FAIRCHILD, Circuit Judge.
The question on this appeal is whether a discharge in bankruptcy after the 1966 amendment to section 17(a) of the bankruptcy act prevents the lien for unpaid federal income taxes which became legally due and owing more than three years preceding bankruptcy from attaching to property acquired by the discharged debtor after bankruptcy.
The government brought action against three defendants named Sanabria to recover unpaid income taxes. Two defendants averred discharges in bankruptcy, releasing them from liability for those taxes which had become legally due and owing more than three years before bankruptcy. The government replied that liens arising on account of those taxes had been appropriately filed with the local recorder of deeds before the bankruptcy proceedings.
The position of the government appears to be that although the taxes involved on this appeal are of sufficient age to be discharged as debts, the liens which arose and notices of which were filed retain sufficient vitality so that if the bankrupt defendants acquire property in the future it will be subject to those liens.
The bankruptcy proceedings were begun about the same time as the government brought its action to recover the taxes. Presumably the government now seeks a declaration that its liens arising out of the taxes outstanding more than three years retain such vitality, notwithstanding the discharge.
Under section 17(a) of the bankruptcy act,
Public Law 89-496
At the end of clause (1) is a proviso which is the focal point of this controversy: "And provided further, That a discharge in bankruptcy shall not release or affect any tax lien." The proviso means at least that a taxing authority's lien upon property already subjected to the lien at the time of bankruptcy is not released or affected by the discharge even where the tax which gave rise to the lien became legally due and owing more than three years before bankruptcy.
The government contends that the proviso means something more, so that it will have a drastic impact upon the debtor during the period following bankruptcy.
The lien for unpaid federal income tax has a quality by which property acquired by a delinquent taxpayer after his tax liability arises and at any time during the life of the lien becomes subject to the lien.
The government would read the proviso as preserving this quality, where the lien had been filed before bankruptcy, into the period after bankruptcy, so that such lien would attach to property acquired by the debtor after bankruptcy.
But a fair reading of section 17(a), as amended, shows, in our opinion, that the dominant purpose of the change was to relieve a debtor of the burden of these older taxes after bankruptcy. The government's interpretation would permit it to enforce (to the extent of assets acquired by the discharged debtor) collection of all its taxes, regardless of their age, if a lien had been filed. This would to so substantial a degree frustrate the real purpose of the amendment that Congress surely must not have intended the result.
In considering a situation, which, though different, suggests some of the
The Court went on to say that one of the primary purposes of the bankruptcy act, to permit the honest debtor to start afresh, "has been again and again emphasized by the courts as being of public as well as private interest, in that it gives to the honest but unfortunate debtor who surrenders for distribution the property which he owns at the time of bankruptcy, a new opportunity in life and a clean field for future effort, unhampered by the pressure and discouragement of pre-existing debt."
The expressions just quoted were echoed in a committee report on the bill which provided for the amendment to section 17(a):
Several district courts have decided that liens which arose from taxes which are discharged in bankruptcy under amended section 17(a) remain effective only upon assets existing as of the date of bankruptcy.
The legislative history is more fully described in those decisions. At the very best for the government, portions of the history are ambiguous. Several statements of Senators, relied on by the government, which might possibly be construed to support the government position, never really make it clear that the speaker was addressing himself to an effect of the federal lien on property acquired after bankruptcy, or asserting more than that a lien, recorded before bankruptcy, would retain its full effect upon property interests which became subject to it before bankruptcy.
The judgment is affirmed.