Angie M Garcia

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UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re:
Angie M Garcia,
Debtor(s).
Case No: 8:10-bk-10096-TA
Chapter: 7
STATEMENT OF DECISION ON DEBTOR’S
MOTION TO AVOID LIEN
Date: April 27, 2010
Time: 10:00 a.m.
Location: 5B
This matter came on for hearing on Debtor’s motion to avoid the non-possessory, non-
purchase money lien of Orange County Credit Union in a 2001 Mercedes Benz automobile.
Prior to the hearing the court published its tentative decision, which is incorporated herein by
reference and is repeated verbatim below:
This is the debtor’s motion to avoid the non-purchase money
security interest of Orange County Credit Union in a 2001
Mercedes Benz automobile. Debtor seeks to employ 11 U.S.C.
§522(f), which provides, in pertinent part, that a debtor may avoid a
non-possessory, non-purchase money security interest in certain
defined kinds of property to the extent that the lien impairs a valid
FILED & ENTERED
JUN 08 2010
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	ngo
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exemption claimed in that property. The portion of §522(f) pertinent
here is “(B)(ii) implements, professional books, or tools, of the trade
of the debtor…” Debtor argues that the Mercedes is a “tool of the
trade” considering debtor is a realtor. This may or may not be true
depending on whether one looks to California to define “tools of the
trade” or to federal law. But there is a more basic problem. The
only exemption claimed by debtor is listed under Schedule “C” by
reference to CCP §703.140(b)(5), which therefore defines the outer
limit of §522(f)’s application. Section 703.140(b)(5) allows $925
plus any unused portion of the grubstake exemption “in any
property.” The value of the claimed exemption is listed on
Schedule “C” as $5350.
But the issue is not just whether California recognizes an
exemption here. The real issue is whether it is the kind of
exemption that can then be used to avoid a voluntary, non-
purchase money lien. The Court is not convinced that the
California grubstake can be imported into an application against
vehicles through §522(f) under the argument that vehicles can be
“tools of the trade” under California exemption law. Section
522(f)(1) does not permit just any state exemption in any property
in any amount. Instead, the federal statute is very narrow on
exactly what sorts of property and security interests are subject to
the avoidance power. At §522(f)(3)(B), it is clarified that to the
extent the exemption law in “opt-out” states would allow an
exemption unlimited in amount, there is still a $5,475 cap insofar as
the attempt is made to avoid the lien in “tools of the trade.” The
dollar amount is not important; what is important is that “tools of the
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trade” appears to be separately defined for purposes of the federal
statute. Motor Vehicles are conspicuously absent from the
description of items listed in §522(f)(1)(B) or (3)(B). Although
vehicles are or can be included within the general definition of
property “necessary to and used in exercise of trade, business or
profession” in California exemption law under CCP §704.060(a),
this was not the section utilized by debtor to claim her exemption
under Schedule “C”; instead, debtor is trying to “back into” the use
of the avoidance section by reference to California’s grubstake
exemption. More importantly, the federal statute seems to have its
own definition of tools of the trade. Some courts have interpreted
the language of the federal statute regarding “tools of the trade”
specifically not to apply to vehicles since elsewhere within the
same statute at §522(d)(2) motor vehicles are separately and
distinctly referenced. In re Harrell, 72 B.R. 107, 110-11 (Bankr. N.D.
Ala. 1987). “ ‘Tool’ as used in this context implies “a manually
operated device, such as a carpenter’s hammer or a mechanic’s
wrench…the primary purpose of that section was to prevent
overreaching by creditors who take a security interest in the kinds
of items specified in §522(f)(2) in order to coerce the debtor, by
threatening to repossess the collateral, into making the scheduled
payments…Congress recognized that such items of collateral are,
by their nature, necessary for the debtor’s fresh start, that they
generally have very little resale value, and are thus practically
worthless in the hands of the creditor…” Id. at 111 citing H.Rep. No.
95-595, p. 127-27, 95th Cong.2d Sess. (1987).
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There are lines of cases on both sides of this issue1. Of
particular interest is In re McNutt, 87 B.R. 84 (9th Cir BAP 1988),
where the Ninth Circuit BAP decided that a truck used in the
debtor’s drywall business was a “tool of the trade” and thus eligible
for the lien avoidance provisions of §522(f). The Ninth Circuit BAP
went to some lengths to distinguish and criticize the 7th Circuit in In
re Patterson, 825 F. 2d 11140 (7th Cir. 1987) and noted that the
issue is both a factual and a legal one. McNutt, 87 B.R. at 87. The
Court, however, is not prepared to go as far as this debtor wants
here for two reasons:
1 Among those cases holding or acknowledging that a motor vehicle (or motorized farm machinery) may in some
instances be a tool of the trade under 11 U.S.C. § 522(d)(6), 11 U.S.C. § 522(f)(2)(B), or applicable state law, are:
In re LaFond, 791 F.2d 623 (8th Cir.1986); In re Smith, 68 B.R. 581 (Bankr.D.Minn.1986); In re Weinstein, 44 B.R.
987 (Bankr.E.D.Pa.1984); In re Dempsey, 39 B.R. 561 (Bankr.E.D.Pa.1984); In re Schneider, 37 B.R. 747
(Bankr.N.D.Ga.1984); In re Langley, 21 B.R. 772 (Bankr.D.Me.1982); In re Reed, 18 B.R. 1009
(Bankr.W.D.Ky.1982); In re Dillon, 18 B.R. 252 (Bankr.E.D.Cal.1982); In re Eagan, 16 B.R. 439
(Bankr.N.D.N.Y.1982); In re Goosey, 10 B.R. 285 (Bankr.D.Neb.1981); In re Damron, 5 B.R. 357
(Bankr.W.D.Ky.1980); In re Dubrock, 5 B.R. 353 (Bankr.W.D.Ky.1980); and In re Meyers, 2 B.R. 603
(Bankr.E.D.Mich.1980).
Among those cases holding or opining that a motor vehicle or motorized farm machinery is by definition not a tool
of the trade are: In re Patterson, 825 F.2d 1140 (7th Cir.1987); In re Nowak, 48 B.R. 290 (W.D.Wis.1984); In re
Harrell, 72 B.R. 107 (Bankr.N.D.Ala.1987); In re Trainer, 56 B.R. 21 (Bankr.S.D.Tx.1985); In re Ramey, 45 B.R.
562 (Bankr.W.D.Va.1984); In re Curry, 18 B.R. 358 (Bankr.N.D.Ga.1982); In re Steele, 8 B.R. 94
(Bankr.S.D.1980); and In re Sweeney, 7 B.R. 814 (Bankr.E.D.Wis.1980) (dicta).
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First, this debtor did not invoke an exemption in a motor
vehicle, or even a tool of the trade, but instead she invoked a
grubstake exemption. To allow this to also suffice for purposes of
lien avoidance is to say that in California there are simply no limits
beneath about $19,000 to the lien avoidance powers in non-
possessory, non-purchase money security interests. The Court
doubts this is what Congress had in mind.
Second, some deference must be given to the legislative
history as noted in Harrell. The original purpose was to discourage
overreaching creditor leverage over items of collateral with little or
no resale value, but vital to the debtor’s fresh start. It is one thing to
say that a tractor or a truck might be a tool of the trade, or that
other kinds of expensive machinery might also be. But to extend
this concept further still to luxury automobiles like a Mercedes Benz
that are readily re-saleable under the argument that realtors drive
their prospective customers around and want to make an
impression, is going too far in this Court’s view. Presumably, stock
brokers also want to make an impression, or, for that matter, any
professional, executive or entrepreneur. Shall we soon see
motions to avoid liens in expensive automobiles, or party boats and
even country club memberships, or any other luxury that is
susceptible to financing? The Court is not prepared to go this far
under a “tool of the trade” or grubstake rubric absent a better
showing of either legislative intent or binding authority.
Deny
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At the invitation of the court, the parties have submitted their further briefs. After
reviewing the briefs and carefully considering the matter, the Court is persuaded that its
decision as announced in the tentative was correct for not only those reasons but further, as
discussed below. It must be remembered that 11 U.S.C. §522(f) does not purport to govern
what may be claimed as exempt in an opt-out state such as California. Rather, it provides that
if certain kinds of property are validly claimed as exempt, then to the extent that those items
also meet the narrowly-defined categories of property set forth in §522(f), the non-possessory,
non-purchase money liens thereon may be avoided within certain limits. One enumerated
category in §522(f)(1)(B)(ii) is “tools of the trade of the debtor….” On debtor’s Schedule “C,”
she does not specifically claim “tools of the trade,” nor does she even invoke one of
California’s versions of this phrase which is slightly different, found at CCP §704.060(a)(1), i.e.:
Tools, implements, instruments, materials, uniforms, furnishings,
books, equipment, one commercial motor vehicle…to the extent
that the aggregate does not exceed (1) six thousand seventy-five
dollars ($6,075), if reasonably necessary to and actually used by
the judgment debtor in the exercise of the trade, business, or
profession by which the judgment debtor earns a livelihood…
(emphasis added)
Rather, debtor invokes the “grubstake” found at CCP §703.140(b)(5) which affords a floating
exemption “in any property” up to the unused portion of the homestead exemption found in
(b)(1) of the same section. Specifically and separately enumerated are subsections (b)(6)
which affords $1,750 in “tools of the trade” and (b)(2) another separate sum “in one motor
vehicle.”
But particularly noteworthy is that the CCP§703.140(b) schedule of exemptions may be
elected “in lieu of all other exemptions provided by this chapter…” CCP §703.140(a). The
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reference to an automobile under California law exemptible if used “in the exercise of the
trade, business or profession…” appears in another portion entirely of the California
exemptions chapter, i.e. Article 3 at §704.060, and so is therefore outside of the grubstake.
So, even under California’s scheme, a debtor may elect the grubstake (as debtor did here) but
not simultaneously the generous definition at §704.060 which readily accepts a “commercial”
motor vehicle as a property “used in the exercise of the trade, business or profession.” This is
not mere mincing of words. Rather, this discussion is intended to highlight that even under
California law, the grubstake, “motor vehicle,” “tools of the trade,” all found in §703.140(b) and
“commercial motor vehicle …used in the exercise of a trade, business or profession” found at
§704.060, are separately defined, have separate meanings, represent separate and distinct
approaches to exemptions and are not necessarily interchangeable.
But even more persuasive to the Court is the rather narrow definition found in the
federal statute at 11 U.S.C. §522(f)(1)(B). Although “tools of the trade” are specifically
described at subsection (ii), “motor vehicles” conspicuously are not found anywhere within the
lien avoidance subsections. This is noteworthy in that “motor vehicles” are specifically called
out at other places in the statute, for example at §522(d)(2). This implies to the Court that
motor vehicles were specifically not within the contemplation of Congress when considering
non-possessory, non-purchase money lien avoidance. See In re Harrell, 72 B.R.107, 110-11
(Bankr. N.D.Ala.1987). It deserves repeating; this is not a question of what property may be
exempted, which in opt-out states clearly is a question of the state’s separate definitions.
Rather, it is a question of what subset of exemptible property may also be the subject of lien
avoidance, which requires an interpretation of the federal statutory language. The Court is
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persuaded that Congress did not intend to extend this power to avoiding liens on automobiles.
When added to the legislative history discussed in the tentative regarding the purposes behind
avoiding liens in tools of the trade [see H.R. Rep. No. 95-595, at 127-27 , cited in Harrell 72
B.R. at 111], it becomes clear to the Court that the tentative was correct.
Therefore, the motion to avoid the non-possessory, non-purchase money lien in the
vehicle is denied. As necessary, this statement of decision shall also serve as findings in the
case. Orange County Credit Union is directed to submit an order consistent with this decision.
###
United States Bankruptcy Judge
DATED: June 8, 2010
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NOTE TO USERS OF THIS FORM:
1) Attach this form to the last page of a proposed Order or Judgment. Do not file as a separate document.
2) The title of the judgment or order and all service information must be filled in by the party lodging the order.
3) Category I. below: The United States trustee and case trustee (if any) will always be in this category.
4) Category II. below: List ONLY addresses for debtor (and attorney), movant (or attorney) and person/entity (or
attorney) who filed an opposition to the requested relief. DO NOT list an address if person/entity is listed in category I.
NOTICE OF ENTERED ORDER AND SERVICE LIST
Notice is given by the court that a judgment or order entitled (specify) STATEMENT OF DECISION ON
DEBTOR’S MOTION TO AVOID LIEN was entered on the date indicated as AEntered@ on the first page of this
judgment or order and will be served in the manner indicated below:
I. SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (ANEF@) B Pursuant to controlling
General Order(s) and Local Bankruptcy Rule(s), the foregoing document was served on the following
person(s) by the court via NEF and hyperlink to the judgment or order. As of June 8, 2010 , the following
person(s) are currently on the Electronic Mail Notice List for this bankruptcy case or adversary proceeding to
receive NEF transmission at the email address(es) indicated below.
Anerio V Altman lawclerklojls@cox.net
Charles W Daff cdaff@epiqtrustee.com, cdaff@ecf.epiqsystems.com
Jason E Goldstein jgoldstein@buchalter.com, bkgroup@buchalter.com
United States Trustee (SA) ustpregion16.sa.ecf@usdoj.gov
Joseph M Welch jwelch@buchalter.com
Service information continued on attached page
II. SERVED BY THE COURT VIA U.S. MAIL: A copy of this notice and a true copy of this judgment or order
was sent by U.S. Mail to the following person(s) and/or entity(ies) at the address(es) indicated below:
Angie M Garcia
1133 Buckingham, Unit D
Costa Mesa, CA 92626
Service information continued on attached page
III. TO BE SERVED BY THE LODGING PARTY: Within 72 hours after receipt of a copy of this judgment or
order which bears an AEntered@ stamp, the party lodging the judgment or order will serve a complete copy
bearing an AEntered@ stamp by U.S. Mail, overnight mail, facsimile transmission or email and file a proof of
service of the entered order on the following person(s) and/or entity(ies) at the address(es), facsimile
transmission number(s) and/or email address(es) indicated below:
Service information continued on attached page
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