Farrey v. Sanderfoot
Headline: Bankruptcy rule limited: Court bars a debtor from undoing a divorce-created lien on a home when the lien attached before the debtor acquired that new property interest, protecting the ex-spouse’s secured award.
Holding: The Court held that the Bankruptcy Code does not let a debtor cancel a judicial lien that attached before the debtor ever possessed that property interest, so the divorce‑created lien remains enforceable.
- Stops debtors from canceling divorce‑granted liens created before they owned the property.
- Protects ex‑spouses’ secured payments awarded in divorce from bankruptcy avoidance.
Summary
Background
Jeanne Farrey (the ex-wife) and Gerald Sanderfoot (the ex-husband) divorced after owning a home on 27 acres in Hortonville, Wisconsin. The divorce decree gave Sanderfoot the property, ordered him to pay Farrey $29,208.44, and placed a lien on the house to secure that payment. Sanderfoot later filed for Chapter 7 bankruptcy, claimed a $40,000 state homestead exemption, and asked the bankruptcy court to cancel (avoid) Farrey’s court-ordered lien as impairing his exemption. The bankruptcy court denied that request, the district court allowed it, and the Seventh Circuit affirmed the district court. The Supreme Court granted review.
Reasoning
The Court addressed whether the Bankruptcy Code lets a debtor undo the “fixing” of a judicial lien when the lien was created at the same time the debtor received the property interest. The Court read “fixing” as referring to the event when a lien is fastened onto an existing interest. Because the lien in this case attached to the new interest created by the divorce decree, and the debtor never possessed that interest before the lien attached, the Code did not allow the debtor to avoid the lien. The Court emphasized the statute’s purpose of protecting debtors’ exemptions from creditors who rush to court, and concluded the statute was not intended to undo liens that existed before the debtor ever had the interest.
Real world impact
The decision leaves divorce-created liens that attach at the same time property is awarded intact, protecting ex-spouses’ secured payments and limiting a bankrupt debtor’s ability to cancel those liens. The Court reversed the Seventh Circuit and remanded for further proceedings consistent with this ruling.
Dissents or concurrances
Justice Kennedy, joined by Justice Souter, concurred. He agreed with the result but noted the husband had conceded key facts and warned that different state-law characterizations of property might produce different outcomes in other cases.
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