Court Opinion

ID: 9480145
Source: CourtListenerOpinion
Date Created: 2023-08-05 07:39:43.158031+00
Date Added: 2024-06-11T17:47:30.936251
License: Public Domain

POSNER, Circuit Judge,
dissenting.
The fact that a judicial decision offends the moral sense of laymen does not prove the decision wrong. Institutional or systemic considerations, themselves morally significant, but invisible to the laity, may outweigh the tug of simple justice. But they do not do so here.
The divorce court found that the net value of the Sanderfoots’ marital property, consisting primarily of the couple’s home, was $58,000 and that the property should be split 50-50. No one questions that this is the proper division. To effect the split, the court awarded to the husband the couple’s home, which had been bought during the marriage and was jointly owned, and ordered him to pay $29,000 in cash to the wife. To enforce this order, the court gave her a lien on the house. The husband did not pay his wife a cent (nor did he comply with any other order of the divorce court, including an order to provide child support), but instead declared bankruptcy, claimed a homestead exemption for the house, and filed a motion under 11 U.S.C. § 522(f) to avoid the wife’s lien — a tactic designed to nullify (or perhaps to complete the nullification of) the divorce decree and give the husband all rather than half the marital property. Today we place the crown of success on this vicious scheme. The Bankruptcy Code as liberalized in 1978 is widely criticized as making bankruptcy an ordinary tool of business planning, but after today it will also be criticized as a tool by which bounders defraud their spouses.
This result, a perversion of bankruptcy law, is a product neither of judicial hardheartedness nor of legislative ineptitude, but of judicial misunderstanding of the lien-avoidance provision of the Bankruptcy Code. Section 522(f)(1) allows the debtor (i.e., the bankrupt) to avoid a judicial lien that impairs an exemption. The purpose— as appears unmistakably from legislative history the purport and significance of which are unquestioned — is to thwart unsecured creditors who, sensing impending bankruptcy, rush into court to obtain liens on exempt property, thus frustrating the purpose of the exemptions. As explained in H.R.Rep. No. 595, 95th Cong., 1st Sess. 126 (1977), the lien-avoidance provision “allows the debtor to undo the actions of creditors that bring legal action against the debtor shortly before bankruptcy. Bankruptcy exists to provide relief for an overburdened debtor. If a creditor beats the debtor into court, the debtor is nevertheless entitled to his exemptions.” That is not what happened here. No creditor beat the debtor into court. The lien was created by a court, it is true, but not to enable a creditor to defeat his debtor’s household exemption; it was done to protect a spouse’s preexisting property rights.
Of course often the language of a statute carries beyond the statutory purpose, and when that happens subtle issues of interpretation arise. This may seem to be such a case, because the lien was created by a court and was therefore a “judicial lien.” But the statute does not say that the bankrupt may avoid a judicial lien to the extent that it impairs an exemption; it says that the bankrupt may avoid “the fixing of” such a lien “on an interest of the debtor in property.” The debtor must have the interest at the time the court places the lien on it. That condition is not satisfied here. Before the divorce, the Sanderfoots owned their home jointly. Wis.Stat. §§ 766.31, 767.255; Krueger v. Wisconsin Department of Revenue, 124 Wis.2d 453, 460, 369 N.W.2d 691, 694-95 (1985). Mr. Sanderfoot did not own it. Certainly he did not own it free and clear of his wife’s interest, which was equal to his own. He could not have sold it without her consent, whether or not her name appeared on the title papers. Wis.Stat. § 706.09(l)(e). The divorce court did not extinguish her interest, but instead transformed it from that of a co-owner to that of a mortgagee. Wozniak v. Wozniak, 121 Wis.2d 330, 359 N.W.2d 147 (1984).
*607It is settled in the nonfamily context that a debtor cannot avoid a lien on an interest acquired after the lien attached. In re McCormick, 18 B.R. 911 (Bankr.W.D.Pa.1982); In re Stephens, 15 B.R. 485 (Bankr.W.D.N.C.1981). The principle should be the same if the interest and lien arise from the same transaction, here a divorce decree that gave the entire property to Sanderfoot subject to a lien in favor of his wife. It cannot be argued that enforcing the lien would diminish the amount available to creditors who extended credit to the debtor before the lien attached, or to the debtor himself claiming an exemption. Before the wife acquired her lien, Sanderfoot had only an undivided one-half interest in the property. Enforcing the wife’s lien cannot cut down on the size of the bankrupt estate as it existed before the lien attached.
I am at a loss to understand why we should strain the language and ignore the purpose of the lien-avoidance statute in order to achieve a result that does not promote, but instead denies, simple justice— layman’s justice. I do not expect an argument about this characterization of our result, because at oral argument the husband’s lawyer admitted that his client’s action had subverted the purpose of the divorce decree. The lawyer added, however, that this did not matter because (in his words) “bankruptcy is inequitable.” I had thought bankruptcy a branch rather than a rejection of equity. In so saying I do not endorse a free-wheeling judicial discretion to disregard either the Bankruptcy Code or the state-law entitlements that the Code is largely concerned with enforcing. “[EJquity may supplement, but may never supersede, the [Bankruptcy] Act.” Marin v. England, 385 U.S. 99, 110, 87 S.Ct. 274, 280, 17 L.Ed.2d 197 (1966) (Harlan, J., dissenting). See also Boston & Maine Corp. v. Chicago Pacific Corp., 785 F.2d 562, 566 (7th Cir.1986); Levit v. Ingersoll Rand Financial Corp., 874 F.2d 1186, 1197-98 (7th Cir.1989). But when a debtor uses the Code to steal from his former wife we should not lightly conclude that the Code, properly read, commands such a result.
I acknowledged at the outset of this opinion, and I repeat, that superficially unjust results are sometimes made just by institutional and systemic concerns, such as the desirability of simple rules. If this were not so, there would never be a tension between legal justice and substantive justice. But there is no such tension here. Mrs. Sanderfoot is not asking us to disregard the purpose of Congress, but to fulfill it by adhering to the precise contours of the lien-avoidance section. She is asking us not to disregard Congress’s words, but to apply them. She is asking not for a complex rule or vague standard but for a straightforward distinction between a judicial lien on the bankrupt’s property and a judicial lien intended to secure a spouse’s preexisting interest in marital property. We could do justice here without deforming the Bankruptcy Code.
Precedent does not compel the court’s result. Far from it. The position I urge here was adopted by the Eighth Circuit in Boyd v. Robinson, 741 F.2d 1112 (8th Cir. 1984), as it has been by most bankruptcy judges. In re Thomas, 32 B.R. 11 (Bankr.D.Ore.1983); In re Williams, 38 B.R. 224 (Bankr.N.D.Okla.1984); In re Scott, 12 B.R. 613 (Bankr.W.D.Okla.1981). The Tenth Circuit rejected it in Maus v. Maus, 837 F.2d 935 (10th Cir.1988). But In re Donahue, 862 F.2d 259 (10th Cir.1988), decided a few months later, and In re Borman, 886 F.2d 273 (10th Cir.1989), repudiated Maus in the guise of distinguishing it. In In re Pederson, 875 F.2d 781 (9th Cir. 1989), the Ninth Circuit lined up with Maus. It reasoned (as had the dissenting judge in Boyd) that when the divorce court awarded the home to one spouse, it dissolved the other spouse’s interest and created in that spouse a new interest, a judicial lien the fixing of which the bankrupt was entitled to avoid to the extent it impaired an exemption. I do not doubt that the decree can be so characterized, but I disagree that the characterization supports a conclusion that the spouse’s lien is avoidable. The lien in our ease was created in the same document — the divorce decree— that gave the husband his interest in the property. The lien qualified that interest from the start. There was no instant at *608which Sanderfoot owned the property free and clear of the wife’s interest. He seeks a fresh start with someone else’s property.
We should go with the Eighth and Tenth Circuits. We should reverse.