Jeffrey Klobucar, Bassford Remele, P.A.
Contributing Editor: James Brand, Fredrikson & Byron, P.A.
BAP___CRP_Holdings__A-1__LLC_v__OSullivan.pdf
In O’Sullivan v CRP Holdings, A-1, LLC, No. 17-6012 (8th Cir. B.A.P. Sept. 22, 2017), the Eighth Circuit Bankruptcy Appellate Panel came down strongly in favor of protecting a debtor’s fresh start. It held that a creditor’s docketed judgment created a judicial lien on the debtor’s interest in his exempt homestead, even though such lien was not presently enforceable against the property under Missouri law; as such, the judicial lien could be avoided under 11 U.S.C. § 522(f). The debtor and his spouse owned their home in a tenancy by the entireties. Upon filing a petition for relief, the debtor claimed his interest in the home as exempt. Under Missouri law, docketing a judgment, which is against only one spouse, does not create a lien on property held in a tenancy by the entireties. Simply put, the creditor did not have a lien on the exempt property under the definition of “lien” provided by Missouri law. The BAP held that the Bankruptcy Code’s definition of “judicial lien” is broader. The recording of the judgment created a cloud on the debtor’s title and could potentially become a lien under Missouri law if the debtor’s spouse died. That constituted a “charge against or interest in property,” impaired the debtor’s exemption, and therefore could be avoided under section 522(f).