State Treasurer v. Wigger
OPINION the bankruptcy court correctly decided the issues that the Treasurer has raised on appeal; signed by District Judge Hala Y. Jarbou (aks)
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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF MICHIGAN
KEVIN M. WIGGER,
Case No. 1:19-cv-732
KEVIN M. WIGGER,
Honorable Hala Y. Jarbou
This is an appeal from a judgment in an adversary proceeding in the Bankruptcy Court for
the Western District of Michigan. For the reasons herein, the appeal will be denied.
Kevin M. Wigger is a prisoner incarcerated at the Central Michigan Correctional Facility,
where he is serving multiple sentences for criminal sexual conduct. The Muskegon County Circuit
Court sentenced him in 2006. His earliest possible release date is in 2021.
In 2015, the Treasurer of the State of Michigan brought an action against Wigger in state
court under the State Correctional Facility Reimbursement Act (SCFRA), Mich. Comp. Laws
§ 800.401 et seq., to recover the state’s costs for incarcerating Wigger. That statute requires the
Michigan Attorney General to secure reimbursement for these costs from the prisoner where the
Attorney General has “good cause” to believe that the prisoner has “sufficient assets to recover not
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less than 10% of the estimated cost of care of the prisoner or 10% of the estimated cost of care of
the prisoner for 2 years, whichever is less . . . .” Mich. Comp. Laws § 800.403(2).
On December 8, 2015, following a “lengthy bench trial,” the Muskegon County Circuit
Court determined that the State was entitled to recover some of its costs from Wigger’s individual
retirement account (IRA) and from the proceeds of a judgment that Wigger had obtained against
his son. (Final Order (Muskegon Cnty. Cir. Ct. Dec. 8, 2015), ECF No. 2-2, PageID.100.)
In 2017, Wigger filed for bankruptcy under Chapter 7 of the Bankruptcy Code. As part of
those proceedings, Wigger brought an adversary action against the Michigan State Treasurer to
discharge the debts and liens against him and his property. He claimed that his interests in the
IRA and the judgment were exempt under 11 U.S.C. § 522. Specifically, Wigger sought to avoid
the Treasurer’s interests in his property under 11 U.S.C. § 522(f)(1)(A), which permits the debtor
to avoid a “judicial lien” on the debtor’s property, to the extent such lien “impairs an exemption
to which the debtor would have been entitled under subsection (b) of this section[.]” Id.
The Treasurer claimed that its interest was a statutory lien, not a judicial lien, but the
bankruptcy court ruled in Wigger’s favor. The court determined that the Treasurer’s interest in
Wigger’s property was a judicial lien. (Mem. of Decision & Order (W.D. Bankr. Apr. 16, 2019)
(“Lien Decision”), ECF No. 2-4, PageID.230.) Next, the bankruptcy court avoided the Treasurer’s
lien on Wigger’s IRA because that lien impaired an exemption for retirement funds, to which
Wigger would be entitled under 11 U.S.C. § 522(d)(12). (Mem. of Decision & Order (W.D. Bankr.
Aug. 26, 2019) (“Avoidance Decision”), ECF No. 2-2, PageID.21.) Finally, the bankruptcy court
avoided the Treasurer’s lien on the judgment proceeds to the extent that the lien impaired an
exemption for property not exceeding $13,100 in value, to which Wigger would be entitled under
11 U.S.C. § 522(d)(5). (Avoidance Decision, PageID.23-24.)
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The Treasurer also asked the bankruptcy court not to discharge any of Wigger’s debt for
costs incurred by the State after the date that Wigger filed his petition for bankruptcy. The
Treasurer claimed that its post-petition costs for incarcerating Wigger did not exist when he filed
for bankruptcy; thus, they did not constitute a “claim” that could be discharged in bankruptcy
proceedings. The bankruptcy court rejected this argument, concluding that the Treasurer’s claim
against Wigger’s property as of the date that Wigger filed for bankruptcy included the state’s postpetition costs, which the court characterized as “unmatured, contingent, and unliquidated costs.”
(Avoidance Decision, PageID.26.)
The Treasurer now appeals these decisions, arguing that the bankruptcy court improperly
avoided its lien on Wigger’s property. Specifically, the Treasurer contends that (1) a lien under
SCFRA is not subject to avoidance because it is a statutory lien rather than a judicial lien, and
(2) even if the lien is judicial, the Treasurer is entitled to recover the post-petition costs of Wigger’s
This Court has jurisdiction under 28 U.S.C. § 1334 and the Court’s order referring all cases
under Title 11 to the bankruptcy court. W.D. Mich. L. Civ. R. 83.2. The Court also has jurisdiction
to hear appeals from “final judgments, orders, and decrees” of bankruptcy judges in proceedings
referred to them. 28 U.S.C. § 158(a)(1). The adversary proceeding in this case concluded with a
judgment entered on August 26, 2019.
III. Standard of Review
The bankruptcy court’s conclusions of law are reviewed de novo. Rowell v. Chase
Manhattan Auto. Fin. Corp. (In re Rowell), 359 F. Supp. 2d 645, 647 (W.D. Mich. 2004). The
Court applies the clearly erroneous standard when reviewing the bankruptcy court’s findings of
fact. Stamper v. United States (In re Gardner), 360 F.3d 551, 557 (6th Cir. 2004). “A finding of
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fact is clearly erroneous ‘when although there is evidence to support it, the reviewing court on the
entire evidence is left with the definite and firm conviction that a mistake has been committed.’”
Riverview Trenton R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 944 (6th Cir. 2007)
(quoting Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985)).
A. Judicial Lien / Statutory Lien
The Treasurer argues that its lien on Wigger’s assets is not dischargeable under 11 U.S.C.
§ 522(f) because it is a statutory lien, not a judicial one. A statutory lien is a lien
arising solely by force of a statute on specified circumstances or conditions . . . ,
but does not include [a] 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.
11 U.S.C. § 101(53). A judicial lien is a lien “obtained by judgment, levy, sequestration, or other
legal or equitable process or proceeding.” 11 U.S.C. § 101(36).
A mechanic’s lien is a clear example of a statutory lien. Michigan law provides that a
mechanic “shall have a lien” on an “article of value . . . [w]hen any person shall deliver [that item]
to any mechanic” for repair. Mich. Comp. Laws § 570.186. The amount of the lien is the “just
value of the labor and skill applied” to the item. Id. The mechanic can enforce the lien by retaining
possession of the item and, if the charges are not paid, sell the item to recover the amount of the
lien. Id. § 570.187. In other words, the statute alone creates a lien on specific property upon the
occurrence of a particular circumstance: delivery of an item to a mechanic for repair.
In contrast, as noted by the bankruptcy court, nothing in the text of SCFRA indicates that
it automatically creates a lien when “specified circumstances or conditions” are satisfied. Instead,
the SCFRA provides a set of procedures that the state must follow in order to “secure
reimbursement” for the state’s costs of incarceration. See Mich. Comp. Laws § 800.403(2). First,
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the director of the Michigan Department of Corrections must send the attorney general a report of
the prisoner’s assets and an estimate of the “total cost of care for that prisoner.” Mich. Comp.
Laws § 800.402. Next, the attorney general must determine whether there is “good cause” to
believe that a prisoner has sufficient assets to recover. Id. § 800.403. If good cause is found, the
attorney general “may” file a complaint in circuit court asking for reimbursement of its costs. Id.
§ 800.404(1). The prisoner then has an opportunity to respond to the complaint by showing “good
cause” why the state’s request should not be granted. Id. § 800.404(2). The circuit court must
hold a hearing on the state’s request. If the court finds that the prisoner has assets which “ought
to be subjected to the claim of the state,” the court will issue an order requiring that proceeds from
those assets be applied toward reimbursement of the state. Id. § 800.404(3). Among other things,
the court must take into consideration “any legal obligation of the defendant to support a spouse,
minor children, or other dependents and any moral obligation to support dependents to whom the
defendant is providing or has in fact provided support.” Id. § 800.404(5). According to the
Michigan Court of Appeals, the latter determination requires an “exercise [of] discretion.” State
Treasurer v. Wilson, 388 N.W.2d 312, 315 (Mich. Ct. App. 1986).
The bankruptcy court correctly concluded that the foregoing procedures indicate that the
state’s right to reimbursement under the SCFRA does not arise “solely by force of the statute.”
Rather, the state must secure that right by commencing court proceedings and obtaining a court
order. If the Treasurer had not filed its complaint for reimbursement, or was unable to show that
Wiggers had sufficient assets for the state to recover, or if the court had found that Wigger’s assets
are not those which ought to be subjected to the state’s claim, then the state would not be able to
reach Wigger’s assets. Put another way, the state’s lien arose through a “judgment, levy,
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sequestration, or other legal or equitable process or proceeding,” 11 U.S.C. § 101(36), which
makes it a judicial lien, not a statutory one.
The Treasurer relies on Auditor General v. Hall, 1 N.W.2d 516 (Mich. 1942), to argue that
the SCFRA creates a statutory lien, but that case supports the bankruptcy court’s conclusion. In
Auditor General, the Michigan Supreme Court opined that the precursor to SCFRA creates a
“statutory obligation of a prisoner to pay for his keep and maintenance, if he has a sufficient
estate[.]” Id. at 518. In isolation, that statement suggests that the SCFRA itself creates a lien. But
the court also noted that “[t]he law does not impose a personal judgment or liability against the
prisoner, but provides for establishing a lien upon his estate by an ancillary proceeding in rem.”
Id. (emphasis added). In other words, the “ancillary proceeding” establishes the lien, not the statute
on its own. That being the case, the lien is a judicial one.
The Treasurer also relies on State Treasurer v. Snyder, 823 N.W.2d 284 (Mich. Ct. App.
2011), which held that the State could reach the proceeds of an insurance policy that the prisoner
received. The prisoner attempted to disclaim his interest in the proceeds so that the state could not
take them; however, the court held that he could not do so because the SCFRA applies to a
prisoner’s “assets,” a term whose definition includes property “‘belonging or due a prisoner . . . .’”
Id. at 289 (quoting Mich. Comp. Laws § 800.401a(a)). Accordingly, “acceptance of the receipt of
the asset is irrelevant; . . . the property must merely be due a prisoner.” Id. Based on this premise,
the Treasurer contends that, because the SCFRA gives it an interest in a prisoner’s present and
future assets from the moment of the prisoner’s conviction, the SCFRA creates a statutory lien.
The Treasurer’s argument is not persuasive. While it is true that the SCFRA gives the state
an interest in assets that are “due” to a prisoner even before the state commences legal proceedings,
it does not necessarily follow that the state’s interest is a lien. On the contrary, the Court agrees
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with the bankruptcy court that the language and structure of SCFRA indicate that the statute gives
the state a claim for reimbursement from the prisoner’s assets, but the state must secure that claim
by following the court process laid out in the SCFRA. The court’s order at the end of that process
converts the state’s claim into a lien on the specific assets identified by the court. Until that time,
the prisoner’s property is unencumbered.
Next, the Treasurer argues that the SCFRA does not create a judicial lien because it does
not contain the requirements set forth in Michigan’s judgment lien statute, Mich. Comp. Laws
§ 600.2801 et seq. Among other things, the judgment lien statute requires a notice of judgment
lien and recording of the lien with the register of deeds, see Mich. Comp. Laws § 600.2803,
whereas the SCFRA contains no such requirements. However, this argument assumes that all
“judicial liens,” as that term is defined in the Bankruptcy Code, are “judgment liens” as defined
by state law. That is not the case. A “judgment lien” is “an encumbrance in favor of a judgment
creditor against a judgment debtor’s interest in real property[.]” Mich. Comp. Laws § 600.2801.
In contrast, a judicial lien under the Bankruptcy Code is not limited to interests in real property.
See United States v. Dishman Independent Oil, Inc., 46 F.3d 523, 526 n.3 (6th Cir. 1995) (judicial
lien on personal property of debtors); In re Tittabawassee Inv. Co., 831 F.2d 104, 106 (6th Cir.
1987) (judicial lien on liquor license). Accordingly, so long as the lien arises from a “legal or
equitable process or proceeding,” it satisfies the definition of judicial lien.
The Treasurer is right to point out that the existence of a judicial enforcement proceeding
does not necessarily make a statutory lien a judicial one. For example, a mechanic’s lien does not
become a judicial lien simply because the holder of the lien has obtained a judgment to enforce it.
See In re Howe, No. 16-32083, 2018 Bankr. LEXIS 1787, at *6 (Bankr. N.D. Ohio June 15, 2018).
That situation is distinguishable from the present case. As discussed above, there is no question
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that a mechanic’s lien is a statutory lien. According to the terms of Michigan’s mechanic’s lien
statute—and the Ohio mechanic’s lien statute discussed in Howe—a mechanic’s lien exists before
the commencement of any legal proceedings. Moreover, the statute provides an enforcement
mechanism that the lienholder can exercise without resort to the courts. The use of legal
proceedings to enforce that lien does not alter the source of the lien.
The SCFRA is different. It does not create a lien on its own. A court must first determine
that the prisoner can make sufficient reimbursement. The court proceedings to establish the state’s
right to the prisoner’s assets are not proceedings to enforce a pre-existing lien. Indeed, the statute
itself contemplates separate enforcement measures after the court has issued its judgment. See
Mich. Comp. Laws § 800.404a(3) (prohibiting enforcement of “any judgment obtained under this
act by means of execution against the homestead of the prisoner”). Thus, the legal proceeding is
what creates the lien, not the statute itself. The Treasurer’s arguments to the contrary are not
B. Post-Petition Costs
The Treasurer also argues that, even if the state’s lien is a judicial one, the bankruptcy court
should have limited the discharge of Wigger’s debt to the pre-petition costs of his incarceration.
The Treasurer contends that its claim for post-petition costs was “unmatured, unliquidated, or
contingent” at the time that Wigger filed for bankruptcy, and therefore did not fall within the
definition of a “claim” that can be discharged in bankruptcy. (See Treasurer’s Br. 15-16 (citing 11
U.S.C. § 101(5)), ECF No. 4.)
The bankruptcy court rejected this argument because “[t]he statutory definition of ‘claim’
[in the Bankruptcy Code] is broad enough to include unmatured, contingent, and unliquidated
claims such as the Treasurer’s non-recourse claim against the Debtor’s exempt property . . . .”
(Avoidance Decision, PageID.27.) Indeed, as the bankruptcy court noted, Congress adopted “the
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broadest available definition of claim[.]” Johnson v. Home States Bank, 501 U.S. 78, 84 (1991)
(quotation marks omitted). Furthermore, the Treasurer itself sought reimbursement for the future
costs of Wigger’s incarceration when filing its SCFRA claim in state court, and the state court
granted relief on that claim. (See Avoidance Decision, PageID.26.) This Court is not persuaded
that the bankruptcy court should have construed the Treasurer’s claim more narrowly in the
In summary, the bankruptcy court correctly decided the issues that the Treasurer has raised
on appeal. Accordingly, the Court will enter a judgment affirming its decisions.
November 16, 2020
/s/ Hala Y. Jarbou
HALA Y. JARBOU
UNITED STATES DISTRICT JUDGE
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