Owen v. Owen

Syllabus 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 § 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 § 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, § 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 § 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 § 522(d). To determine the application of § 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 § 522(f). Pp. 308-314. 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. P. 314. 877 F.2d 44, (CA 11 1989), 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. Roger L. Fishell, Sarasota, Fla., for petitioner. Timothy B. Dyk, Washington, D.C., for respondent. Justice SCALIA delivered the opinion of the Court.