Donald John Ryan

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
DONALD JOHN RYAN
DEBTOR
CASE NO.
07-02064-5-ATS
ORDER REGARDING OBJECTION TO CONFIRMATION
The matter before the court is the objection to confirmation filed by Mutual Security FCU.
A hearing took place in Raleigh, North Carolina on April 1, 2008.
Donald John Ryan filed a petition for relief under chapter 13 of the Bankruptcy Code on
September 18, 2007. 	Mutual Security holds a judgment against the debtor with a balance of
$20,044.68, and that judgment constitutes a lien on Mr. Ryan's real property. 	Mr. Ryan owns
property at 112 N. Drawbridge Lane in Wake County, and there are three deeds of trust on the real
estate. The judgment was filed between the recording of the second and third deeds of trust, and
thus Mutual Security holds a third priority position under North Carolina law. The plan proposes
to treat Mutual Security's claim as unsecured based on the scheduled value of the property of
$244,400. Mutual Security contends that the debtor has grossly undervalued the property and that
its claim should be treated as secured. Though not yet scheduled for hearing, Mr. Ryan has filed a
SO ORDERED.
SIGNED this 01 day of April, 2008.
________________________________________
A. Thomas Small
United States Bankruptcy Judge
____________________________________________________________
Case 07-02064-5-ATS Doc 59 Filed 04/01/08 Entered 04/01/08 16:09:42 Page 1 of 3

1 Section 522(f)(1)(A) allows a debtor to avoid a judicial lien to the extent that it impairs an
exemption to which the debtor would have been entitled. Section 522(f)(2)(A) provides that "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."
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motion to avoid the Mutual Security lien. The parties agree that valuation of the property is an issue
that must be addressed on another day.
The question currently before the court is whether, for purposes of § 522(f),1 the fact that the
judgment is higher in priority than the third deed of trust has any bearing on the debtor's ability to
avoid the lien. This court has addressed this issue twice, first in In re Shah, Case No. 05-01929-5-
ATS (Bankr. E.D.N.C. July 8, 2005), followed by In re Lee, Case No. 05-01680-5-ATS (Bankr.
E.D.N.C. July 29, 2005). In those cases, the court held that the application of the statute does not
depend on the relative priority of liens.
It is apparent from the plain language of the statute that judicial liens are to be treated
differently from consensual liens, regardless of the relative priorities of judicial (or
certain nonpossessory, nonpurchase-money security interests) as opposed to
consensual liens.
Shah at 5. Mutual Security contends that this case is distinguishable, because its judgment was
obtained by way of a confession of judgment and is therefore a consensual lien.
The fact that the judgment was obtained by confession of judgment does not change the
result that its priority does not affect the application of the formula provided in § 522(f). 	That
section provides for the avoidance of "judicial liens," not judgments. Judicial liens are defined in
§ 110(36) as liens "obtained by judgment, levy, sequestration, or other legal or equitable process or
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proceeding." 	11 U.S.C. § 110(36). 	There is nothing in the statute that would justify treating a
judicial lien obtained by confession of judgment differently than any other judicial lien.
Accordingly, the priority of the judgment lien under state law does not change the analysis
under § 522(f). Whether the lien may be avoided and the plan confirmed, however, depends on the
value of the property. That matter will be considered at a hearing on Tuesday, May 6, 2008, at
10:00 a.m. at the United States Bankruptcy Court, U.S. Courthouse and Post Office Building, 300
Fayetteville Street, Room 208, Raleigh, North Carolina.
SO ORDERED.
END OF DOCUMENT
Case 07-02064-5-ATS Doc 59 Filed 04/01/08 Entered 04/01/08 16:09:42 Page 3 of 3