JUSTICE SCALIA delivered the opinion of the Court.
The Bankruptcy Code allows the States to define what property a debtor may exempt from the bankruptcy estate that will be distributed among his creditors. 11 U. S. C. § 522(b). The Code also provides that judicial liens encumbering exempt property can be eliminated. § 522(f). The question in this case is whether that elimination can operate when the State has defined the exempt property in such a way as specifically to exclude property encumbered by judicial liens.
In 1975, Helen Owen, the respondent, obtained a judgment against petitioner Dwight Owen, her former husband, for approximately $160,000. The judgment was recorded in Sarasota County, Florida, in July 1976. Petitioner did not at that time own any property in Sarasota County, but under
One year later, Florida amended its homestead law so that petitioner's condominium, which previously had not qualified as a homestead, thereafter did. Under the Florida Constitution, homestead property is "exempt from forced sale . . . and no judgment, decree or execution [can] be a lien thereon . . .," Fla. Const., Art. 10, § 4(a). The Florida courts have interpreted this provision, however, as being inapplicable to pre-existing liens, i. e., liens that attached before the property acquired its homestead status. Bessemer v. Gersten, 381 So.2d 1344, 1347, n. 1 (Fla. 1980); Aetna Ins. Co. v. LaGasse, 223 So.2d 727, 728 (Fla. 1969); Pasco v. Harley, 73 Fla. 819, 824-825, 75 So. 30, 32-33 (1917); Volpitta v. Fields, 369 So.2d 367, 369 (Fla. App. 1979); Lyon v. Arnold, 46 F.2d 451, 452 (CA5 1931). Pre-existing liens, then, are in effect an exception to the Florida homestead exemption.
In January 1986, petitioner filed for bankruptcy under Chapter 7 of the Code, and claimed a homestead exemption in his Sarasota condominium. The condominium, valued at approximately $135,000, was his primary asset; his liabilities included approximately $350,000 owed to respondent. The Bankruptcy Court discharged petitioner's personal liability for these debts, and sustained, over respondent's objections, his claimed exemption.
The condominium, however, remained subject to respondent's pre-existing lien, and after discharge, petitioner moved to reopen his case to avoid the lien pursuant to § 522(f)(1). The Bankruptcy Court refused to decree the avoidance; the District Court affirmed, finding that the lien had attached
An estate in bankruptcy consists of all the interests in property, legal and equitable, possessed by the debtor at the time of filing, as well as those interests recovered or recoverable through transfer and lien avoidance provisions. An exemption is an interest withdrawn from the estate (and hence from the creditors) for the benefit of the debtor. Section 522 determines what property a debtor may exempt. Under § 522(b), he must select between a list of federal exemptions (set forth in § 522(d)) and the exemptions provided by his State, "unless the State law that is applicable to the debtor . . . specifically does not so authorize," §522(b)(1)— that is, unless the State "opts out" of the federal list. If a State opts out, then its debtors are limited to the exemptions provided by state law. Nothing in subsection (b) (or elsewhere in the Code) limits a State's power to restrict the scope of its exemptions; indeed, it could theoretically accord no exemptions at all.
Property that is properly exempted under § 522 is (with some exceptions) immunized against liability for prebankruptcy debts. § 522(c). No property can be exempted (and thereby immunized), however, unless it first falls within the bankruptcy estate. Section 522(b) provides that the debtor may exempt certain property "from property of the estate"; obviously, then, an interest that is not possessed by the estate cannot be exempted. Thus, if a debtor holds only bare legal title to his house—if, for example, the house is subject to a purchase-money mortgage for its full value—then only that legal interest passes to the estate; the equitable interest remains with the mortgage holder, § 541(d). And since the
It is such an avoidance provision that is at issue here, to which we now turn. Section 522(f) reads as follows:
The lien in the present case is a judicial lien, and we assume without deciding that it fixed "on an interest of the debtor in property." See Farrey v. Sanderfoot, ante, p. 291. The question presented by this case is whether it "impairs an exemption to which [petitioner] would have been entitled under subsection (b)." Since Florida has chosen to opt out of the listed federal exemptions, see Fla. Stat. § 222.20 (1989), the only subsection (b) exemption at issue is the Florida homestead exemption described above. Respondent suggests that, to resolve this case, we need only ask whether the judicial lien impairs that exemption. It obviously does not, since the Florida homestead exemption is not assertable against pre-existing judicial liens. To permit avoidance of the lien, respondent urges, would not preserve the exemption but would expand it.
As the preceding italicized words suggest, this reading is more consonant with the text of § 522(f)—which establishes as the baseline, against which impairment is to be measured, not an exemption to which the debtor "is entitled," but one to which he "would have been entitled." The latter phrase denotes a state of affairs that is conceived or hypothetical, rather than actual, and requires the reader to disregard some element of reality. "Would have been" but for what? The answer given, with respect to the federal exemptions, has been but for the lien at issue, and that seems to us correct.
The only other conceivable possibility is but for a waiver— harking back to the beginning phrase of § 522(f), "Notwithstanding any waiver of exemptions . . . ." The use of contrary-to-fact construction after a "notwithstanding" phrase is not, however, common usage, if even permissible. Moreover, though one might employ it when the "notwithstanding" phrase is the main point of the provision in question
This reading must also be accepted, at least with respect to the federal exemptions, if § 522(f) is not to become an irrelevancy with respect to the most venerable, most common, and most important exemptions. The federal exemptions for homesteads (§ 522(d)(1)), for motor vehicles (§ 522(d)(2)), for household goods and wearing apparel (§ 522(d)(3)), and for tools of the trade (§ 522(d)(6)), are all defined by reference to the debtor's "interest" or "aggregate interest," so that if respondent's interpretation is accepted, no encumbrances of these could be avoided. Surely § 522(f) promises more than that—and surely it would be bizarre for the federal scheme to prevent the avoidance of liens on those items, but to permit it for the less crucial items (for example, an "unmatured life insurance contract owned by the debtor," § 522(d)(7)) that are not described in such fashion as unquestionably to exclude liens.
We have no doubt, then, that the lower courts' unanimously agreed-upon manner of applying § 522(f) to federal exemptions—ask first whether avoiding the lien would entitle the debtor to an exemption, and if it would, then avoid
On the basis of the analysis we have set forth above with respect to federal exemptions, and in light of the equivalency of treatment accorded to federal and state exemptions by § 522(f), we conclude that Florida's exclusion of certain liens from the scope of its homestead protection does not achieve a
The foregoing conclusion does not necessarily resolve this case. Section 522(f) permits the avoidance of the "fixing of a lien on an interest of the debtor." Some courts have held it inapplicable to a lien that was already attached to property when the debtor acquired it, since in such a case there never was a "fixing of a lien" on the debtor's interest. See In re McCormick, 18 B.R. 911, 914 (Bkrtcy. Ct. WD Pa.), aff'd, 22 B.R. 997 (WD Pa. 1982); In re Scott, 12 B.R. 613, 615 (Bkrtcy. Ct. WD Okla. 1981). Under Florida law, the lien may have attached simultaneously with the acquisition of the property interest. If so, it could be argued that the lien did not fix "on an interest of the debtor." See Farrey v. Sanderfoot, ante, p. 291. The Court of Appeals did not pass on this issue, nor on the subsidiary question whether the Florida statute extending the homestead exemption was a taking, cf. United States v. Security Industrial Bank, 459 U.S. 70 (1982). We express no opinion on these points, and leave them to be considered by the Court of Appeals on remand.
The judgment of the Court of Appeals is reversed, and the case is remanded for proceedings consistent with this opinion.
It is so ordered.
JUSTICE STEVENS, dissenting.
The Court's analysis puts the cart before the horse. As I read the statute at issue, it is not necessary to reach the issue
The facts raise a straightforward issue: whether the lien avoidance provisions in § 522(f) of the Bankruptcy Code, 11 U. S. C. § 522(f),
As I read the text of § 522(f), it does not authorize the avoidance of liens that were perfected at a time when the debtor could not claim an exemption in the secured property. The Bankruptcy Code deals with the subject of exemptions in two separate provisions that are relevant to this case. The first of these provisions, § 522(b), identifies property that is exempt from the claims of general creditors.
The second provision that is relevant to this suit, § 522(f), is concerned with the priority of secured creditors, not the
As it applies to judicial liens, § 522(f) raises two questions: (1) whether the exemption provides a basis for avoidance of the lien; and (2) if so, to what extent should the lien be avoided? The first question concerns the relative priority of conflicting claims on the same asset; on such issues, the timing of the claims is often decisive. The second question—I shall call it the "impairment question"—concerns the distribution of the proceeds of sale after the issue of priority has been resolved. This second question need not be reached unless the first question has been answered positively.
In determining whether the exemption provides a basis for avoiding the lien, § 522(f) turns our attention towards the exemption to which the debtor would have been entitled at the time the lien "fixed." In United States v. Security Industrial Bank, 459 U.S. 70 (1982), this Court was presented with the question whether applying § 522(f)(2) to avoid nonpossessory liens perfected before the enactment of the Bankruptcy Reform Act of 1978 would be a taking of property without compensation in violation of the Fifth Amendment of the Constitution. The Court avoided deciding that precise question by holding that § 522(f) did not apply retroactively to liens that had been perfected before the Bankruptcy Reform Act was enacted. Although there is no such constitutional question presented here, Security Industrial Bank establishes that the critical date for determining whether a lien may be avoided under the statute is the date of the fixing of that lien.
The Court frames the question it decides as whether the lien avoidance provisions in § 522(f) "can operate when the State has defined the exempt property in such a way as specifically to exclude property encumbered by judicial liens." Ante, at 306. That is an accurate description of the issue that has arisen in cases concerning the avoidability of non-possessory, nonpurchase-money liens on household goods. See cases cited, ante, at 310, nn. 1 and 2.
The majority and dissenting opinions in In re McManus, 681 F.2d 353 (CA5 1982), adequately identify the issue to which the Court's opinion today is addressed. In that case a finance company (AVCO) held a promissory note secured by a nonpossessory, nonpurchase-money security interest in the form of a chattel mortgage on some of the debtor's household goods and furnishings. The debtors sought to avoid AVCO's lien under § 522(f) on the ground that their household goods and furniture were exempted under § 522(b). The Bankruptcy Court and the District Court refused to avoid the lien. The Court of Appeals, following the reasoning of the Bankruptcy Court, affirmed.
Under my reading of § 522(f), the Court of Appeals erred because it focused its attention entirely on the situation at the time of the bankruptcy. If it had analyzed the case by noting that at the time AVCO's lien attached, the debtors were already entitled to an exemption, it should have concluded that the lien was avoidable. The dissenting judge came to that conclusion by correctly recognizing that the statutory text evidences an intent to consider the situation at the time of attachment. He wrote:
Finally, I must comment on the Court's conclusion "that Florida's exclusion of certain liens from the scope of its homestead protection does not achieve a similar exclusion from the Bankruptcy Code's lien avoidance provision." Ante, at 313-314. This statement treats Florida's refusal to apply its broadened homestead exemption retroactively as the equivalent of Louisiana's narrowing definition of its household goods exemption to exclude properties subject to a chattel mortgage. The conclusion is flawed. Petitioner would not have been entitled to a homestead exemption at the time respondent's judicial lien attached; for that reason the lien avoidance provisions in § 522(f) of the Bankruptcy Code are not applicable. I would therefore affirm the judgment of the Court of Appeals.
"(f) Notwithstanding any waiver of exemptions, the debtor may avoid the fixing of a 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 subsection (b) of this section, if such lien is—
"(1) a judicial lien; or
"(2) a nonpossessory, nonpurchase-money security interest . . . ."
"Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate the property listed in either paragraph (1) or, in the alternative, paragraph (2) of this subsection.
. . . . .
"Such property is—
"(1) property that is specified under subsection (d) of this section, unless the State law that is applicable to the debtor under paragraph (2)(A) of this subsection specifically does not so authorize; or, in the alternative,
"(2)(A) any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition at the place in which the debtor's domicile has been located for the 180 days immediately preceding the date of the filing of the petition, or for a longer portion of such 180-day period than in any other place . . . ."
"This is clearly indicated in S. Rep. No. 95-989, 95th Cong., 2d Sess. 76, U. S. Code Cong. & Admin. News 1978, pp. 5787, 5862:
"`[To] protect the debtors' exemptions, his discharge, and thus his fresh start, . . . [t]he debtor may avoid . . . to the extent that the property could have been exempted in the absence of the lien . . . a nonpossessory, non-purchase-money security interest in certain household and personal goods.' "Thus it was Congress's clear intent that a debtor benefit to the fullest extent possible exemptions granted' to him by applicable state laws, even when he may have improvidently waived such exemptions. It is equally clear that Congress was particularly concerned with eradicating certain unconscionable creditor practices in the consumer loan industry." In re McManus, 681 F. 2d, at 358.