Surveying recent authorities from around the nation, Bankruptcy Judge Mary Jo Heston of Tacoma, Wash., laid out the factors that control categorizing a lien as judicial or statutory.
The distinction matters, because a debtor may only avoid a lien impairing an exemption under Section 522(f)(1) if it is a judicial lien.
The debtor in chapter 13 was saddled with a lien for more than $71,000 arising from the overpayment of a workman’s compensation claim. As Judge Heston said in her October 24 opinion, “the Lien is not represented by a traditional court-generated judgment.”
How the lien arose was paramount. Among other things, the debtor filed a letter of protest and request for reconsideration with the state labor department. He attended a hearing before an agency judge but later withdrew the appeal. After dismissal, the department’s order became final, later giving rise to the lien.
The task before Judge Heston was largely a matter of statutory interpretation.
Section 522(f) allows the debtor to “avoid the fixing of a lien . . . to the extent that such lien impairs an exemption to which the debtor would have been entitled . . . , if such lien is — (A) a judicial lien . . . .”
The distinction between a judicial lien and a statutory lien is critical.
Section 101(36) says that a judicial lien “means [a] lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.” In Section 101(53), the definition of statutory lien is more complex. It “means [a] lien arising solely by force of a statute on specified circumstances or conditions . . . but does not include security interest or judicial lien, whether or not such interest or lien is provided by or is dependent on a statute and whether or not such interest or lien is made fully effective by statute.”
In deciding whether it’s judicial or statutory, Judge Heston said that “the focus is on the manner in which the lien arose, not the manner by which it is enforced.” There was no controlling authority in the Ninth Circuit, so she looked elsewhere.
Judge Heston cited the Third Circuit for the proposition that “judicial liens must stem from some form of judicial or administrative process, whereas statutory liens stem directly from the statutory language.” She described the Third Circuit as reasoning “that the New Jersey statute required no judicial action and the mere act of docketing the certificate by the court clerk did not make it a judicial lien.”
Judge Heston cited this year’s decision in In re Mance, 31 F.4th 1014 (7th Cir. 2022), where the Seventh Circuit held that a lien on an impounded car was judicial. She interpreted the Chicago-based appeals court for holding that “the City could not impose the lien without the judicial or quasi-judicial procedures.” To read ABI’s report, click here.
Among the lower courts, Judge Heston analyzed In re Beck, No. 2016 WL 489892 (Bankr. E.D. Wis. Feb. 5, 2016), where the court found a judicial lien because the process involved an administrative determination to decide whether the debtor did or did not make a false statement. To read ABI’s report, click here.
By way of contrast, Judge Heston discussed a Pennsylvania case where the judicial lien arose automatically without any need for judicial action.
In the case before her, Judge Heston said that the procedure did not involve a “traditional court-generated judgment.” The question, she said, was “whether the Lien results from ‘other legal or equitable process or proceedings’ or ‘solely by force of a statute on specified circumstances or conditions.’”
In Washington State, Judge Heston said that the “statutes provide an extensive process that determines or adjudicates the existence of an overpayment and the validity of the amount owed.” She therefore held that the lien was judicial because it emanated from “a ‘legal or equitable process or proceeding’ within the meaning of the Code’s definition of a judicial lien.”
Judge Heston authorized the debtor to avoid the lien under Section 522(f).
Surveying recent authorities from around the nation, Bankruptcy Judge Mary Jo Heston of Tacoma, Wash., laid out the factors that control categorizing a lien as judicial or statutory.
The distinction matters, because a debtor may only avoid a lien impairing an exemption under Section 522(f)(1) if it is a judicial lien.
The debtor in chapter 13 was saddled with a lien for more than $71,000 arising from the overpayment of a workman’s compensation claim. As Judge Heston said in her October 24 opinion, “the Lien is not represented by a traditional court-generated judgment.”
How the lien arose was paramount. Among other things, the debtor filed a letter of protest and request for reconsideration with the state labor department. He attended a hearing before an agency judge but later withdrew the appeal. After dismissal, the department’s order became final, later giving rise to the lien.
The task before Judge Heston was largely a matter of statutory interpretation.