Kolich v. Antioch Laurel Veterinary Hospital (In re Kolich)

Dean and Michelle Kolich (debtors) filed for Chapter 7 bankruptcy. At the time of filing, there were three liens on the Kolichs’ homestead. World Savings Bank held a first-priority first mortgage with a balance of $219,000. Antioch Laurel Veterinary Hospital (Antioch) (creditor) held a second-priority judicial lien for $134,000 based on a judgment against the Kolichs. Norbank held a consensual third-priority junior mortgage with a balance of $80,000. The fair market value of the Kolichs’ homestead was determined to be $275,000. Missouri law allowed for a homestead exemption of $8,000. The Kolichs sought to avoid Antioch’s judicial lien, claiming that the lien impaired the homestead exemption under the formula established in 11 U.S.C. § 522(f)(2)(A) because the total amount of the three liens and the homestead exemption was $441,000, which exceeded the $275,000 value of the property in the absence of any liens by more than the total value of the judicial lien. The bankruptcy court concluded that the Norbank lien should not be included applying in the § 522(f)(2)(A) formula because Norbank’s lien was junior to Antioch’s. Under the bankruptcy court’s application of the formula without Norbank’s lien, the amount of the liens and exemption exceeded the property’s value by $86,000, which meant that $48,000 (i.e., $134,000 − $86,000) of Antioch’s lien could not be avoided. However, on appeal, the bankruptcy appellate panel (BAP) disagreed, holding that all liens on the property must be included in the formula. The BAP thus held that Antioch’s lien could be avoided in its entirety. Antioch appealed.