MEMORANDUM DECISION AND ORDER ADDRESSING CROSS-MOTIONS FOR SUMMARY JUDGMENT

S. MARTIN TEEL, JR., Bankruptcy Judge.

If a lienholder has no right to pursue payment of the debt secured by its lien as a personal obligation of the debtor, and the debtor pays the debt to avoid loss of the collateral, the result is this: the value of the lien has proven to be the amount of the payments made on account of that lien even though the lien would have fetched less had the collateral been liquidated. As a consequence, the plaintiff White, as the successor via his avoidance powers to the defendant Wachovia's lien rights, is entitled to recover the postpetition payments the debtor Wyatt made on account of Wachovia's lien, which secured payment of a monetary obligation that the intervention of bankruptcy barred Wachovia from enforcing as a personal liability of Wyatt.

I

The plaintiff William D. White, the trustee in the debtor Wyatt's case under chapter 7 of the Bankruptcy Code (11 U.S.C.), commenced this adversary proceeding against WFS Financial Inc., now known as Wachovia Dealer Services, Inc. For ease of discussion, I will refer to WFS as Wachovia as though that had been its name all along.

By his complaint, White sought to set aside as a voidable transfer under 11 U.S.C. § 547(b) Wyatt's grant of a security interest in his truck to Wachovia, to preserve the avoided security interest for the benefit of the estate, to recover all postpetition payments made by Wyatt to Wachovia on account of the security interest, and to sell the vehicle free and clear of Wachovia's security interest and keep the sale proceeds as property of the estate. White does not seek to recover the prepetition payments made to Wachovia, presumably because the payments, even if made on account of an unsecured debt, would fit within the 11 U.S.C. § 547(c)(2) exception to the avoidability of the payments under § 547(b).

The parties filed cross-motions for summary judgment. The only real issue remaining is whether, as a matter of law, White is entitled to recover the postpetition payments Wyatt made to Wachovia prior to White's selling the vehicle. The court will grant summary judgment in favor of White for the following reasons.

II

The facts not genuinely in dispute are as follows. On June 1, 2004, Wyatt purchased a motor vehicle, a Chevrolet Tahoe truck, from Pohanka Imports, Inc., and Wyatt took possession of the truck the same day. On June 1, 2004, Wyatt executed a Contract and Security Agreement with Pohanka, which provided purchase money financing for the truck and contained a grant of a purchase money security interest in the truck securing Wyatt's obligation to pay amounts that were to come due under the contract. The Contract and Security Agreement was duly assigned to Wachovia, and the District of Columbia Certificate of Title reflects Wachovia as the lienholder. The Certificate of Title identifies the date of issuance as July 2, 2004. Under the Contract, Wyatt was required to make payments to Wachovia of $572.98 per month beginning on July 16, 2004.

Wyatt filed for protection under chapter 7 of the Bankruptcy Code on August 16, 2004. The parties agree that under McCarthy v. BMW Bank of North America, 509 F.3d 528 (D.C.Cir.2007), perfection of Wachovia's security interest occurred upon the District of Columbia's issuance of the certificate of title to the truck, and that the date of perfection was too late for the transfer of the lien to be exempt under 11 U.S.C. § 547(c)(3) from White's § 547(b) avoidance powers. The resolution of this adversary proceeding was stayed pending the resolution of BMW first at the bankruptcy court level (where the BMW litigation began in 2004), then at the district court level, and finally at the court of appeals level.

The principal balance of the loan as of the petition date was $24,779.98. Pending the resolution of BMW, and until White sold the truck, Wyatt continued to tender postpetition payments to Wachovia totaling $22,508.38 exclusive of force-placed insurance payments, which Wachovia also received as an agent.1 As established by Wyatt's affidavit, Wyatt made those postpetition payments to Wachovia with the intention of reducing the amount of debt secured by Wachovia's lien on the truck.2

The allowed proofs of claim filed in this case exceed $15,000 and do not include any claim by Wachovia. Other than this cause of action, the bankruptcy estate has no non-exempt assets. Pursuant to an order entered on April 16, 2008, in the main case, White sold the truck to Wyatt free and clear of Wachovia's lien, but with White to hold a lien securing Wyatt's "future post-petition payments to the Trustee subject to the same contractual terms that originally existed between him and Wachovia." Accordingly, White seeks the amounts due under the lien that were paid to Wachovia postpetition and to collect as well (pursuant to the terms of the sale) the remaining amounts that would have been due under Wachovia's lien. At the hearing on the cross-motions for summary judgment, White indicated that he had already sold the truck to Wyatt. Because the parties agree that Wachovia's security interest is avoidable, there was no dispute that the estate was entitled to retain the related sale proceeds free and clear of Wachovia's security interest. White takes the position that he is entitled to recover the postpetition payments to Wachovia as proceeds of the avoided lien; Wachovia takes the position that, regardless of the value of the truck on the petition date, White is not entitled to recover any of the $22,508.38 in payments on the debt that stood at $24,779.98 on the petition date.3

III

White has established that Wyatt's transfer to Wachovia of a security interest in the truck constitutes a transfer avoidable under 11 U.S.C. § 547(b),4 and it follows that the avoided lien is preserved for the benefit of the estate. 11 U.S.C. § 551. Although Wachovia's answer to the complaint did not concede this issue, and Wachovia attempted to muddy the waters as to this issue in opposing White's motion for summary judgment, Wachovia ultimately failed to present a genuine issue regarding the avoidability of the granting of the security interest.

A

Wachovia presented no evidence to rebut White's showing of avoidability. At the hearing on the cross-motions for summary judgment, counsel for Wachovia conceded on at least two occasions that the granting of the security interest in Wyatt's truck constituted an avoidable transfer within the meaning of 11 U.S.C. § 547(b). Indeed, the parties treated White's asserted right to recover postpetition payments as the only remaining issue in this proceeding. In light of the briefing on the issue and the representations made by counsel at the hearing, the court treats the elements of an avoidable transfer as having been established by White and conceded by Wachovia, and the dispute as having been narrowed to a question of whether White is entitled to recover postpetition payments in light of the avoidable transfer.

At the conclusion of the hearing, however, when the court indicated that it would likely grant summary judgment in favor of White and permit his recovery of postpetition payments made by Wyatt to Wachovia, counsel for Wachovia stated that Wachovia intended to pursue an equitable subrogation defense as to the avoidability of the lien. Although Wachovia asserted the defense in its answer to the complaint, Wachovia did not raise equitable subrogation as a defense in its opposition to White's motion for summary judgment.

White's motion sought an adjudication that he was entitled to recover the payments, which required a predicate finding that the lien was avoidable, and any issue of equitable subrogation ought to have been raised in opposition to the motion for summary judgment. For that reason, and for reasons stated at the hearing, Wachovia has forfeited its equitable subrogation defense, and, in any event, it failed to plead a proper equitable subrogation defense.5

In arguing that Wachovia should nevertheless be permitted to advance its equitable subrogation defense, counsel for Wachovia notes that discovery was stayed pending the resolution of the parties' cross-motions for summary judgment, and that Wachovia ought not be barred from pursuing its equitable subrogation defense until it has had a fair opportunity to take discovery. Had Wachovia deemed it necessary to take discovery to adequately assert defenses to White's motion, however, it should have sought leave to do so rather than waiting until after the motion had been fully briefed and brought before the court for decision. Wachovia failed to file an affidavit under Fed.R.Civ.P. 56(f) presenting reasons why it was unable to present by affidavit facts essential to justifying its opposition to White's motion for summary judgment.

B

By receiving the security interest, Wachovia received more than it would have received if the security interest had not been transferred and Wachovia had instead received payment on Wyatt's indebtedness only to the extent provided by the Bankruptcy Code. This was established by the file in this bankruptcy case (namely, the timely proofs of claims on file; Wyatt's schedules, executed under penalty of perjury, reflecting Wyatt's non-exempt property; and White's filing of only this adversary proceeding). The court takes judicial notice of that file in assaying White's statement of material facts not in genuine dispute. In its papers (see Dkt. No. 33), Wachovia contends that there is a genuine dispute as to this issue, but Wachovia did not otherwise develop this argument. In his reply (Dkt. No. 34), White attached a declaration under penalty of perjury explaining what the court's file already showed: that the allowed filed proofs of claim in this case exceed $15,000 and do not include any claim by Wachovia; that there are no non-exempt assets other than the anticipated proceeds of this cause of action; and that because the allowed filed proofs of claim in this case exceed $15,000, by receiving the security interest, Wachovia received more than it would have received if the security interest had not been transferred and Wachovia had instead received payment on Wyatt's indebtedness only to the extent provided by the Code. White explains that he did not previously provide evidentiary support as to this element of a § 547 avoidance action because he considered it to be a reasonable inference drawn from the undisputed facts. Wachovia did not rebut White's declaration, and did not otherwise pursue the issue at the hearing on the cross-motions.

IV

It having been established that White is entitled to avoid and preserve the lien for the benefit of the estate, the only question remaining is whether White is entitled to seek a monetary judgment from Wachovia for postpetition payments made by Wyatt to Wachovia. As this court observed in McCarthy v. Bank of America (In re Howell), Adv. Pro. No. 02-10017 (Bankr. D.D.C. Jan. 27, 2003):

Id. at 7. Although this conclusion seems obvious, intervening decisions have reached a different conclusion, and, accordingly, I explain this conclusion at greater length below.

A

Even disregarding Wyatt's affidavit, the only reasonable inference supported by the record in the bankruptcy case is that the postpetition payments were made on account of the lien. This stems from Wyatt's and Wachovia's rights under the Bankruptcy Code, and supports the legal conclusion that the postpetition payments to Wachovia were proceeds of its lien, and that White, having avoided the lien and preserved it for the benefit of the estate, is entitled to recover those payments as proceeds of the lien.

Wyatt commenced his bankruptcy case on August 16, 2004. The meeting of creditors, at which Wyatt was required to appear and be examined under 11 U.S.C. § 343, was set for September 22, 2004. White determined that there might be assets available for distribution to creditors, and on October 7, 2004, less than two months after the case commenced, White filed a request for the clerk to issue notice of a deadline for filing claims in the case. On October 20, 2004, he filed an application to employ an attorney to assist him in pursuing an avoidance action against Wachovia as the holder of the lien on Wyatt's truck. On October 28, 204, White commenced this adversary proceeding against Wachovia.

Wachovia has been barred since the bankruptcy case commenced, and now is permanently barred, from acting to collect its claim against Wyatt as a personal obligation of Wyatt. The commencement of the bankruptcy case gave rise to an automatic stay under 11 U.S.C. § 362(a) which barred Wachovia's taking any act to collect the debt.6 Wachovia never sought relief from the automatic stay to enforce its lien against Wyatt's truck. Wachovia may or may not have been entitled to declare a default based on Wyatt's having filed a bankruptcy case.7 Regardless, Wachovia undoubtedly felt that it would fare better if Wyatt continued to make payments, thereby relieving Wachovia of the costs of repossession and of the risk that a repossession sale might not pay the debt in full.8

Pursuant to 11 U.S.C. § 362(c)(2), the entry of Wyatt's discharge under 11 U.S.C. § 727(a) on December 3, 2004, terminated the automatic stay with respect to acts against Wyatt, but it gave rise to an injunction under 11 U.S.C. § 524(a)(2) against any act to collect Wachovia's claim as a personal liability of Wyatt. The discharge injunction did not bar Wachovia's in rem right to enforce its lien against the truck. Johnson v. Home State Bank, 501 U.S. 78, 84, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991).

The automatic stay still continued to bar Wachovia from repossessing the truck because it remained property of the estate. 11 U.S.C. § 362(c)(1). If Wyatt failed to make postpetition payments, that would have given Wachovia (or White upon avoiding Wachovia's lien) the right to declare a monetary default incident to its in rem rights, and provided grounds for seeking relief from the automatic stay. Wyatt, who wished to retain the truck, as evidenced by his later purchase of the truck from White free and clear of Wachovia's lien, continued to make postpetition payments, thereby avoiding a monetary default being declared by Wachovia as the lienholder. From Wyatt's perspective, it did not matter who the lienholder was (either Wachovia or White): either way he wished to continue making payments in order that no right to declare a monetary default would arise and lead to repossession.

Under Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992), a lien passes through a case under chapter 7 of the Bankruptcy Code unaffected, and this gives the lienholder all of its rights to enforce its lien for the full amount of the debt it secures, regardless of the value of the collateral on the petition date. A debtor is not permitted to "strip down" the lien of an undersecured lienholder to the value of the collateral as of the petition date. If the lienholder was undersecured on the petition date, but the collateral, such as a debtor's home, increases in value over the years, the lienholder is able in the event of default to foreclose on the collateral and to apply all of the proceeds towards satisfaction of its claim even if the proceeds exceed the value of the collateral as of the petition date.

Even if the collateral does not increase in value, the retention under Dewsnup of a lien for the full amount of the debt has the consequence that if the debtor wishes to retain the collateral, and to prevent a lien-enforcement sale of the collateral, the lienholder can insist that the debtor must pay the full amount of the debt in accordance with the payment obligations secured by its lien. In the case of a lien on a motor vehicle, this means that the rights preserved by Dewsnup include the lienholder's right to insist on the debtor's keeping payments current in order for the debtor to prevent the lienholder from repossessing the vehicle based on a default in payment. As the successor to Wachovia's rights as a lienholder, White succeeds to that benefit of being a lienholder.

Whether a debtor deems the collateral to be worth the outlay of payments necessary to avoid repossession is up to the debtor, and a debtor may be willing to pay more than what the collateral would fetch upon a sale on the petition date. Accordingly, a lienholder may realize, by reason of its lien rights, more than the sale value of the collateral as of the petition date. That the debtor's postpetition payments may have exceeded the petition date value of the collateral does not demonstrate that the debtor's payments were not on account of the lien.

Under 11 U.S.C. § 524(f), a debtor may voluntarily repay a debt without reaffirming the debt, but the record suggests no reason why Wyatt would have been motivated to make voluntary payments to Wachovia of the debt aside from preventing a repossession of the truck based on a default in making payments. Wyatt had no obligation either during the pendency of the case or after receipt of his discharge to pay Wachovia other than pursuant to Wachovia's in rem rights arising because it held a lien on the truck.9 Moreover, there is no familial relationship between Wyatt and Wachovia, a corporation, that would have led Wyatt voluntarily to pay Wachovia other than by reason of Wachovia's in rem rights as a lienholder.

There simply is no plausible reason why Wyatt would have continued to pay Wachovia postpetition had Wachovia had no lien. The postpetition payments were on account of the lien. To paraphrase White's counsel's observation at the oral argument of the motions, when you ask a debtor why she continued to make payments on a car after filing bankruptcy, she looks at you like you are the man in the moon: the reason is obvious, namely, to pay off the lien to keep the car.

B

Wachovia's position would require this court to wear blinders and disregard the reality that once a bankruptcy intervenes and bars a creditor from pursuing collection of a debt as a personal liability of the debtor, that creditor's lien securing payment of the debt can prompt payment of the full amount of the debt even though the collateral is worth far less than the amount of the debt. It is well known that in order to retain ownership of the collateral, a debtor may elect to pay such a debt in full because of the lien that remains enforceable against the collateral.

Upon Wachovia's lien being avoided, the lien was preserved for the benefit of the estate pursuant to 11 U.S.C. § 551. By reason of § 551, White stepped by way of subrogation into the shoes of Wachovia with respect to its lien rights. See Taubel-Scott-Kitzmiller Co. v. Fox, 264 U.S. 426, 436-37, 44 S.Ct. 396, 68 L.Ed. 770 (1924) (subrogation is the process by which the preservation of the lien was made available under a similar provision under the Bankruptcy Act providing for preservation of an avoided lien for the benefit of the estate). The avoided lien (and payments prompted by that lien, as proceeds of the lien) became property of the estate pursuant to 11 U.S.C. § 541(a), which provides in relevant part:

[Emphasis added.] As of the petition date, White is deemed to have been in the shoes of Wachovia with respect to its in rem lien rights, and the lien and its proceeds are treated as property of the estate.

The lien rights to which White was subrogated included Wachovia's rights as a lienholder pursuant to Dewsnup (which, as previously noted, held that, with statutory exceptions of no relevance here, a creditor's lien remains enforceable after the intervention of a case under chapter 7 of the Bankruptcy Code for the full amount of the debt secured by the lien even if the debt exceeds the value of the collateral). Accordingly, White was subrogated to Wachovia's right to enforce the lien postpetition for the full amount of the debt regardless of the value of the truck (including the right to insist on monthly payments being made if Wyatt was to avoid the truck being repossessed).

The payments on the lien were proceeds of the lien within the meaning of § 541(a)(6), and a lien follows and can be enforced against the proceeds. Phelps v. United States, 421 U.S. 330, 334-35, 95 S.Ct. 1728, 44 L.Ed.2d 201 (1975) (citing Sheppard v. Taylor, 30 U.S. 675, 5 Pet. 675, 710, 8 L.Ed. 269 (1831), and Loeber v. Leininger, 175 Ill. 484, 51 N.E. 703 (1898)). The term "proceeds" in § 541(a)(6) ought to be construed in a fashion advancing the purposes of that provision. It follows that the question of whether payments on account of a lien ought to be treated as proceeds of the lien is a question of federal law regardless of the label that state law places on such payments. See United States v. National Bank of Commerce, 472 U.S. 713, 727, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985). National Bank dealt with the question of what is "property" of the taxpayer under the federal tax lien statute, 26 U.S.C. § 6321, holding that this was a question of federal law to be applied to rights a taxpayer had under state law regardless of the label state law placed on those rights. The reasoning of National Bank applies with equal force to the question of whether postpetition payments on account of an avoided lien constitute "proceeds" of property of the estate under 11 U.S.C. § 541(a)(6). The classification question is a matter of federal law applied to rights created by state law. The payments having been prompted by the lien, and the treatment of the payments as constituting proceeds being necessary to place the estate in the position it would enjoy had the lien been avoided on the first day of the case, it readily follows that the payments were "proceeds" of the lien within the meaning of § 541(a)(6).10

The result, which seems obvious, is that White is entitled to recover those proceeds from Wachovia. There are several approaches that support that conclusion. First, pursuant to his rights under non-bankruptcy law as the postpetition holder of the lien, White is entitled to recover the proceeds from Wachovia.

Second, White is entitled to recovery of the postpetition payments under 11 U.S.C. § 550(a): the proceeds of the lien (payments on account of the lien) are part and parcel of the avoided lien, and without recovery of those proceeds White would not obtain the full benefit of the lien that was avoided and preserved for the benefit of the estate, and, as explained later, Wachovia would obtain an unwarranted windfall in comparison to other holders of unsecured claims against the estate.

Third, such recovery is alternatively authorized pursuant to 11 U.S.C. § 542(a), the court's authority to direct turnover to a trustee of the actual proceeds (as property of the estate) or "the value of such property." See Bohm v. Howard (In re Howard), 422 B.R. 568, 582 (Bankr.W.D.Pa.2009). The payments were prompted by the lien and constituted proceeds of the lien (and hence property of the estate under § 541(a)(6)) upon being received by Wachovia.11 Because Wachovia is the initial holder of lien proceeds that are property of the estate, 11 U.S.C. § 549 (dealing with postpetition transfers of estate property) is inapplicable, and Wachovia must turn over the value of the proceeds to White pursuant to § 542(a).12

Even if Wyatt's transfer of non-estate funds to Wachovia prompted by the lien and giving rise to proceeds of the lien could somehow be viewed as a postpetition transfer of estate property governed by 11 U.S.C. § 549, the funds would still be recoverable by White. No order authorized Wachovia to receive these proceeds of the lien, constituting property of the estate, and, accordingly, the transfers (if they could be viewed as transfers of property of the estate) would be avoidable under § 549, and recoverable by White under § 550(a). See West v. Hus (In re Advanced Modular Power Systems, Inc.), 413 B.R. 643, 672-73 (Bankr.S.D.Tex.2009).

C

White is not engaging in a double recovery barred by 11 U.S.C. § 550(d). Instead, White's entitlement to both hold the avoided lien to enforce payment of the remaining balance of the unpaid debt and to recover a judgment for the postpetition payments Wachovia received flows from the necessity of assuring that the estate receives the full benefit of the lien. This view is supported by the following observation made by the court in McCarthy v. Financial Freedom Sr. Funding Corp. (In re Early), 2008 WL 2073917, at *5 (Bankr. D.D.C. May 12, 2008):

White's dual remedies are making the estate whole by assuring that the estate receives all of the value inherent in the lien, no different than when a trustee avoids the prepetition transfer of and recovers a bond and also recovers postpetition interest payments that were made on the bond.13

D

White's avoidance of the lien was delayed because the court and the parties awaited the outcome of the BMW litigation in the bankruptcy court, then the district court, and finally the court of appeals. Until the trustee in BMW prevailed in the court of appeals, the prevailing interpretation of the law in this district (both at the bankruptcy court and district court level) was that Wachovia's lien was not avoidable. Had the court of appeals decision been the prevailing interpretation of the law all along, White could have promptly avoided the lien and commenced receiving Wyatt's payments on account of the lien. He ought not fare worse because he had to wait for the BMW case to reach the court of appeals and for the issuance of that court's decision before he could avoid the lien. The amount a trustee recovers by reason of payments made on account of an avoided lien ought not depend on whether the trustee avoids the lien close to the petition date or at a much later date. In either case, the trustee is entitled to the payments arising postpetition by reason of the lien. To rule otherwise in this case would confer an unjustified windfall on Wachovia in its only remaining status of being an unsecured creditor, a benefit not enjoyed by other unsecured creditors.

The windfall is this. Upon the avoidance of the lien and the recovery of the postpetition payments, Wachovia will have a non-priority14 unsecured claim against the estate under 11 U.S.C. § 502(h) for the amount it was owed on the petition date, with the claim (like other such unsecured claims) not being allowed as a claim against the estate with respect to unmatured interest as of the petition date. 11 U.S.C. § 502(b)(1). It will then share on a pro rata basis with other non-priority unsecured claims with respect to distributions from the estate. To permit it to retain the postpetition payments would accord it a priority to which it is not entitled, and bless its having collected postpetition interest that is not allowed on other nonpriority claims.

E

The leading decision offering some support for Wachovia's position, but which is distinguishable from this case, is Morris v. St. John Nat. Bank (In Re Haberman), 516 F.3d 1207 (10th Cir.2008), aff'g 347 B.R. 411 (10th Cir. BAP 2006), aff'g 2004 WL 2035341 (Bankr.D.Kan. Apr 14, 2004). In Haberman, the Habermans, debtors in a case under chapter 7 of the Bankruptcy Code, owned a car, which was subject to a security interest in favor of a bank. On the petition date, the debt stood at $3,237.50, and the car's fair market value was $2,000. The bankruptcy trustee pursued an adversary proceeding to avoid the bank's lien under 11 U.S.C. § 544(a) and to preserve the lien for the benefit of the estate under 11 U.S.C. § 551, and eventually succeeded in that effort. Pending the outcome of that adversary proceeding, and pursuant to an agreement between the trustee and the bank, payments on the debt secured by the lien were made to the bank, with the trustee's entitlement to the payments to be addressed later. Prior to the conclusion of the adversary proceeding, the Habermans paid the debt in full. The bankruptcy court then determined that the trustee was only entitled to recover the value of the car. The bankruptcy appellate panel and the court of appeals, in turn, affirmed that ruling. The two Haberman appellate decisions utterly fail to address what motivated the Habermans' making the postpetition payments.15 The decisions, in other words, fail to address whether the payments were motivated by the right of the bank as a lienholder (a right to which the trustee succeeded) to enforce the lien—to repossess the car and sell it at auction—if the debt was not paid in full, or by a right of the bank to collect the debt despite the debtors' bankruptcy case even if it had never possessed any lien rights.16 Finally, the decisions fail to address whether the payments were proceeds of the lien.

If that arose because the bankruptcy trustee in Haberman failed to raise these points or arose because the courts did not realize these points were an issue,17 this case is different. White has pressed these points, and the record establishes that the intervention of bankruptcy prevented Wachovia from further collecting the debt as a personal liability of Wyatt, that the payments were made only on account of the lien, and that the payments are thus proceeds of the lien. Accordingly, Haberman is distinguishable.

Nevertheless, Haberman sets forth dicta with which I must respectfully disagree. The court of appeals in Haberman acknowledged that a trustee who avoids a lien preserved for the benefit of the estate steps into a creditor's shoes with respect to the avoided lien. 516 F.3d at 1210. It noted that a "lien" is defined by 11 U.S.C. § 101(37) to be a "charge against or interest in property to secure payment of a debt or performance of an obligation." Id. at n. 4. The court of appeals then observed that a trustee's rights pursuant to an avoided lien do not include the creditor's right to receive contractual payments. That observation is only partly correct. When a trustee avoids a lien that lien does not enable the trustee to enforce the creditor's contractual right to payments as a personal liability of the debtor, but it does permit the trustee to enforce the creditor's right to receive contractual payments as an in rem obligation, including the right to insist on those payments being made as the price for the creditor's not selling the collateral at auction sale.

It is the right to receive payments that is secured by the lien. If (as here) it is the lien that prompts payments, the trustee as the new holder of the lien is entitled to recover those payments as proceeds of the lien. Plainly a trustee who avoids a lien and then continues to accept monthly payments (made by the debtor to prevent the trustee's declaring a default and selling the collateral as a lienholder) is entitled to those payments even if, upon the completion of those payments, the total of the payments the trustee received far exceeds the fair market value of the collateral on the petition date. Yet the reasoning of Haberman logically would bar the trustee's retaining payments made pursuant to the lien that exceed the fair market value of the collateral on the petition date. That makes no sense.

Moreover, it ought not matter whether the payments prompted by the lien are made after or before the lien is avoided. As observed by the dissent in Rubia, 257 B.R. at 329, without the point being questioned by the majority, the avoidance of a lien relates back to the filing date of the bankruptcy petition. Whether the payments are made after or before the lien is avoided, the payments (if they were prompted by the lien) are proceeds of the lien, and the trustee ought to be entitled to those proceeds of the lien.

The court of appeals in Haberman justified its reasoning regarding contractual rights versus lien rights by pointing to Robinson v. Howard Bank (In re Kors), 819 F.2d 19, 23-24 (2d Cir.1987), a decision which, when placed in proper perspective, supports White. Kors held that although a trustee avoided a bank's lien, the trustee's avoidance powers did not extend to avoiding for the benefit of the estate the bank's subordination agreement with other creditors who agreed to subordinate their liens to the bank's lien. Kors held that "equipped with lien creditor status under § 544(a)(1) and subrogation power under § 551, the trustee may preserve those rights and powers that a lien creditor would have against the bankrupt under [nonbankruptcy] law," and that "the trustee was vested only with the rights the Bank had against [the bankrupt]," which did not include the bank's rights under the subordination agreement with other creditors. 819 F.2d at 24. Accordingly, Kors stands for the unremarkable proposition that the in rem rights of a trustee as a holder of an avoided lien are limited to enforcing performance of the underlying obligations whose performance the lien secures, the means of enforcement being the inherent threat of a foreclosure sale or, if that threat does not prompt performance, an actual foreclosure sale. The lesson of Kors pertinent here is that so long as the lien remains upon the collateral, that lien remains enforceable pursuant to the lienor's in rem rights for whatever amount is owed pursuant to the in personam obligation whose payment it secures (including the right to sell the collateral if there is a default with respect to the in rem right to performance as a condition to the collateral not being sold). Without the lien securing performance of the payment obligations, it would be worthless.

So if the lien here had not been avoidable, Wachovia could have insisted that as the price of its not repossessing the truck, Wyatt would be required to make his postpetition monthly payments as set forth in the contract whose obligations were secured by the lien. If Wyatt made all of the required monthly payments, and they far exceeded the value of the collateral, Wachovia would not be precluded from retaining the payments even though it was barred by the bankruptcy case from collecting the note obligation as a personal liability of Wyatt.

The court of appeals in Haberman assumes that a trustee's recovery pursuant to an avoided lien is limited by what the collateral would have fetched had a sale been made pursuant to the lien on the petition date. That disregards the reality that often a debtor does not default in making car note payments postpetition, and ends up making payments on account of the lien worth far more than the value of the collateral. The court of appeals reasoned that:

516 F.3d at 1211-1212. That observation, echoing a similar observation by the bankruptcy appellate panel,18 disregards two points.

First, the Habermans did not default on their loan payments: they continued (as did Wyatt here) to make the monthly payments postpetition, and the avoided lien had, by reason of the definition in 11 U.S.C. § 101(37), secured those payments of the debt, and continued as those payments were made to secure the payment of the remaining balance of the debt, without regard to the value of the collateral. Sure, if the Habermans had defaulted and the bank had sold the Trans Am at an auction sale, the trustee's avoidance powers would not have included recovering anything other than the amount the bank realized on the auction sale, and the trustee would not have succeeded as well to the bank's deficiency claim. But that is not what happened, and it does not demonstrate that when payments are made on account of a lien postpetition it is inappropriate to treat those payments as proceeds of the lien.

Second, the court of appeals assumed that the trustee's recovery of postpetition payments in excess of the value of the collateral would represent proceeds of the bank's in personam right to collect the debt as a personal obligation of the Habermans. The court, however, failed to explain how the bank, once bankruptcy intervened, could have any enforceable right to be repaid for the debt other than pursuant to its in rem rights as a lienholder, rights that obviously would prompt payments by the Habermans if they wished to retain the Trans Am and avoid a monetary default leading to an auction sale.19

The court of appeals in Haberman reasoned that Dewsnup does not apply to a trustee who has avoided a lien. This reasoning disregards the holding of Taubel-Scott-Kitzmiller Co., Inc. v. Fox that upon avoidance of a lien, a trustee steps by way of subrogation into the shoes of the lienholder with respect to its lien rights. The reasoning also likely comes as a surprise to many a trustee who has avoided a lien and then has collected payments pursuant to that lien far in excess of the value of the collateral. Under the reasoning of Haberman, such a trustee would not be entitled to retain the payments to the extent that they exceed the fair market value of the collateral on the petition date. That makes no sense. Under the controlling authority of Taubel-Scott-Kitzmiller Co., Inc. v. Fox, the avoided lien, in the hands of the bankruptcy trustee, enjoys the same right it enjoyed in the hands of the prior lienholder to be enforced for the full amount of the debt regardless of the value of the collateral on the petition date.

One of the bases upon which the court of appeals in Haberman rested its conclusion that Dewsnup was inapplicable was that treating Dewsnup as conferring rights on a trustee holding an avoided lien would be inconsistent with pre-Code rules and practice. Haberman, 516 F.3d at 1213-14. But the decisions it cited as evidence of pre-Code rules and practice did not deal with the issue of postpetition payments on an avoided lien and the treatment of those payments as proceeds. Indeed, to quote one of the decisions cited by Haberman in that regard, an avoidable lien or other transfer of property "includes the giving or conveying anything of value,—anything which has debt-paying or debt-securing power." Pirie v. Chicago Title & Trust Co., 182 U.S. 438, 443, 21 S.Ct. 906, 45 L.Ed. 1171 (1901). An avoided lien's "debt-paying or debt-securing power" includes the power to prompt payment of the debt secured by the lien (lest the collateral be sold upon default at an auction sale) even if the collateral was worth less on the petition date than the amount of the debt.

Indeed, Haberman overlooks an important goal of bankruptcy law enunciated in Pirie: "equality of distribution among [creditors] of the property of the bankrupt," Pirie, 182 U.S. at 449, 21 S.Ct. 906, which remains "the prime bankruptcy policy" under the Bankruptcy Code. Union Bank v. Wolas, 502 U.S. 151, 161, 112 S.Ct. 527, 116 L.Ed.2d 514 (1991). Yet under the dicta in Haberman, a lender whose lien is avoided is allowed to retain postpetition payments prompted by the lien to the extent that they exceed the value of the collateral on the petition date. Because the lender is rendered the holder of an unsecured claim by reason of the avoidance of its lien, those retained postpetition payments necessarily are applied to the unsecured claim, whereas other creditors holding unsecured claims are not receiving any such postpetition payments (other than what they receive pro rata from the estate). That is a windfall condemned by the policy of equality of distribution.

For all of these reasons, I find Haberman unpersuasive.20

F

Wachovia also relies on the Tenth Circuit bankruptcy appellate panel's decision in the case of Morris v. Vulcan Chemical Credit Union (In re Rubia), 257 B.R. 324 (10th Cir. BAP), aff'd, 23 Fed. Appx. 968, 2001 WL 1580933 (10th Cir. Dec.12, 2001). Like Haberman, Rubia is distinguishable from this case. In Rubia, the debtor continued to make postpetition payments to the bank on a prepetition loan secured by the debtor's vehicle. As of the petition date, the balance due on the loan was $10,440.00, and the debtor made postpetition payments to the creditor totaling $1,136.00. Pursuant to an agreed order between the creditor and the chapter 7 trustee, the trustee avoided and preserved the lien for the benefit of the estate. The trustee then filed a complaint seeking turnover of the postpetition payments made by the debtor to the bank. The bankruptcy court dismissed the complaint, concluding that the trustee was not entitled to recover the payments because they were made from the debtor's postpetition earnings. On appeal, the bankruptcy appellate panel agreed with the bankruptcy court that the trustee could not recover the postpetition payments, but not because they were made from the debtor's postpetition earnings, but rather because it viewed the trustee as having limited rights incident to the avoidance of a lien.

The panel in Rubia concluded that although the trustee preserved the lien for the benefit of the estate under § 551, that interest did not give the trustee the right to collect the related debt from the debtor postpetition. Rather, according to the Rubia panel, although the trustee's avoidance of the lien prevented the creditor from looking to the vehicle to satisfy its claim, the creditor was nevertheless left with an unsecured claim against the debtor's estate for the entire balance of the debt, and the postpetition payments from the debtor to the creditor simply reduced the amount of the creditor's unsecured claim against the estate.

The majority decision in Rubia noted that if the debtor's debt to the credit union had not been discharged, the debtor's postpetition payments to the credit union were merely made towards satisfaction of that debt. 257 B.R. at 327. There thus appears to have been a failure of proof by the trustee as to why the debtor elected to treat this unsecured creditor differently than other unsecured creditors.21 This is made evident by the majority's statement that the lien preserved under § 551 "[did] not give the Trustee the right to collect [the credit union's claim] from the debtor postpetition. See In re Closson, 100 B.R. 345 (Bankr.S.D.Ohio 1989)." The majority's reliance on Closson is telling. In Closson, unlike here, the debtor had reaffirmed his debt with a credit union, and pursuant to the terms of the original contract with the debtor and the reaffirmation agreement, the credit union received postpetition payments.22 Accordingly, the Rubia majority can be viewed as holding that the trustee failed to prove that the postpetition payments had not been paid for some reason (as in Closson) other than the credit union's lien rights.23 Indeed, the Rubia majority treated the payments to the credit union as reducing only the amount of the unsecured claim held by the credit union and as not reducing the amount of the trustee's claim against the collateral. 257 B.R. at 328 n. 4.24 Here, in contrast, Wyatt clearly intended the payments to reduce the amount of the secured debt.

Accordingly, Rubia is distinguishable. Nevertheless, the majority opinion in Rubia contains statements that are fundamentally flawed. First, it necessarily holds that the payments to the credit union can not be treated as reducing the amount of the secured debt. 258 B.R. at 327-28, and 328 n. 4 (the postpetition payments did not reduce the amount of the trustee's lien claim "but rather only reduce the amount of [the creditor's] unsecured claim against the estate"). This raises the prospect that a debtor who makes payments to the creditor to reduce the amount owed under the lien will pay the full amount owed to the trustee (if a sale of the collateral fetches the full amount of the debt) and may, additionally, make payments to the creditor, thus paying more than the debt she was contractually obligated to pay. Congress did not likely intend such a result: the debtor was only liable to pay the debt once. It is no answer (as suggested by the Rubia majority) that it is the debtor, and not the trustee, who "may or may not have a cause of action against [the creditor] for any postpetition payments that he made...." 257 B.R. at 327. If the debtor intended the payments to reduce the secured claim, the postpetition payments to the secured creditor should be recoverable by the trustee, without the debtor being put to the burden of recovering the payments.

Second, the majority states that "[t]he trustee has no right to any payment made to [the credit union] on the debt, but rather he only has rights in the Ranger up to the amount of [the credit union's claim] on the petition date." 257 B.R. at 328 (footnote omitted).25 If, as seems implicit, this means that a trustee never can pursue postpetition payments made to a creditor on account of a lien that the trustee avoids, this is plainly wrong. It ignores the reality regarding the payment-inducing power of a lien (the power to induce payments lest the collateral be sold pursuant to enforcement of the lien), and the consequence that payments induced by the lien necessarily are proceeds of the lien under § 541(a)(6) and hence property of the estate. If the Rubia majority's view is followed, it leads a court always to treat postpetition payments as not constituting proceeds of the lien under § 541(a)(6) (because, under Rubia, postpetition payments to the creditor must be treated as being on account of the contractual obligation and not on account of the underlying lien). See Rubia, 257 B.R. at 328 n. 5.

Third, the majority rejected the dissent's conclusion that payments on account of a lien are proceeds of the lien, reasoning that payments are not collection of collateral under the Uniform Commercial Code. Id. As explained earlier, such payments on account of a lien are "proceeds" of the lien within the meaning of § 541(a)(6) as a matter of federal law, and, in any event, would be treated as proceeds of the lien even under state law.

Finally, the majority reasoned "that unsecured creditors were not harmed and, in fact, were benefitted by the Postpetition Payments because [the credit union's] unsecured debt has been reduced." 257 B.R. at 329. This disregards the unjustified windfall (discussed earlier) that arises when a lienor is allowed to retain postpetition payments that are proceeds of the lien, and defeats a prime goal of bankruptcy, equality of distribution amongst creditors. Had the trustee recovered the postpetition payments, the credit union would have been able to file an unsecured claim against the estate under Fed. R. Bankr.P. 3002(c)(3), but it would share the disgorged payments only pro rata with the other creditors. The creditors in Rubia did not benefit from the trustee being denied recovery of the postpetition payments.

G

Wachovia also places reliance on Nazar v. North Amer. Savings Bank FSB (In re Born), 357 B.R. 630 (10th Cir. BAP 2006), which limited a trustee's recovery of postpetition payments (made to the lienor whose lien was avoided) to the value of the collateral on the petition date. Born relied on the flawed reasoning of the Haberman and Rubia decisions, and, accordingly, it is equally unpersuasive.

V

Whatever postpetition payments a trustee is entitled to recover as proceeds of a lien, the trustee would not obtain a judgment for those payments until well after the payments were made. Accordingly, a trustee additionally should recover prejudgment interest on each recoverable payment from the date of the payment. See Webster v. Harris Corp. (In re NETtel Corp., Inc.), 327 B.R. 8, 13 n. 8 (Bankr. D.D.C.2005).

VI

In accordance with the foregoing, it is

ORDERED that White's motion for summary judgment is GRANTED, and Wachovia's lien is avoided and preserved for the benefit of the estate. It is further

ORDERED that a judgment will be awarded in favor of White against Wachovia for all postpetition payments received by it from Wyatt on the debt secured by the avoided lien, plus prejudgment interest as to each postpetition payment to be calculated from the date each payment was received, at the rate dictated by NETtel, 327 B.R. at 13 n. 8, or prejudgment interest at a lower rate utilized as a matter of computational convenience, or prejudgment interest as agreed by the parties. It is further

ORDERED that White shall file a proposed judgment within 21 days after entry of this order, and Wachovia may file an opposition to the proposed judgment's calculation of interest within 21 days after filing of the proposed judgment.