JUSTICE REHNQUIST delivered the opinion of the Court.
This case concerns the effect of 11 U. S. C. § 522(f)(2) (1976 ed., Supp. V), which permits individual debtors in bankruptcy proceedings to avoid liens on certain property. The Court of Appeals consolidated seven appeals from the Bankruptcy Courts for the Districts of Kansas and Colorado. In each case the debtor was an individual who instituted bankruptcy proceedings after the Bankruptcy Reform Act of 1978, Pub. L. 95-598, 92 Stat. 2549 (1978 Act), became effective on October 1, 1979. In each case one of the appellees had loaned the debtor money and obtained and perfected a lien on the debtor's household furnishings and appliances before the 1978 Act was enacted on November 6, 1978. None of these liens was possessory, and none secured purchase-money obligations.
Included within the personal property subject to the appellees' liens were household items that are exempt from the property included within the debtors' estates by virtue of
The appellees asserted that application of § 522(f)(2) to liens acquired before the enactment date would violate the Fifth Amendment. The United States intervened in each case to defend the constitutionality of the federal statute,
The Court of Appeals consolidated the cases and affirmed the judgments of the Bankruptcy Courts. 642 F.2d 1193 (CA10 1981). It held that the 1978 Act was intended to apply retrospectively, and thus was designed to invalidate liens acquired before the enactment date. It also held, however, that such an application violates the Fifth Amendment. The court stated that § 522(f)(2) effects a "complete taking of the secured creditors' property interests," and is thus invalid under Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555
The appellees, of course, defend the judgment of the Court of Appeals.
It may be readily agreed that § 522(f)(2) is a rational exercise of Congress' authority under Art. I, § 8, cl. 4, and that this authority has been regularly construed to authorize the retrospective impairment of contractual obligations. Hanover
The Government apparently contends (Brief for United States 30-32) that because cases such as Arnett v. Kennedy, 416 U.S. 134 (1974), and Goldberg v. Kelly, 397 U.S. 254 (1970), defined "property" for purposes of the Due Process Clause sufficiently broadly to include rights which at common law would have been deemed contractual, traditional property rights are entitled to no greater protection under the Takings Clause than traditional contract rights. It argues that "bankruptcy principles do not support a sharp distinction between the rights of secured and unsecured creditors." Brief for United States 31. However "bankruptcy principles" may speak to this question, our cases recognize, as did the common law, that the contractual right of a secured creditor to obtain repayment of his debt may be quite different in legal contemplation from the property right of the same creditor in the collateral. Compare Hanover National Bank v. Moyses, supra, with Louisville Joint Stock Land Bank v. Radford, supra, and Kaiser Aetna v. United States, 444 U.S. 164 (1979).
Since the governmental action here would result in a complete destruction of the property right of the secured party, the case fits but awkwardly into the analytic framework employed in Penn Central Transportation Co. v. New York City, 438 U.S. 104 (1978), and PruneYard Shopping Center v. Robins, 447 U.S. 74 (1980), where governmental action
In Radford, we held that the Frazier-Lemke Act, 48 Stat. 1289, violated the Takings Clause. The bank held a nonpurchase-money mortgage on Radford's farm. Radford defaulted and instituted bankruptcy proceedings. The Frazier-Lemke Act, which by its terms applied only retrospectively, permitted the debtor to purchase the property for less than its fair market value.
In Armstrong, materialmen delivered materials to a prime contractor for use in constructing Navy personnel boats. Under state law, they obtained liens in the vessels.
The Government seeks to distinguish Armstrong on the ground that it was a classical "taking" in the sense that the Government acquired for itself the property in question,
The Government finally contends that because the resale value of household goods is generally low, and because creditors therefore view the principal value of their security as a lever to negotiate for reaffirmation of the debt rather than as a vehicle for foreclosure, the property interests involved here do not merit protection under the Takings Clause. While this contention cannot be dismissed out of hand, it seems to run counter to the State's characterization of the interest as property, see n. 6, supra, to our reliance in other "takings" cases on state-law characterizations, see, e. g., Kaiser Aetna v. United States, 444 U. S., at 179, and also to at least some of the implications of Radford, supra, and Armstrong, supra.
The foregoing discussion satisfies us that there is substantial doubt whether the retroactive destruction of the appellees' liens in this case comports with the Fifth Amendment. We now consider whether, as a matter of statutory construction, § 522(f)(2) must necessarily be applied in that manner. We consider the statutory question because of the " `cardinal principle that this Court will first ascertain whether a construction of the statute is fairly possible by which the constitutional question may be avoided.' " Lorillard v. Pons, 434 U.S. 575, 577 (1978), quoting Crowell v. Benson, 285 U.S. 22, 62 (1932).
The Court of Appeals thought § 522(f)(2) must apply retroactively, that is, to liens which attached before the enactment date, because "there would be no bankruptcy law applicable to cases [involving such liens if it did not]." 642 F. 2d, at
The principle that statutes operate only prospectively, while judicial decisions operate retrospectively, is familiar to every law student. Compare 1 C. Sands, Sutherland on Statutory Construction § 1.06 (4th ed. 1972), with Linkletter v. Walker, 381 U.S. 618, 622-625 (1965). This Court has often pointed out:
See, e. g., United States Fidelity & Guaranty Co. v. United States ex rel. Struthers Wells Co., 209 U.S. 306, 314 (1908) ("The presumption is very strong that a statute was not meant to act retrospectively, and it ought never to receive
This principle has been repeatedly applied to bankruptcy statutes affecting property rights. In Holt v. Henley, 232 U.S. 637 (1914), the Court had before it a new statute granting bankruptcy trustees the position of a lienholder with priority over sellers on conditional sales contracts. Act of June 25, 1910, ch. 412, § 8, 36 Stat. 840. This provision, like § 522(f)(2), could be read literally to divest property interests which had been created before it was enacted. The 1910 statute, like the 1978 Act, applied to all bankruptcy cases instituted after it became effective.
The Government nonetheless contends that bankruptcy statutes are usually construed to apply to pre-existing rights. This statement is unobjectionable in the context of traditional contract rights, Hanover National Bank v. Moyses, 186 U. S., at 188, but none of the cases cited by the Government extend it to property rights such as those involved here.
An early version of the 1978 Act contained an explicit requirement that all its provisions "shall apply in all cases or proceedings instituted after its effective date, regardless of the date of occurrence of any of the operative facts determining legal rights, duties, or liabilities hereunder." § 10-103(a), H. R. 31, 94th Cong., 1st Sess. (1975), reprinted in Bankruptcy Act Revision: Hearings on H. R. 31 and H. R. 32 before the Subcommittee on Civil and Constitutional Rights of the House Committee on the Judiciary, 94th Cong., 1st Sess., Appendix 320-321 (1975). This provision may or may not have been deleted directly in response to the comments of witness William Plumb to the effect that retroactive invalidation of liens may be an unconstitutional taking. Id., at 2066-2067. Nonetheless, Congress' elimination of an explicit command is some evidence that it did not intend to depart from the usual principle of construction. See Bradley
"Accordingly, in the absence of a clear expression of Congress' intent to" apply § 522(f)(2) to property rights established before the enactment date,
JUSTICE BLACKMUN, with whom JUSTICE BRENNAN and JUSTICE MARSHALL join, concurring in the judgment.
This case concerns the Bankruptcy Act of 1978, 11 U. S. C. § 101 et seq. (1976 ed., Supp. V), and, in particular, the exemption provisions of § 522 of that Act. Specifically at issue is the effect of certain of these exemption provisions upon nonpossessory, nonpurchase-money obligations given by debtors to small loan companies before the enactment of the
Section 522, for the first time, established a set of federal exemptions for individual debtors. Concededly, the section, as all similar statutes, was enacted to protect the debtor's essential needs and to enable him to have a fresh start economically. Section 522(f)(2) permits the debtor to "avoid the fixing" of a nonpossessory, nonpurchase-money security interest in certain property, but the subsection does not extend to all property otherwise exempt under § 522(d). It is limited to certain personal items, such as household furnishings, wearing apparel, jewelry, tools of the debtor's trade, and professionally prescribed health aids.
The Court naturally struggles with the question of the application of the new exemption provisions to obligations created before the new Act. It notes its concern with constitutional problems and it also greets with obvious relief the possibility of construing the Act as being only prospective in its operation. It then quickly pursues the latter route in order to avoid any constitutional issue.
I understand and can sympathize with the Court's desire thus to resolve the case. It is usually much easier to construe a statute so as to avoid a constitutional issue than it is to resolve the constitutional issue itself. And, of course, the Court's cases have announced that, where feasible, this is the preferred method. See, e. g., Lorillard v. Pons, 434 U.S. 575, 577 (1978).
Were we writing on a "clean slate," however, I would not pursue, in this case, that principle of construction-preference, for I think that the case would deserve consideration in greater depth. I see nothing in the statute with which we are concerned that speaks or hints of only prospective applicability, or that compels it, and I would find it necessary to reach the constitutional issue. I would then resolve that
But we are not writing on a clean slate. It seems to me that the case of Holt v. Henley, 232 U.S. 637 (1914), is precisely in point and, unless the Court chooses to overrule it, must control the present case. There, Holt and the eventual bankrupt signed an agreement in 1909 for the installation of an automatic sprinkler system on the property of the eventual bankrupt. The agreement specified that the system was to remain Holt's property until paid for and that he was to have a right to enter and remove it upon failure to pay as agreed. Thereafter, but also in 1909, a mortgage deed was executed covering the plant and what was "acquired and placed upon the said premises during the continuance of this trust." Id., at 639. Section 8 of the Act of June 25, 1910, ch. 412, 36 Stat. 840, amended § 47a(2) of the then Bankruptcy
Justice Holmes, writing for a unanimous Court, observed that before the amendment "Holt had a better title than the trustees would have got" and that the Court was of the opinion "that the act should not be construed to impair it." 232 U. S., at 639. He went on:
The Court then ruled against the claim of the mortgagees because they had made no advance on the faith of the sprinkler system and were not purchasers for value as against Holt, and because removal "would not affect the integrity of the structure on which the mortgagees advanced." Id., at 641.
Holt v. Henley thus also involved a pre-existing agreement, a subsequent change in the then Bankruptcy Act, and the Court's preservation of the pre-existing right. I see no way to distinguish that case from this one, and I would affirm the judgment of the Court of Appeals simply on the compelling authority of Holt v. Henley. See also Auffm'ordt v. Rasin, 102 U.S. 620, 622 (1881). I would much prefer to avoid in this way the dicta the Court enunciates with respect to "takings."
Subsections (b) and (d) of § 522 provide in pertinent part:
"(b) [A]n individual debtor may exempt from property of the estate. . . —
"(1) property that is specified under subsection (d) of this section . . .
"(d) The following property may be exempted under subsection (b)(1) of this section:
"(3) The debtor's interest, not to exceed $200 in value in any particular item, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family or household use of the debtor or a dependent of the debtor.
"(4) The debtor's aggregate interest, not to exceed $500 in value, in jewelry held primarily for the personal, family, or household use of the debtor or the dependent of the debtor.
"(6) The debtor's aggregate interest, not to exceed $750 in value, in any implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor.
"(9) Professionally prescribed health aids for the debtor or a dependent of the debtor."
Both Kansas and Colorado have adopted the Uniform Commercial Code. Although under the Code the priority among secured parties is often affected by the purchase-money or possessory character of security interests, see, e. g., § 9-312, 3 U. L. A. 531 (1981), these characterizations do not affect the nature of the security interest. See § 9-107 (defining "purchase money security interest"), § 9-305 (providing for perfection of security interests by possession).
Section 101(28) of the 1978 Act defines a lien as a "charge against or interest in property to secure payment of a debt or performance of an obligation." It does not make distinctions based on the purchase-money or possessory nature of a lien.