CRP Holdings, A-1, LLC v. O'Sullivan (In Re O'Sullivan)
561 B.R. 786
| 8th Cir. | 2016Background
- O'Sullivan (debtor) and his wife owned Barton County real estate as tenants by the entirety; wife did not join the bankruptcy filing.
- CRP obtained a default money judgment against O'Sullivan in Platte County and filed a notice of foreign judgment in Barton County seeking a judicial lien on the property.
- O'Sullivan filed Chapter 7, claimed a $15,000 Missouri homestead exemption, and moved under 11 U.S.C. § 522(f)(1) to avoid CRP's judgment lien as impairing his exemption.
- The bankruptcy court granted avoidance; the BAP affirmed, reasoning an (unenforceable) judgment lien affixed upon recording in Barton County.
- On appeal to the Eighth Circuit, the court questioned whether Missouri law even allowed a lien to attach to tenancy-by-the-entirety property where only one spouse was judged, and vacated the BAP decision.
- The Eighth Circuit remanded the case to the bankruptcy court to determine in the first instance whether CRP obtained a judicial lien (enforceable or unenforceable) on the property.
Issues
| Issue | Plaintiff's Argument (O'Sullivan) | Defendant's Argument (CRP) | Held |
|---|---|---|---|
| Whether CRP obtained a judicial lien under Missouri law | The recorded foreign judgment created a judicial lien that fixed on his interest and thus is avoidable under § 522(f)(1) | The judgment did not create a lien on entireties property because only O'Sullivan (not his wife) was liable | Court remanded to bankruptcy court to determine whether a judicial lien (enforceable or unenforceable) arose under state law |
| Whether an unenforceable lien may be avoided under § 522(f)(1) | If a lien exists but is unenforceable against homestead, § 522(f)(1) permits avoidance | CRP disputed applicability but did not contest that unenforceable liens can be avoided generally | Court held unenforceable liens may be avoided under § 522(f)(1) when state law creates such a lien |
| Whether § 522(f)(1) applies when state law never permits a lien to attach | O'Sullivan argued relief under § 522(f) if lien fixed (even if unenforceable) | CRP argued no lien attached under Missouri law, making § 522(f) inapplicable | Court agreed that if state law creates no lien at all, § 522(f)(1) is inapplicable and remanded for that determination |
Key Cases Cited
- Farrey v. Sanderfoot, 500 U.S. 291 (1991) (defines "fixed" in § 522(f) and discusses liens surviving bankruptcy)
- In re Sanders, 39 F.3d 258 (10th Cir. 1994) (when state law does not allow a lien to attach, § 522(f) is inapplicable)
- In re Arango, 992 F.2d 611 (6th Cir. 1993) (judgment did not attach to debtor's present homestead interest held as tenancy by the entirety)
- In re Henderson, 18 F.3d 1305 (5th Cir. 1994) (under Texas law an unenforceable lien could nonetheless fasten liability and be avoided under § 522(f))
- In re Thompson, 750 F.2d 628 (8th Cir. 1984) (purpose of Chapter 7 fresh start and exemptions)
- In re Lasowski, 575 F.3d 815 (8th Cir. 2009) (standard of review for BAP decisions)
- Fed. Nat'l Mortg. Ass'n v. Pace, 415 S.W.3d 697 (Mo. Ct. App. 2013) (tenancy by the entirety treated as single entity for ownership and execution purposes)