The Tenth Circuit joined three other circuits by holding that a debtor who owns only a half interest in real property can avoid a judicial lien impairing an exemption under Section 522(f) based only on the debtor’s share of the liens on the property.

If the calculation were based on the full amount of the mortgage liens, Circuit Judge Carlos F. Lucero said in his August 14 opinion that the result would “create additional equity for the debtor at the expense of the lienholder.”

The case involved a debtor saddled with a $461,500 judgment lien. With his former wife, he had a 50% interest in a home he claimed to be worth $560,000. He was entitled to a $37,500 state homestead exemption. The house was encumbered with $485,000 in other liens.

Subtracting his $280,000 interest in the home from the total of all liens and the exemption, the debtor calculated that the amount of the impairment under Section 522(f) was more than $700,000, which would make the entire judgment lien avoidable.

Arguing that the property was worth $962,000, the judgment-lien creditor contended that the court should count only half of the other liens in making the impairment calculation. On that basis, the impairment would only be some $253,000, making the judgment lien enforceable for about $208,000.

Following what Judge Lucero said was the opinion of a minority of lower courts, the bankruptcy court agreed with the debtor and avoided the entire judgment lien. Because the impairment was so large, the bankruptcy court had no reason to rule on the contested value of the home.

The bankruptcy judge authorized a direct appeal to the circuit court.

Judge Lucero worked from the proposition, stated by the Supreme Court, that the focus on Section 522(f) is in the debtor’s interest. He cited legislative history for the notion that the purpose of Section 522(f) is to prevent an unsecured creditor from leaping ahead of other unsecured creditors by obtaining a judicial lien.

Basing the calculation only on half of the other liens on the property, Judge Lucero said, would be consistent with the Bankruptcy Code as a whole, where the word “property” typically refers to property of the debtor.

Judge Lucero agreed with the First, Third and Eleventh Circuits and the Ninth Circuit Bankruptcy Appellate Panel. He quoted the Third Circuit as taking the correct approach by viewing “‘the debtor as owning one half of the property to which one half of the mortgage debt is attributable.’” Miller v. Sul (In re Miller), 299 F.3d 183, 186 (3d Cir. 2002).

Judge Lucero reversed and remanded to recalculate the extent of the lien avoidance, evidently obliging the bankruptcy court to rule on the value of the property.