In 1991, the Supreme Court arguably ignored Section 522(f)(1) to achieve an equitable result in a matrimonial case that ended up in bankruptcy court. Farrey v. Sanderfoot, 500 U.S. 291 (1991). Last month, Bankruptcy Judge Robert A. Mark of Miami strove to achieve an equitable result in a matrimonial case with somewhat different facts. In doing so, he was obliged to confine Farrey to its facts.
In Farrey, a couple owned a home jointly before they divorced. The divorce decree granted the husband full ownership of the home but obliged him to grant a lien in favor of his wife for her share of the marital property.
The husband filed bankruptcy and sought to avoid the wife’s lien as an impairment on his homestead exemption under Section 522(f)(1).
In an opinion by Justice Byron R. White, the Supreme Court reversed the Seventh Circuit and barred the debtor-husband from avoiding the lien in favor of his former wife. Saying that the husband-debtor’s interest was created at the same time as the lien, the Court held that Section 522(f)(1) requires the debtor to have an interest in the property before the lien attached, as a condition to avoiding the lien.
In the case before Judge Mark, the husband alone held title to the home in which he lived with his wife. Two years before they divorced, a creditor obtained a judgment lien against the wife. Because the wife was not in title to the home, the lien did not attach to the home.
In the divorce decree, the husband conveyed sole title to his wife. When the wife filed a chapter 13 petition a few months after the divorce, she moved to avoid the lien as an impairment on her homestead exemption.
Seemingly, the judgment lien attached to the home at the same instant the wife took title. If Farrey were applied strictly, the wife could not avoid the judgment lien because she did not have title before the lien attached.
In his October 28 opinion, Judge Mark said he agreed with “courts and commentators limiting Farrey’s application to situations, particularly family law settlements or judgments, in which the lien and the property interest were created as part of the same transaction or judgment.”
Since the creditor’s judgment against the wife was not related to her acquisition of title, Judge Mark held that she could avoid the lien since it was her homestead when she acquired title.
A concurring opinion in Farrey by Justices Anthony M. Kennedy and David H. Souter noted that a different and seemingly inequitable result would have occurred had the husband not conceded that his interest in the home arose simultaneously with the lien in favor of the wife. They said that “congressional action may be necessary to avoid in some future case the perhaps unjust result the Court today avoids having to consider only because of the fortuity of [the husband’s] concession.”
Indeed, Congress did act, by adding Section 523(a)(15) as part of the Bankruptcy Reform Act of 1994. The new subsection in part alleviated the potential inequity identified by Justices Kennedy and Souter. The subsection in substance provides that a debt is nondischargeable if it was incurred in the course of divorce.
In 1991, the Supreme Court arguably ignored Section 522(f)(1) to achieve an equitable result in a matrimonial case that ended up in bankruptcy court. Farrey v. Sanderfoot, 500 U.S. 291 (1991). Last month, Bankruptcy Judge Robert A. Mark of Miami strove to achieve an equitable result in a matrimonial case with somewhat different facts. In doing so, he was obliged to confine Farrey to its facts.
In Farrey, a couple owned a home jointly before they divorced. The divorce decree granted the husband full ownership of the home but obliged him to grant a lien in favor of his wife for her share of the marital property.
The husband filed bankruptcy and sought to avoid the wife’s lien as an impairment on his homestead exemption under Section 522(f)(1).
In an opinion by Justice Byron R. White, the Supreme Court reversed the Seventh Circuit and barred the debtor-husband from avoiding the lien in favor of his former wife. Saying that the husband-debtor’s interest was created at the same time as the lien, the Court held that Section 522(f)(1) requires the debtor to have an interest in the property before the lien attached, as a condition to avoiding the lien.
In the case before Judge Mark, the husband alone held title to the home in which he lived with his wife. Two years before they divorced, a creditor obtained a judgment lien against the wife. Because the wife was not in title to the home, the lien did not attach to the home.
In the divorce decree, the husband conveyed sole title to his wife. When the wife filed a chapter 13 petition a few months after the divorce, she moved to avoid the lien as an impairment on her homestead exemption.