Subject:  OWEN v. OWEN, Syllabus



 
    NOTE: Where it is feasible, a syllabus (headnote) will be released, as
is being done in connection with this case, at the time the opinion is
issued.  The syllabus constitutes no part of the opinion of the Court but
has been prepared by the Reporter of Decisions for the convenience of the
reader.  See United States v. Detroit Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES


Syllabus



OWEN v. OWEN


certiorari to the united states court of appeals for the eleventh circuit


No. 89-1008.  Argued November 5, 1990 -- Decided May 23, 1991

The Bankruptcy Code allows States to define what property is exempt from
the estate that will be distributed among the debtor's creditors.  The
Florida Constitution provides a homestead exemption, which the state courts
have held inapplicable to liens that attach before the property in question
acquires its homestead status.  Petitioner purchased his Florida
condominium in 1984 subject to respondent's pre-existing judgment lien, and
the property first qualified as a homestead under a 1985 amendment to the
State's homestead law.  After petitioner filed a chapter 7 petition for
bankruptcy in 1986, the Bankruptcy Court, inter alia, sustained his claimed
homestead exemption in the condominium, but subsequently denied his
postdischarge motion to avoid respondent's lien pursuant to Code MDRV
522(f).  The District Court and the Court of Appeals affirmed, finding that
since the lien had attached before the condominium qualified for the
homestead exemption, the property was not exempt under state law.

Held:

    1. Judicial liens can be eliminated under MDRV 522(f) even though the
State has defined the exempt property in such a way as specifically to
exclude property encumbered by such liens.  The section provides, inter
alia, that "the debtor may avoid the fixing of a [judicial] lien on an
interest of the debtor in property to the extent that such lien impairs an
exemption to which the debtor would have been entitled under," in effect,
MDRV 522(d), which lists federal exemptions, or under state law.  At first
blush, respondent's argument seems entirely reasonable that her lien does
not "impair" petitioner's Florida homestead exemption within the meaning of
MDRV 522(f) because the exemption is not assertable against pre-existing
judicial liens, and that permitting avoidance of the lien would not
preserve the exemption but expand it.  However, this result has been widely
and uniformly rejected by federal bankruptcy courts with respect to federal
exemptions under MDRV 522(d).  To determine the application of MDRV 522(f),
those courts ask not whether the lien impairs an exemption to which the
debtor is in fact entitled, but whether it impairs an exemption to which he
would have been entitled but for the lien itself.  This approach, which
gives meaning to the phrase "would have been entitled" in the applicable
text, is correct.  A different approach cannot be adopted for state
exemptions, in light of the equivalency of treatment accorded to federal
and state exemptions by MDRV 522(f).  Pp. 2-8.

    2. This Court expresses no opinion on, and leaves for the Court of
Appeals to resolve in the first instance, the questions whether
respondent's lien can be said to have "impair[ed] an exemption to which
[petitioner] would have been entitled" at the time the lien was fixed, in
light of the fact that petitioner did not yet have a homestead interest;
whether the lien in fact fixed "on an interest of the debtor" if, under
state law, it attached simultaneously with petitioner's acquisition of his
property interest; and whether the Florida statute extending the homestead
exemption was retroactive.  Pp. 8-9.

877 F. 2d 44, reversed and remanded.

Scalia, J., delivered the opinion of the Court, in which Rehnquist, C. J.,
and White, Marshall, Blackmun, O'Connor, Kennedy, and Souter, JJ., joined.
Stevens, J., filed a dissenting opinion.
------------------------------------------------------------------------------




Subject: 89-1008 -- OPINION, OWEN v. OWEN

 


NOTICE: This opinion is subject to formal revision before publication in
the preliminary print of the United States Reports.  Readers are requested
to notify the Reporter of Decisions, Supreme Court of the United States,
Washington, D. C. 20543, of any typographical or other formal errors, in
order that corrections may be made before the preliminary print goes to
press.
SUPREME COURT OF THE UNITED STATES


No. 89-1008



DWIGHT H. OWEN, PETITIONER v. HELEN OWEN

on writ of certiorari to the united states court of appeals for the
eleventh circuit

[May 23, 1991]



    Justice Scalia delivered the opinion of the Court.

    The Bankruptcy Code allows the States to define what property a debtor
may exempt from the bankruptcy estate that will be distributed among his
creditors.  11 U. S. C. MDRV 522(b).  The Code also provides that judicial
liens en cumbering exempt property can be eliminated.  11 U. S. C. MDRV
522(f).  The question in this case is whether that elimination can operate
when the State has defined the exempt property in such a way as
specifically to exclude property encumbered by judicial liens.

I
    In 1975, Helen Owen, the respondent, obtained a judgment against
petitioner Dwight Owen, her former husband, for approximately $160,000.
The judgment was recorded in Sarasota County, Florida, in July 1976.
Petitioner did not at that time own any property in Sarasota County, but
under Florida law, the judgment would attach to any after-acquired property
recorded in the county.  B. A. Lott, Inc. v. Padg ett, 153 Fla. 304, 14 So.
2d 667 (1943).  In 1984, petitioner purchased a condominium in Sarasota
County; upon acquisition of title, the property became subject to
respondent's judgment lien.  Porter-Mallard Co. v. Dugger, 117 Fla. 137,
157 So. 429 (1934).
    One year later, Florida amended its homestead law so that petitioner's
condominium, which previously had not qualified as a homestead, thereafter
did.  Under the Florida Constitution, homestead property is "exempt from
forced sale . . . and no judgment, decree or execution [can] be a lien
thereon . . . ," Fla. Const., Art. 10, MDRV 4(a).  The Florida courts have
interpreted this provision, however, as being inapplicable to pre-existing
liens, i. e., liens that attached before the property acquired its
homestead status.  Bessemer v. Gersten, 381 So. 2d 1344, 1347, n. 1 (Fla.
1980); Aetna Ins. Co. v. LaGasse, 223 So. 2d 727, 728 (Fla. 1969); Pasco v.
Harley, 73 Fla. 819, 824-825, 75 So. 30, 32-33 (1917); Vol pitta v. Fields,
369 So. 2d 367, 369 (Fla. App. 1979); Lyon v. Arnold, 46 F. 2d 451, 452
(CA5 1931).  Pre-existing liens, then, are in effect an exception to the
Florida homestead exemption.
    In January 1986, petitioner filed for bankruptcy under chapter 7 of the
Code, and claimed a homestead exemption in his Sarasota condominium.  The
condominium, valued at approximately $135,000, was his primary asset; his
liabilities included approximately $350,000 owed to the respondent.  The
bankruptcy court discharged petitioner's personal liability for these
debts, and sustained, over respondent's objections, his claimed exemption.
    The condominium, however, remained subject to respondent's pre-existing
lien, and after discharge, petitioner moved to reopen his case to avoid the
lien pursuant to MDRV 522(f)(1).  The Bankruptcy Court refused to decree
the avoidance; the District Court affirmed, finding that the lien had
attached before the property qualified for the exemption, and that Florida
law therefore did not exempt the lien encumbered property.  86 B. R. 691
(MD Fla. 1988).  The Court of Appeals for the Eleventh Circuit affirmed on
the same ground.  877 F. 2d 44 (1989).  We granted certiorari.  495 U. S.
--- (1990).

II
    An estate in bankruptcy consists of all the interests in property,
legal and equitable, possessed by the debtor at the time of filing, as well
as those interests recovered or recov erable through transfer and lien
avoidance provisions.  An exemption is an interest withdrawn from the
estate (and hence from the creditors) for the benefit of the debtor.
Section 522 determines what property a debtor may exempt.  Under MDRV
522(b), he must select between a list of federal exemptions (set forth in
MDRV 522(d)) and the exemptions provided by his State, "unless the State
law that is applicable to the debtor . . . specifically does not so
authorize," 11 U. S. C. MDRV 522(b)(1) -- that is, unless the State "opts
out" of the federal list.  If a State opts out, then its debtors are
limited to the exemptions provided by state law.  Nothing in subsection (b)
(or elsewhere in the Code) limits a State's power to restrict the scope of
its exemptions; indeed, it could theoretically accord no exemptions at
all.
    Property that is properly exempted under MDRV 522 is (with some
exceptions) immunized against liability for prebank ruptcy debts.  MDRV
522(c).  No property can be exempted (and thereby immunized), however,
unless it first falls within the bankruptcy estate.  Section 522(b)
provides that the debtor may exempt certain property "from property of the
estate"; obviously, then, an interest that is not possessed by the estate
cannot be exempted.  Thus, if a debtor holds only bare legal title to his
house -- if, for example, the house is subject to a purchase-money mortgage
for its full value -- then only that legal interest passes to the estate;
the equitable interest remains with the mortgage holder, 11 U. S. C. MDRV
541(d).  And since the equitable interest does not pass to the estate,
neither can it pass to the debtor as an exempt interest in property.  Legal
title will pass, and can be the subject of an exemption; but the property
will remain subject to the lien interest of the mortgage holder.  This was
the rule of Long v. Bullard, 117 U. S. 617 (1886), codified in MDRV 522.
Only where the Code empowers the court to avoid liens or transfers can an
interest originally not within the estate be passed to the estate, and
subsequently (through the claim of an exemption) to the debtor.
    It is such an avoidance provision that is at issue here, to which we
now turn.  Section 522(f) reads as follows:

    "(f) Notwithstanding any waiver of exemptions, the debtor may avoid the
fixing of a lien on an interest of the debtor in property to the extent
that such lien impairs an exemption to which the debtor would have been
entitled under subsection (b) of this section, if such lien is --
    "(1) a judicial lien; or
    "(2) a nonpossessory, nonpurchase-money security interest . . . ."


The lien in the present case is a judicial lien, and we assume without
deciding that it fixed "on an interest of the debtor in property."  See
Farrey v. Sanderfoot, --- U. S. --- (1991).  The question presented by this
case is whether it "impairs an exemption to which [petitioner] would have
been entitled under subsection (b)."  Since Florida has chosen to opt out
of the listed federal exemptions, see Fla. Stat. MDRV 222.20 (1989), the
only subsection (b) exemption at issue is the Florida homestead exemption
described above.  Respondent suggests that, to resolve this case, we need
only ask whether the judicial lien impairs that exemption.  It obviously
does not, since the Florida homestead exemption is not assertable against
pre-existing judicial liens.  To permit avoidance of the lien, respondent
urges, would not preserve the exemption but would expand it.
    At first blush, this seems entirely reasonable.  Several Courts of
Appeals in addition to the Eleventh Circuit here have reached this result
with respect to built-in limitations on state exemptions, {1} though others
have rejected it. {2}  What must give us pause, however, is that this
result has been widely and uniformly rejected with respect to built-in
limitations on the federal exemptions.  Most of the federally listed
exemptions (set forth in MDRV 522(d)) are explicitly restricted to the
"debtor's aggregate interest" or the "debtor's interest" up to a maximum
amount.  See 15 522(d)(1)-(6), (8).  If respondent's approach to MDRV
522(f) were applied, all of these exemptions (and perhaps others as well)
{3} would be limited by unavoided encumbering liens, see MDRV 522(c).  The
federal homestead exemption, for example, allows the debtor to exempt from
the property of the estate "the debtor's aggregate interest, not to exceed
$7,500 in value, in . . . a residence."  MDRV 522(d)(1).  If respondent's
interpretation of MDRV 522(f) were applied to this exemption, a debtor who
owned a house worth $10,000 that was subject to a judicial lien for $9,000
would not be entitled to the full homestead exemption of $7,500.  The
judicial lien would not be avoidable under MDRV 522(f), since it does not
"impair" the exemption, which is limited to the debtor's "aggregate
interest" of $1,000.  The uniform practice of bankruptcy courts, however,
is to the contrary.  To determine the application of MDRV 522(f) they ask
not whether the lien impairs an exemption to which the debtor is in fact
entitled, but whether it impairs an exemption to which he would have been
entitled but for the lien itself. {4}
    As the preceding italicized words suggest, this reading is more
consonant with the text of MDRV 522(f) -- which establishes as the
baseline, against which impairment is to be measured, not an exemption to
which the debtor "is entitled," but one to which he "would have been
entitled."  The latter phrase denotes a state of affairs that is conceived
or hypothetical, rather than actual, and requires the reader to disregard
some element of reality.  "Would have been" but for what?  The answer
given, with respect to the federal exemptions, has been but for the lien at
issue, and that seems to us correct.
    The only other conceivable possibility is but for a waiver -- harking
back to the beginning phrase of MDRV 522(f), "Notwithstanding any waiver of
exemptions . . . ."  The use of contrary-to-fact construction after a
"notwithstanding" phrase is not, however, common usage, if even
permissible.  Moreover, though one might employ it when the
"notwithstanding" phrase is the main point of the provision in question
("Notwithstanding any waiver, a debtor shall retain those exemptions to
which he would have been entitled under subsection (b)"), it would be most
strange to employ it where the "notwithstanding" phrase, as here, is an
aside.  The point of MDRV 522(f) is not to exclude waivers (though that is
done is passing, waivers are addressed directly in MDRV 522(e)) but to
provide that the debtor may avoid the fixing of a lien.  In that context,
for every instance in which "would have been entitled" may be accurate
(because the incidentally mentioned waiver occurred) there will be
thousands of instances in which "is entitled" should have been used.  It
seems to us that "would have been entitled" must refer to the generality,
if not indeed the universality, of cases covered by the provision; and on
that premise the only conceivable fact we are invited to disregard is the
existence of the lien.
    This reading must also be accepted, at least with respect to the
federal exemptions, if MDRV 522(f) is not to become an ir relevancy with
respect to the most venerable, most common and most important exemptions.
The federal exemptions for homestead (MDRV 522(d)(1)), for motor vehicles
(MDRV 522(d)(2)), for household goods and wearing apparel (MDRV 522(d)(3)),
and for tools of the trade (MDRV 522(d)(6)), are all defined by reference
to the debtor's "interest" or "aggregate interest," so that if respondent's
interpretation is accepted, no encumbrances of these could be avoided.
Surely MDRV 522(f) promises more than that -- and surely it would be
bizarre for the federal scheme to prevent the avoidance of liens on those
items, but to permit it for the less crucial items (for example, an
"unmatured life insurance contract owned by the debtor," MDRV 522(d)(7))
that are not described in such fashion as unquestionably to exclude liens.
    We have no doubt, then, that the lower courts' unanimously agreed-upon
manner of applying MDRV 522(f) to federal exemptions -- ask first whether
avoiding the lien would entitle the debtor to an exemption, and if it
would, then avoid and recover the lien -- is correct. {5}  The question
then becomes whether a different interpretation should be adopted for State
exemptions.  We do not see how that could be possible.  Nothing in the text
of MDRV 522(f) remotely justifies treating the two categories of exemptions
differently.  The provision refers to the impairment of "exemption[s] to
which the debtor would have been entitled under subsection (b)," and that
includes federal exemptions and state exemptions alike.  Nor is there any
overwhelmingly clear policy impelling us, if we possessed the power, to
create a distinction that the words of the statute do not contain.
Respondent asserts that it is inconsistent with the Bankruptcy Code's
"opt-out" policy, whereby the States may define their own exemptions, to
refuse to take those exemptions with all their built-in limitations.  That
is plainly not true, however, since there is no doubt that a state
exemption which purports to be available "unless waived" will be given full
effect, even if it has been waived, for purposes of MDRV 522(f) -- the
first phrase of which, as we have noted, recites that it applies
"[n]otwithstanding any waiver of exemptions."  See Dominion Bank of
Cumberlands, NA v. Nuckolls, 780 F. 2d 408, 412 (CA4 1985).  Just as it is
not inconsistent with the policy of permitting statedefined exemptions to
have another policy disfavoring waiver of exemptions, whether federal- or
state-created; so also it is not inconsistent to have a policy disfavoring
the impingement of certain types of liens upon exemptions, whether federal-
or state-created.  We have no basis for pronouncing the opt-out policy
absolute, but must apply it along with whatever other competing or limiting
policies the statute contains.
    On the basis of the analysis we have set forth above with respect to
federal exemptions, and in light of the equivalency of treatment accorded
to federal and State exemptions by MDRV 522(f), we conclude that Florida's
exclusion of certain liens from the scope of its homestead protection does
not achieve a similar exclusion from the Bankruptcy Code's lien avoidance
provision. {6}

III
    The foregoing conclusion does not necessarily resolve this case.
Section 522(f) permits the avoidance of the "fixing of a lien on an
interest of the debtor."  Some courts have held it inapplicable to a lien
that was already attached to property when the debtor acquired it, since in
such a case there never was a "fixing of a lien" on the debtor's interest.
See In re McCormick, 18 B. R. 911, 914 (Bkrtcy. Ct. WD Pa.), aff'd, 22 B.
R. 997 (WD Pa. 1982); In re Scott, 12 B. R. 613, 615 (Bkrtcy. Ct. WD Okla.
1981).  Under Florida law, the lien may have attached simultaneously with
the acquisition of the property interest.  If so, it could be argued that
the lien did not fix "on an interest of the debtor."  See Farrey v. Sander
foot, --- U. S. --- (1991).  The Court of Appeals did not pass on this
issue, nor on the subsidiary question of whether the Florida statute
extending the homestead exemption was a taking, cf. United States v.
Security Industrial Bank, 459 U. S. 70 (1982).  We express no opinion on
these points, and leave them to be considered by the Court of Appeals on
remand.
    The judgment of the Court of Appeals is reversed, and the case remanded
for proceedings consistent with this opinion.

It is so ordered.


 
 
 
 
 


------------------------------------------------------------------------------
1
    See In re Pine, 717 F. 2d 281 (CA6 1983); In re McManus, 681 F. 2d 353
(CA5 1982).

2
    See In re Brown, 734 F. 2d 119 (CA2 1984); Dominion Bank of
Cumberlands, NA v. Nuckolls, 780 F. 2d 408 (CA4 1985); In re Thompson, 750
F. 2d 628 (CA8 1984); In re Leonard, 866 F. 2d 335 (CA10 1989).

3
    Exemption (7) refers to a life insurance contract "owned" by the
debtor, and exemptions (10) and (11) refer to various benefits, awards and
payments that the debtor has a "right to receive."  MDRV 522(d)(7), (10),
(11).  Only exemption (9), MDRV 522(d)(9), contains no language arguably
excluding property subject to lien.

4
    See, e. g., In re Simonson, 758 F. 2d 103, 105 (CA3 1985); In re
Brantz, 106 B. R. 62, 68 (Bkrtcy. Ct. ED Pa. 1989); In re Carney, 47 B. R.
296, 299 (Bkrtcy. Ct. Mass. 1985); In re Losieniecki, 17 B. R. 136, 138
(Bkrtcy. Ct. WD Pa. 1981).  See also 3 Collier on Bankruptcy MDRV 522.29
(15th ed. 1990); B. Weintraub & A. Resnick, Bankruptcy Law Manual MDRV
4.08[2] (1986); Bowmar, Avoidance of Judicial Liens that Impair Exemptions
in Bankruptcy: The Workings of 11 U. S. C. MDRV 522(f)(1), 63 Am. Bankr. L.
J. 375, 387-388, and n. 85 (1989) (hereinafter Bowmar).  Some courts have
held that MDRV 522(f) allows the avoidance of liens even when, after the
avoidance, there would be no debtor's interest in the property to which a
MDRV 522(d) exemption could attach.  See, e. g., In re Richardson, 55 B. R.
526 (Bkrtcy. Ct. ND Ohio 1985); In re Chesanow, 25 B. R. 228, 231 (Bkrtcy.
Ct. Conn. 1982).  But see, e. g., In re Hooper, supra, at 641; In re
Barone, 31 B. R. 540 (Bkrtcy. Ct. ED Pa. 1983).  Today's opinion does not
speak to this issue.  Finally, at least one court has suggested that equity
excluding the liens is required for there to be an "interest" within the
scope of MDRV 522(f), In re Miller, 8 B. R. 43 (Bkrtcy. Ct. WD Mo. 1980),
but that position has been rejected.  In re Cole, 15 B. R. 322, 323, n. 1
(Bkrtcy. Ct. WD Mo. 1981).

5
    For a more precise formulation, see In re Brantz, 106 B. R., at 68; In
re Carney, 47 B. R., at 299; Bowmar 388-392.

6
    In the dissent's view, the question is whether the lien impairs an
"exemption to which the debtor would have been entitled at the time the
lien `fixed'."  Post, at 3.  Under the Code, however, the question is
whether the lien impairs an "exemption to which the debtor would have been
entitled under subsection (b)," and under subsection (b), exempt property
is determined "on the date of the filing of the petition," not when the
lien fixed.  11 U. S. C. 15 522(f), (b)(2)(A).  We follow the language of
the Code.





Subject: 89-1008 -- DISSENT, OWEN v. OWEN

 


    SUPREME COURT OF THE UNITED STATES


No. 89-1008



DWIGHT H. OWEN, PETITIONER v. HELEN OWEN

on writ of certiorari to the united states court of appeals for the
eleventh circuit

[May 23, 1991]



    Justice Stevens, dissenting.
    The Court's analysis puts the cart before the horse.  As I read the
statute at issue, it is not necessary to reach the issue the majority
addresses.  In construing the lien avoidance provisions of the Bankruptcy
Code, it is important to recognize a distinction between two classes of
cases: those in which the lien attached to the exempt property before the
debtor had any right to claim an exemption, and those in which the lien
attached after the debtor acquired that right.  This case falls in the
former category.  As I shall explain, I believe it was correctly decided by
the Bankruptcy Court, the District Court and the Court of Appeals, and that
the judgment should be affirmed.

I
    The facts raise a straight forward issue: whether the lien avoidance
provisions in MDRV 522(f) of the Bankruptcy Code, 11 U. S. C. MDRV 522(f)
{1} apply to a judicial lien that attached before the debtor had any claim
to an exemption.  It is undisputed that respondent's judicial lien attached
to petitioner's Sarasota condominium when he acquired title to the property
in November 1984.  It is also undisputed that the petitioner was not
entitled to a homestead exemption when he acquired title because he was
single.  At that time, the exemption was available only to a "head of a
household" under Article 10, MDRV 4 of the Florida Constitution.  An
amendment that became effective in 1985 broadened the exemption to extend
to "a natural person."  Fla. Const., Art. 10, MDRV 4.  On the effective
date of this amendment petitioner became entitled to the homestead
exemption at issue in this case. {2}  Thus, it is undisputed that the
petitioner had an exemption on his condominium when he filed his bankruptcy
petition in 1986, but did not have a right to that exemption in 1984 when
respondent's judicial lien attached.
    As I read the text of MDRV 522(f), it does not authorize the avoidance
of liens that were perfected at a time when the debtor could not claim an
exemption in the secured property.  The Bankruptcy Code deals with the
subject of exemptions in two separate provisions that are relevant to this
case.  The first of these provisions, MDRV 522(b), identifies property that
is exempt from the claims of general creditors. {3}  Focusing on the legal
interests in the property at the time of the bankruptcy, this section
identifies property that is exempt from the bankrupt estate, and therefore
cannot be sold by the trustee to satisfy the claims of general creditors.
See H. R. Rep. No. 95-595, pp. 360-361 (1977); S. Rep. No. 95-989, pp.
75-76 (1978).  In this case, petitioner's condominium in Sarasota, Florida
was entitled to a homestead exemption as a matter of Florida law when he
filed for bankruptcy and therefore was properly excluded from the estate.
See 877 F. 2d 44, 45 (CA11 1989).  The property was fully protected from
the claims of general creditors by the operation of MDRV 522(b).
    The second provision that is relevant to this suit, MDRV 522(f), is
concerned with the priority of secured creditors not the claims of general
creditors.  Section 522(f) establishes a rule of priority between the
debtor's legal interest and creditors' security interests in exempt
property as opposed to the property of the estate.  The statute establishes
the priority by allowing the debtor to avoid the fixing of judicial liens
and certain nonpossessory, nonpurchase-money security interests under the
right circumstances to the extent that they encumber the exemption.
    As it applies to judicial liens, MDRV 522(f) raises two questions: (1)
whether the exemption provides a basis for avoidance of the lien; and (2)
if so, to what extent should the lien be avoided?  The first question
concerns the relative priority of conflicting claims on the same asset; on
such issues, the timing of the claims is often decisive.  The second
question -- I shall call it the "impairment question" -- concerns the
distribution of the proceeds of sale after the issue of priority has been
resolved.  This second question need not be reached unless the first
question has been answered positively.
    In determining whether the exemption provides a basis for avoiding the
lien, MDRV 522(f) turns our attention towards the exemption to which the
debtor would have been entitled at the time the lien "fixed."  In United
States v. Security Industrial Bank, 459 U. S. 70 (1982), this Court was
presented with the question whether applying MDRV 522(f)(2) to avoid non
possessory liens perfected before the enactment of the Bankruptcy Reform
Act of 1978 would be a taking of property without compensation in violation
of the Fifth Amendment of the Constitution.  The Court avoided deciding
that precise question by holding that MDRV 522(f) did not apply
retroactively to liens that had been perfected before the Bankruptcy Reform
Act was enacted.  Although there is no such constitutional question
presented here, Security Industrial Bank, establishes that the critical
date for determining whether a lien may be avoided under the statute is the
date of the fixing of that lien.
    The date of the fixing of the respondent's lien on petitioner's
condominium is therefore controlling in this case.  Because it is
undisputed that petitioner was not entitled to an exemption when the lien
attached, the subsequently acquired exemption does not provide a basis for
avoidance of the respondent's lien. {4}  Thus, the priority question in
this case was correctly decided by the Court of Appeals and its judgment
should be affirmed.

II
    The Court frames the question it decides as whether the lien avoidance
provisions in MDRV 522(f) "can operate when the State has defined the
exempt property in such a way as specifically to exclude property
encumbered by judicial liens."  Ante, at 1.  That is an accurate
description of the issue that has arisen in cases concerning the
avoidability of non possessory, nonpurchase-money liens on household goods.
See cases cited, ante, at 4, nn. 1 and 2. {5}  In each of those cases the
state's definition of the exemption purported to exclude property interests
that were subject to otherwise avoidable liens under MDRV 522(f).  Thus,
the state's definition of the exemption itself defeated the purpose of the
federal lien avoidance provisions by narrowing the category of exempt
property. {6}
    The majority and dissenting opinions in In re McManus, 681 F. 2d 353
(CA5 1982), adequately identify the issue to which the Court's opinion
today is addressed.  In that case a finance company (AVCO) held a
promissory note secured by a nonpossessory, nonpurchase-money security
interest in the form of a chattel mortgage on some of the debtor's
household goods and furnishings.  The debtors sought to avoid AVCO's lien
under MDRV 522(f) on the ground that their household goods and furniture
were exempted under MDRV 522(b).  The Bankruptcy Court and the District
Court refused to avoid the lien.  The Court of Appeals, following the
reasoning of the Bankruptcy Court, affirmed. {7}  Louisiana had established
a homestead exemption for certain household goods and furniture.  Yet, it
had also explicitly established in a separate code provision that
notwithstanding its definitions of homestead exemptions, any household
goods or furniture encumbered by a mortgage are not exempt property.  The
majority of the Court of Appeals held that the liens were not avoidable
because the State of Louisiana had utilized its authority under MDRV 522(b)
to define its exemptions to exclude household goods subject to mortgages;
hence the liens did not impair an exemption to which the debtors would have
been entitled under MDRV 522(b).
    Under my reading of MDRV 522(f), the Court of Appeals erred because it
focused its attention entirely on the situation at the time of the
bankruptcy.  If it had analyzed the case by noting that at the time AVCO's
lien attached, the debtors were already entitled to an exemption, it should
have concluded that the lien was avoidable.  The dissenting judge came to
that conclusion by correctly recognizing that the statutory text evidences
an intent to consider the situation at the time of attachment.  He wrote:

    "The opening phrase of MDRV 522(f), `[n]otwithstanding any waiver of
exemptions,' indicates that the subsection's import is to return the
situation to the status quo ante, i.e., prior to any improvident waiver of
any exemption by the debtor.  When the debtors entered the creditors'
office they enjoyed an exemption under Louisiana law from seizure and sale
of their household goods; and when they left the office they could no
longer claim an exemption for those goods solely because they had
improvidently granted a security interest to the creditors covering such
goods.  I fail to see how this could be characterized as anything but a
waiver of exemptions, subject to the avoiding power found in MDRV 522(f)."
Id., at 358. {8}


    Although the Court's opinion today resolves the question that was
presented in McManus by adopting the position of the dissent in McManus, I
disagree with the Court's reasoning.  The Court simply overlooks the fact
that for purposes of determining whether a lien is avoidable -- rather than
for the purpose of determining the extent to which the lien should be
avoided -- the question whether the debtor "would have been entitled" to an
exemption is addressed to the state of affairs that existed at the time the
lien attached.
    Finally, I must comment on the Court's conclusion "that Florida's
exclusion of certain liens from the scope of its homestead protection does
not achieve a similar exclusion from the Bankruptcy Code's lien avoidance
provision."  Ante, at 8.  This statement treats Florida's refusal to apply
its broadened homestead exemption retroactively as the equivalent of
Louisiana's narrowing definition of its household goods exemption to
exclude properties subject to a chattel mortgage.  The conclusion is
flawed.  Petitioner would not have been entitled to a homestead exemption
at the time respondent's judicial lien attached; for that reason the lien
avoidance provisions in MDRV 522(f) of the Bankruptcy Code are not
applicable.  I would therefore affirm the judgment of the Court of
Appeals.

 
 
 
 
 

------------------------------------------------------------------------------
1
    Section 522(f) provides:
    "(f) Notwithstanding any waiver of exemptions, the debtor may avoid the
fixing of a lien on an interest of the debtor in property to the extent
that such lien impairs an exemption to which the debtor would have been
entitled under subsection (b) of this section, if such lien is --
    "(1) a judicial lien; or
    "(2) a nonpossessory, nonpurchase-money security interest . . . ."

2
    The amendment was adopted in November 1984, but became effective on
January 8, 1985.  See Fla. Const., Art. 11, MDRV 5.

3
    Section 522(b) provides, in relevant part:
    "Notwithstanding section 541 of this title, an individual debtor may
exempt from property of the estate the property listed in either paragraph
(1) or, in the alternative, paragraph (2) of this subsection.

    . . . . .


"Such property is --
    "(1) property that is specified under subsection (d) of this section,
unless the State law that is applicable to the debtor under paragraph
(2)(A) of this subsection specifically does not so authorize; or, in the
alternative.
    "(2)(A) any property that is exempt under Federal law, other than
subsection (d) of this section, or State or local law that is applicable on
the date of the filing of the petition at the place in which the debtor's
domicile has been located for the 180 days immediately preceding the date
of the filing of the petition, or for a longer portion of such 180-day
period than in any other place; . . . ."

4
    I recognize that in reading the text of MDRV 522(f), it is possible to
find am biguity in the timing issue from the placement of the phrase "under
subsection (b) of this section."  As I understand the interaction between
MDRV 522(b) and MDRV 522(f), however, those words merely define the exempt
property for the purposes of determining the priorities between the debtor
and secured creditors -- namely the kinds of exemptions that may justify an
avoidance.  The fact that MDRV 522(b) itself refers to the status of the
lien at the time of bankruptcy for the purpose of identifying the property
as exempt from the claims of general creditors is simply irrelevant to the
priority question posed under MDRV 522(f).  The Court's statement, ante, at
8-9, n. 6, that "[w]e follow the language of the Code" ignores this point,
ignores our holding in United States v. Security Industrial Bank, 459 U. S.
70 (1982), and ignores our holding in Farrey v. Sanderfoot, --- U. S. ---
(1991).

5
    Two of these cases, however, do address different issues.  In re Brown,
734 F. 2d 119 (CA2 1984) involved a judicial lien.  In that case the issue
was whether the debtor could avoid a judicial lien on his homestead after a
foreclosure sale where New York law did not allow an exemption on the
proceeds of a foreclosure sale.  In re Thompson, 750 F. 2d 628 (CA8 1984)
was concerned with the issue of whether a debtor could avoid a lien on a
Nebraska exemption on livestock under MDRV 522(f)(2).

6
    In this case, in contrast, Florida's definition of its household
exemption excluded petitioner's property because it was not used as a
family residence at the time his former spouse's lien attached.  The
subsequent broadening of Florida's homestead exemption was not even
arguably intended to protect the interest of lien holders or to defeat the
purposes of the federal lien avoidance provisions.

7
    Another case with similar facts, Blazer Financial Services v. Gibson
was consolidated with In re McManus before the Court of Appeals.  In re
McManus, 681 F. 2d 353 (CA5 1982).  The debtors were a married couple who
had filed a petition in bankruptcy and sought to avoid a finance company's
nonpossessory, nonpurchase-money security interest in their household
goods.  See id., at 355.

8
    Judge Dyer buttressed his conclusion by reference to the legislative
history:

"This is clearly indicated in S. Rep. No. 95-989, 95th Cong., 2d Sess. 76,
U. S. Code Cong. & Admin. News 1978, pp. 5787, 5862:

" `[To] protect the debtors' exemptions, his discharge, and thus his fresh
start, . . . [t]he debtor may avoid . . . to the extent that the property
could have been exempted in the absence of the lien . . . a nonpossessory,
non purchase-money security interest in certain household and personal
goods.'

"Thus it was Congress's clear intent that a debtor benefit to the fullest
extent possible exemptions granted to him by applicable state laws, even
when he may have improvidently waived such exemptions.  It is equally clear
that Congress was particularly concerned with eradicating certain
unconscionable creditor practices in the consumer loan industry."  In re Mc
Manus, 681 F. 2d, at 358.
