in Highland Park, Illinois. As far as the record shows, they lived there together.

In 1998, before the Debtor’s suspension, Creditor hired him to file a medical malpractice action for her. The Debtor never filed the action, and the statute of limitations ran. In 2002, Creditor sued the Debtor for legal malpractice and in 2005 obtained a default judgment against him for $500,000. That same year, Creditor recorded the judgment in Lake County, Illinois, the county where the Debtor’s residence is located. The judgment was subsequently revived. Creditor says that as of January 17, 2017, post-judgment interest came to $540,000, bringing her total claim against the Debtor to $1,040,000.

On November 19, 2015, the Debtor filed a chapter 7 bankruptcy petition. His Schedule D identified his debt to Creditor as secured by a judgment lien on his residence. On the petition date, the Debtor and his wife owned the Highland Park property as tenants by the entirety. On his Schedule C the Debtor claimed his exemptions under section 522(b)(3) and specifically claimed the Highland Park property as exempt under section 12-112 of the Illinois Code of Civil Procedure, 735 ILCS 5/12-112 (2014).

In November 2016, a year after the bankruptcy case was filed, the Debtor’s wife died.

In March 2017, the Debtor moved to avoid Williams’s judgment lien on the ground that the Highland Park property is exempt under section 12-112, and the lien impairs his exemption. Creditor has objected to the motion. She concedes that the Debtor’s present interest in the property as one of two tenants by the entirety was exempt on the petition date. She appears also to concede that her lien could have been avoided as to that interest. But she argues that as a tenant by the entirety the Debtor also had contingent future interests to which her lien attached, interests that were not exempt and are plainly not exempt now that his wife has died and the tenancy has ended.

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