Davis v. Davis

Revised April 6, 1999
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________
No. 95-11112
_______________________
In the Matter of:
THOMAS CULLEN DAVIS;
KAREN JOYCE DAVIS,
Debtors,
_______________________
SANDRA DAVIS,
Appellant,
v.
THOMAS CULLEN DAVIS,
Appellee.
_________________________________________________________________
Appeals from the United States District Court
for the Northern District of Texas
_________________________________________________________________
March 17, 1999
Before KING, Chief Judge, POLITZ, JOLLY, HIGGINBOTHAM, DAVIS,
JONES, SMITH, DUHÉ, WIENER, BARKSDALE, EMILIO M. GARZA, DeMOSS,
BENAVIDES, STEWART, PARKER, and DENNIS, Circuit Judges.
EDITH H. JONES, Circuit Judge:
In 1987, Cullen and Karen Davis filed for bankruptcy
relief and claimed as their exempt Texas homestead a residence
valued at $500,000 which they owned free and clear. Cullen’s
former wife Sandra obtained a judgment from the bankruptcy court
declaring that her $250,000-plus claim for alimony, child support,
and maintenance was nondischargeable under 11 U.S.C. § 523(a)(5).
To enforce the nondischargeability judgment, Sandra sought turnover
relief in the form of an order permitting her to foreclose on
Cullen’s and Karen’s homestead. The bankruptcy court and the
district court held that she could not levy on the debtors’
homestead because it is protected from execution under Texas law,
and 11 U.S.C. § 522(c)(1), a provision of the Bankruptcy Code, did
not preempt the debtors’ state-law rights. A split panel of this
court reversed the lower courts. See Davis v. Davis (In re Davis),
105 F.3d 1017 (5th Cir. 1997). This case was selected for en banc
rehearing because of its importance to federal bankruptcy law and
to state exemption rules. We conclude that the lower courts were
essentially correct and affirm their judgments denying Sandra the
relief she seeks.
FACTUAL AND PROCEDURAL HISTORY
When Sandra and Cullen divorced in 1968, they executed a
property settlement, support and child custody agreement, and
divorce judgment (collectively “divorce judgment”), and Cullen
agreed to make monthly payments to Sandra through January 1, 1991,
with certain contingent payments thereafter. In 1979, Cullen
married Karen Davis. In 1984, Cullen and Karen purchased a house
and lot for $750,000.
In 1987, Cullen and Karen stopped making payments to
Sandra as required by the divorce judgment and filed for Chapter 7
bankruptcy relief, followed later by conversion to Chapter 11. As
2
has been noted, Cullen’s and Karen’s costly, lien-free home was
claimed as exempt property pursuant to § 522(b)(2)(A) and valued at
$500,000 on their schedules.
Armed with the bankruptcy court’s judgment that Cullen
owed her $300,000 in nondischargeable alimony, maintenance and
child support obligations and associated attorneys’ fees, Sandra
requested that the bankruptcy court seize and sell the debtors’
homestead under Texas Civ. Prac. & Rem. Code § 31.002(a),
applicable to the action under Bankr. R. 7069 and Fed. R. Civ. P.
69. Because a debtor’s homestead is exempt from attachment,
execution, or seizure under Tex. Const. art. XVI § 50 and Texas
Property Code § 41.002(a), the bankruptcy court determined that the
debtors’ homestead was not subject to the Texas turnover statute.
In so doing, the court rejected Sandra’s argument that § 522(c)(1)
of the Bankruptcy Code preempted the Texas homestead exemption for
nondischargeable debts related to family support as defined in
§ 523(a)(5). Sandra appealed this ruling to the district court,
which affirmed for substantially the same reasons. Sandra timely
appealed to this court. We review the lower courts’ interpretation
of the Bankruptcy Code de novo. See Henderson v. Belknap (In re
Henderson), 18 F.3d 1305, 1307 (5th Cir. 1994).
THE BANKRUPTCY EXEMPTION STATUTE
At issue in this case are the meaning and preemptive
force, if any, of 11 U.S.C. § 522(c), a provision that is part of
3
the Bankruptcy Code’s framework for the treatment of exempt
property. Understanding § 522(c) begins with a description of the
lengthy provision governing exemptions of which it is a part. See
United Sav. Ass’n v. Timbers of Inwood Forest Assocs., Inc., 484
U.S. 365, 371, 108 S. Ct. 626, 630 (1988) (“Statutory construction,
however, is a holistic endeavor.”).
Federal bankruptcy law affords debtors a fresh start by
enjoining collection of discharged debts, § 524, and by permitting
the debtors to retain certain limited amounts and types of exempt
property, § 522. Exemptions have been perennially controversial,
because they reduce assets potentially available to pay creditors
and arouse charges of abuse of bankruptcy. Exemptions are also
fought over by states’-rights advocates, who value the traditional
state legislative prerogative to adjust exemptions to local
economic conditions, and by advocates of federal uniformity, who
want to raise -- or lower -- exemptions based on conceptions of
national equity. Congress allayed the controversy between state
and federal advocates by providing in the 1978 Bankruptcy Code that
states could opt out of prescribed federal exemptions altogether or
could allow their citizens to select either schedule. See 11
U.S.C. § 522(b).
Exemptions are easy to claim. The debtor files a list of
exempt property protected by applicable federal or state law with
the court. See 11 U.S.C. § 522(l). If the exemptions are not
4
objected to, the property becomes exempt and unavailable to be
levied on by pre-petition creditors or managed by the trustee.
The right to claim exemptions is closely guarded.
Waivers are unenforceable. See 11 U.S.C. § 522(e). A debtor may
claim exemptions even on property recovered by the trustee from
third parties. See 11 U.S.C. § 522(g). The debtor may “avoid the
fixing of a lien” to the extent it impairs an exemption. 11 U.S.C.
§ 522(f). Both husband and wife may claim exemptions individually.
See 11 U.S.C. § 522(m).
The consequences of claiming exemptions are delineated in
§ 522(c). Generally, unless a case is dismissed, exempt property
may not be held liable to repay any pre-petition debt of the
debtor. This very broad protection requires qualification, at
least to the extent that otherwise enforceable liens on exempt
property must remain viable, § 522(c)(2)(A), as must properly filed
tax liens, § 522(c)(2)(B). Only three other types of pre-petition
claims against the debtor have any viability against property after
it is declared exempt: certain nondischargeable tax claims,
nondischargeable family support claims, and claims of federal
depository institutions regulatory agencies.1
Moving from the general discussion of exemptions to the
case before this court, the narrow terms of exception from the
1
Further, if a debtor claims an exemption on property
recovered from a third party by the trustee, the exempt property
may be used to pay the costs of administration. See 11 U.S.C. §
522(k).
5
protected status of exempt property are described by the statute as
follows:
(c) Unless the case is dismissed, property
exempted under this section is not liable
during or after the case for any debt of the
debtor that arose, or that is determined under
section 502 of this title as if such debt had
arisen, before the commencement of the case,
except --
(1) a debt of a kind specified in section
523(a)(1) or 523(a)(5) of this title;
(2) a debt secured by a lien that is --
(A)(i) [& ii] [not avoided or void under
specified provisions of this title]; or
(B) a tax lien, notice of which is properly
filed; or
(3) a debt of a kind specified in section
523(a)(4) or 523(a)(6) of this title owed by
an institution affiliated party of an insured
depository institution to a Federal depository
institutions regulatory agency acting in its
capacity as conservator, receiver, or
liquidating agent for such institution.
11 U.S.C. § 522(c).
In order to prevail in this case, Sandra must demonstrate
that § 522(c) creates a basis for execution on Cullen’s homestead
to enforce her nondischargeable divorce judgment and that, in
enacting this provision, Congress expressly or impliedly preempted
the Texas homestead law.2
2
We have been unable to locate any appellate cases in which a
court has directly discussed the effect of § 522(c) on state-
created exemptions. Some courts have construed § 522(c) in
conjunction with § 522(f) in the course of avoiding certain liens
on exempt property. See, e.g., Patriot Portfolio, LLC v. Weinstein
(In re Weinstein), 164 F.3d 677, 679-80 (1st Cir. 1999) (Reavley,
J.). However, no court has held that § 522(c) establishes a
separate means of enforcing liens against exempt property. Indeed,
in cases involving the viability of nondischargeable federal tax
liens, bankruptcy courts have cited the preemptive effect of the
6
Sandra’s argument as to § 522(c) is simple. She reads
the section to say that property exempt from payment of discharged
debts is “liable” for the types of debts listed as exceptions. But
the statute does not say this. Rather, it states that exempt
property “is not liable . . . for any debt . . . except . . . [a
nondischargeable divorce judgment].” Her argument did not persuade
the bankruptcy court, who wrote:
[Section 522(c)] does not create or establish
liability. It enjoins most liability imposed
by non-bankruptcy law upon exempt property but
does not enjoin all liability for all debts.
While it does not impose an injunction against
liability on exempt property for § 523(a)(1)
or (a)(5) debts, it also does not prevent non-
bankruptcy law from imposing such an
injunction. Indeed, Texas has done so.
Davis v. Davis (In re Davis), 170 B.R. 892, 898 (Bankr. N.D. Tex.
1994). At best, the statutory language is ambiguous from the
standpoint of imposing the liability Sandra seeks. Viewed in light
of the exemption framework outlined above, however, Judge
Felsenthal’s explanation is more plausible than Sandra’s. In other
words, § 522(c) sought to leave exempt property exposed to post-
bankruptcy liability only to the extent it would have been exposed
if the bankruptcy had not occurred. This interpretation is the
most plausible reading of § 522(c) for several reasons.
federal tax lien enforcement provision -- not Bankr. R. 7069 -- as
a means of levying on otherwise exempt property. See, e.g., In re
Reed, 127 B.R. 244, 247-48 (Bankr. D. Haw. 1991) (“[F]ederal law
governs what is exempt from federal levy.”); Crow v. Long, 107 B.R.
184, 186-87 (E.D. Mo. 1989). Thus, these cases do not control, or
otherwise affect, our analysis of § 522(c).
7
Unless Congress expressly legislates otherwise, see
infra, the policies of bankruptcy law have little bearing on
property after it is exempt from the debtor’s estate. Such
property is no longer available for distribution to creditors, and
it is not subject to charge for bankruptcy administrative fees.
The debtor may use the exempt property without claims of pre-
petition creditors hanging over his head. Of course, Congress
deemed necessary some narrow exceptions to this policy of a fresh
start for the debtor’s exempt property. Thus, purchase money liens
on exempt property had to be protected to insure a free flow of
credit for purchases of property in markets like residential real
estate. Further, tax liens were preserved against exempt property
because the contrary result -- voiding, e.g., school tax liens on
a homestead -- is unthinkable. Section 522(c)(2) deals with these
claims by simply leaving them unaltered on exempt property. The
section does not “create” or “impose” liability, nor does it
override or add to state law or federal tax law. The holders of
those sorts of unaltered claims would have to proceed via
applicable non-bankruptcy collection schemes to realize on their
security against exempt property.3
3
The district court drew this distinction as well:
Section 522(c)(2) allows exempt property to be
held liable for certain debts already secured
by a lien. If §522(c) were an execution
statute, it would have no cause to rely on
existing liens to have effect. That liability
as to § 523(a)(1) and § 523(a)(5) debts is not
8
Yet the same introductory language to § 522(c) that
leaves these liens and underlying state and federal law collection
schemes unaltered is argued to have a different meaning with
respect to Sandra’s nondischargeable divorce judgment. When Sandra
contends that the language “creates” a “liability” over and above
the protection her lien is accorded in state law, she means that
the bankruptcy court can order execution on the homestead to
satisfy the divorce judgment. This contention flatly contradicts
standard canons of statutory interpretation, for the same language
in a single statutory provision cannot have two different meanings.
See Sullivan v. Stroop, 496 U.S. 478, 484, 110 S. Ct. 2499, 2504
(1990) (espousing “normal rule of statutory construction” that
“identical words used in different parts of the same act are
intended to have the same meaning”).
Sandra’s position is also hard to justify if applied to
nondischargeable tax debts, the other non-lien debts specified in
defined by pre-existing liens does not change
the defining -- as opposed to executory --
nature of § 522(c). Rather, it suggests that
for these debts a lien or other means of
executing on the judgment need not precede the
claiming of exemptions. The creditor, after
the debtor has declared bankruptcy and claimed
exemptions pursuant to § 522(b), may still
pursue these debts by whatever means are
available, i.e., state-law remedies for
execution on a judgment.
Davis v. Davis (In re Davis), 188 B.R. 544, 551 (N.D. Tex. 1995).
9
§ 522(c)(1).4 That is, while a sense of compassion for ex-spouses
and children, who are the obligees of nondischargeable family
support obligations, provides impetus for “creation” of liability
against exempt property, the balance is not so easily struck in
favor of “creating” liability of exempt property to pay
nondischargeable, non-liened tax debts. Congress might have made
the choice to “create” liability of exempt property for both types
of nondischargeable debt, but this is unlikely. Taxing authorities
benefit from favorable lien laws and other extraordinary
enforcement sanctions and penalties, and these prerequisites render
additional protections in § 522(c) superfluous. Linguistically,
Sandra’s argument must furnish the same protection to
nondischargeable non-liened tax obligations as she asserts it does
for nondischargeable family support obligations. But the mandated
linguistic parallelism exposes an illogical result.
Notwithstanding our view that Sandra’s construction of
§ 522(c) creates internal inconsistencies in that provision, bits
of legislative history and the import of § 522(f) may be cited to
bolster her position. These arguments are not without force, but
they are ultimately unconvincing.
In 1990, Congress amended § 522(c)(3), creating an
exception designed to prevent “bank insider kingpins” from hiding
4
Many tax debts are rendered nondischargeable by § 523(a)(1),
a provision which is designated an exception to § 522(c) in the
same clause with the reference to family support obligations. See
11 U.S.C. § 522(c)(1).
10
behind state exemptions to retain their “ill gotten gains.” 136
Cong. Rec. E3686 (daily ed. Nov. 2, 1990) (statement of Rep.
Schumer); see also 11 U.S.C. § 522(c)(3). A statement of Senator
Biden during Senate consideration of the provision suggests that
the proposed legislative language
specifically pre-empts State homestead laws,
which would otherwise allow S&L crooks to
retain lavish homes through the excessive
protections in some State bankruptcy laws.
136 Cong. Rec. S17,602 (daily ed. Oct. 27, 1990). Isolated
statements of individual legislators represent neither the intent
of the legislature as a whole nor definitive interpretations of the
language enacted by Congress. See Board of Educ. v. Rowley, 458
U.S. 176, 204 n.26, 102 S. Ct. 3034, 3049 n.26 (1982). Further,
these particular statements post-date by twelve years the enactment
of the prefatory language in § 522(c) with which we are here
concerned. For that additional reason, they are not probative.
See United States v. Price, 361 U.S. 304, 313, 80 S. Ct. 326, 332
(1960) (“[T]he views of a subsequent Congress form a hazardous
basis for inferring the intent of an earlier one.”).
Sandra also contends that § 522(c)(1) is not intended to
serve simply as a lien preservation provision, because that purpose
is fulfilled by § 522(f), which provides in part that while a
debtor may avoid the fixing of a lien on exempt property, the
debtor may not avoid a judicial lien for alimony or family support.
If § 522(c)(1) does not have the broader purpose of permitting
11
execution against exempt property, then it is allegedly redundant
of the lien preservation function of § 522(f)(1)(A)(i). But
§ 522(c) is not duplicative of § 522(f)(1)(A). The former
provision states the effect of an exemption on liability for each
kind of debt specified, while the latter provision states when a
party may avoid the fixing of a pre-petition lien on exempt
property. The two sections overlap in part, but their scope and
purpose differ.
Nor does the Supreme Court’s interpretation of § 522(f)
shed light on the relation between that provision and § 522(c), at
least not in any sense helpful to Sandra. In Owen v. Owen, the
Supreme Court discussed whether under § 522(f) a state homestead
exemption (with its state law limitation) should be treated
differently from the federal exemption insofar as the § 522(f)
federal lien avoidance provision is concerned. See 500 U.S. 305,
313, 111 S. Ct. 1833, 1838 (1991). The Court concluded that
“[n]othing in the text of § 522(f) remotely justifies treating the
two categories of exemptions differently.” Id. In this case, the
provision in § 522(c)(1) for continuing liability for certain debts
applies equally to both federal and state exemption schemes; in
each scenario, liability persists after bankruptcy to the same
extent it did before. It is only with respect to the enforcement
of such liability, a matter which Congress has left to state
mechanisms, that the results differ.
12
A holistic reading of § 522(c)(1) undermines Sandra’s
theory that the provision is literally self-executing. She has
confused her right with her remedy. This error is exposed by
applying her reasoning to other debts that § 522(c) preserves
notwithstanding property exemptions, i.e. certain tax debts,
federal depository regulators’ debts, and debts already secured by
a valid lien. If Sandra’s reading of § 522(c) is correct, then a
homestead could be sold to repay non-liened tax debt, made
nondischargeable according to § 523(a)(1), or indeed to pay off an
obligation owed to the FDIC without recourse to federal or state
lien or homestead protection laws. The impact of such a
construction would put the preferred creditors in a better position
after the debtor has filed bankruptcy than before and may create an
incentive for filing involuntary bankruptcies. In effect, Sandra’s
proffered construction of § 522(c) does not merely withhold any
special protection offered by bankruptcy law, but overrides non-
bankruptcy law and has the effect of denying the debtor even
exemptions that would have been available outside of bankruptcy.
Further, this interpretation seriously disadvantages a debtor
subject to the listed obligations, and it actively discourages a
large number of potential debtors who are faced with the types of
obligations excepted from § 522(c) from seeking bankruptcy relief.
13
Congress surely would not have reached this consequential result
without legislating more explicitly.5
For all these reasons, we conclude that § 522(c)(1) does
not “create” “liability” of exempt property for specified debts
following bankruptcy. Instead, the section permits creditors
holding such claims to proceed against the property after
bankruptcy based on the rights and remedies they would have had
under state law if bankruptcy had not been filed.
PREEMPTION
To prevail in her approach to § 522(c), Sandra must show
that it preempts Texas law, thus subjecting Cullen’s homestead to
seizure and sale to satisfy her nondischargeable divorce judgment,
despite the express prohibition on such foreclosure contained in
the Texas constitution and statutes. See Eggemeyer v. Eggemeyer,
623 S.W.2d 462, 466 (Tex. App.-Waco 1981, writ dism’d) (homestead
5
The bankruptcy court pointed out how easily an amendment of
§ 522(c)(1) could have expressed the affirmative mechanism for the
collection of family support obligations that Sandra advocates:
(c) Unless the case is dismissed, property
exempted under this section is not liable
during or after the case for any debt of the
debtor that arose, or that is determined under
§ 502 of this title as if such debt had
arisen, before the commencement of the case.
(1) Notwithstanding this or any other federal
or state injunction of liability for exempt
property, exempt property shall be liable for
debts of a kind specified in § 523(a)(5) of
this title.
Davis, 170 B.R. at 897 (emphasis added).
14
not subject to foreclosure to secure payment of accrued child
support).
The Supremacy Clause enables Congress to override state
laws if it so intends. Deference to our federalism counsels a
presumption that areas of law traditionally reserved to the states,
like police powers or property law, are not to be disturbed absent
the “clear and manifest purpose of Congress.”6 But preemption may
be implied if state and federal laws conflict or a state law
thwarts the “accomplishment and execution” of congressional intent.
See Pacific Gas & Elec. Co. v. State Energy Resources Conservation
& Dev. Comm’n, 461 U.S. 190, 204, 103 S. Ct. 1713, 1722 (1983).
Moreover, if Congress has passed a pervasive federal legislative
scheme leaving states no room to supplement, then state law will
also be preempted. See First Gibraltar, 19 F.3d at 1039 (citing
Pacific Gas, 461 U.S. at 204, 103 S. Ct. at 1722). Sandra has
attempted to demonstrate (1) express preemption; (2) that
§§ 523(a)(5) and 522(c) of the Bankruptcy Code create so pervasive
a set of regulations as to impliedly preempt state laws regarding
exempt property, and (3) that § 522(c) conflicts irreconcilably
with the Texas homestead exemption. Express preemption is
precluded by our rejection of Sandra’s proffered interpretation of
§ 522(c).
6
See Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.
Ct. 1146, 1152 (1947); First Gibraltar Bank, FSB v. Morales, 19
F.3d 1032, 1039 (5th Cir. 1994) (citing California v. ARC Am.
Corp., 490 U.S. 93, 101, 109 S. Ct. 1661, 1665 (1989)).
15
The Bankruptcy Code’s “policy” of strengthening
enforcement of family support obligations is a weak reed on which
to support implied preemption. Although § 522(c) entitles these
obligations to special status against property otherwise exempt in
bankruptcy, neither that provision nor § 523(a)(5), the provision
for nondischargeability of family support obligations, which
§ 522(c) incorporates, expresses the full intent of the Code. A
debtor who owes family support obligations is afforded a great deal
of latitude and protection. First, the filing of the bankruptcy
case automatically stays payments of support obligations, as it
does all other payments to pre-petition creditors. See 11 U.S.C.
§ 362(a). An ex-spouse deprived of certain family support payments
must file an adversary proceeding in bankruptcy court to enforce
nondischargeability, and even then, the court may order reduction
of certain payments if it finds that the defaulting spouse would
suffer “hardship.” See 11 U.S.C. §§ 523(c), 523(a)(15). A debtor
may obtain a Chapter 7 discharge or confirm a Chapter 13 plan
without being current in family support obligations. Bankruptcy
law presently contains neither a pervasive or consistent approach
toward family support obligations.
Reliance on the exemption provision of the Code as a
source of implied preemption is also misplaced. Congress
specifically preserved state exemptions under § 522(b), rejecting
16
a proposal for uniform federal exemptions.7 Congress allowed
states to define the existence and limits of exemptions.8 By
expressly preserving a role for the state law in the Bankruptcy
Code, it is clear that Congress has not devised a policy on federal
exemptions so pervasive as to leave no room for a state to
supplement bankruptcy law with respect to exemptions.
Even more important, there is no direct conflict between
compliance with the Bankruptcy Code and the Texas homestead law.
We concluded earlier that in specifying certain debts for which the
exempt property is still liable, § 522(c) leaves the parties to
their state law collection rights. To execute a judgment against
Texas property, a judgment creditor must rely on the state
mechanism for enforcement. Although Texas law does not permit the
seizure of a homestead for a family support obligation, Sandra can
still perfect a judgment lien against the property in question,
even if it is a homestead. The property is thus liable, although
it is immune from seizure while it is a homestead.9 This is all
7
See Report of the Comm’n on the Bankruptcy Laws of the United
States, H.R. Doc. No. 93-137, 93rd Cong., 1st Sess., pts. I & II,
at 4-503 (1973).
8
See id. at 549-50.
9
The Texas Supreme Court has observed that a lien is never
valid (in the sense of being enforceable) unless it secures payment
for certain debts provided for in Tex. Const. Art. XVI, § 50. See
Benchmark Bank v. Crowder, 919 S.W.2d 657, 660 (Tex. 1996). This
does not mean, however, that a lien that is not valid and
enforceable is completely without effect. As one Texas appellate
court has remarked,
17
§ 522(c)(1) requires. See Davis, 188 B.R. at 550. Section
522(c)(1) assures that the debtor remains ultimately liable, and
the property or proceeds from the sale of property may be subject
to seizure if the property ever ceases to be the debtor’s
[u]nder [Texas Property Code] statutory provisions,
a judgment lien is “perfected,” or brought into
existence against a debtor's property, by recording
and indexing an abstract of the judgment in the
county where the property lies. The debtor’s
homestead is not exempt from the perfected lien;
rather, the homestead is exempt from any seizure
attempting to enforce the perfected lien.
Exocet Inc. v. Cordes, 815 S.W.2d 350, 352 (Tex. App.-Austin 1991,
no writ).
18
homestead.10 Because the Texas homestead law does not bar the
attachment of a perfected lien to homestead property, it does not
conflict with § 522(c)(1).
Section 522(c) also fails to conflict with Texas law
because it is not self-executing, it provides no means for
enforcing the creditor’s right. Fed. R. Civ. P. 69(a) explains
why:
Process to enforce a judgment for the payment
of money shall be a writ of execution . . . .
The procedure on execution, in proceedings on
and in aid of a judgment, and in proceedings
on and in aid of execution shall be in
accordance with the practice and procedure of
the state in which the district court is held,
existing at the time the remedy is sought,
except that any statute of the United States
governs to the extent that it is applicable.
10
As a principle of Texas law, “a judgment lien attaches to the
judgment debtor’s interest if he abandons the property as his
homestead before he sells it.” Hoffman v. Love, 494 S.W.2d 591,
594 (Tex. Civ. App.-Dallas 1973, no writ). For example, if the
debtor acquires a second homestead before selling the first
homestead, the first homestead is deemed abandoned and is no longer
exempt from seizure. See England v. Federal Deposit Ins. Corp.,
975 F.2d 1168, 1175 (5th Cir. 1992). Furthermore, if the debtor
retains the property as his homestead until he sells it, unless the
debtor reinvests the proceeds of the sale in another homestead
within six months from the date of sale, the proceeds are subject
to seizure by creditors. See Sharman v. Schuble, 846 S.W.2d 574,
576 (Tex. App.-Houston [14th Dist.] 1993, no writ); Tex. Prop. Code
§ 41.001(c). Even during this six month window, if the debtor
purchases a new homestead any remaining proceeds from the sale of
the first homestead are instantly rendered non-exempt. See
England, 975 F.2d at 1174.
These principles allayed our concerns about possible
mootness arising from Cullen Davis’s sale of one homestead and
timely purchase of another homestead while this case was pending.
19
(emphasis added). Pursuant to Rule 69(a), incorporated by Bankr.
R. 7069, Texas’s enforcement mechanisms govern in bankruptcy court
in the absence of a federal execution statute. The Texas turnover
statute does not permit seizure and sale of a homestead to satisfy
a family support obligation. See Tex. Civ. Prac. & Rem. Code
§ 31.002.
CONCLUSION
Cullen and Karen Davis were entitled to exempt their
homestead from claims of creditors under Texas and federal
bankruptcy law, and they did so. Sandra is entitled, under
§ 522(c)(1), to enforce her nondischargeable judgment for family
support obligations notwithstanding the exemption claim, but her
remedy must be in accord with Texas law, since § 522(c) is not an
execution statute and does not preempt relevant Texas law. Either
Texas or, perhaps, the U.S. Congress could alter this situation,
but it is our duty to enforce the present statute.
The judgment of the district court, affirming the
judgment of the bankruptcy court, is AFFIRMED.
20
DENNIS, Circuit Judge, with whom POLITZ and PARKER, Circuit Judges,
join, dissenting:
“Property that is properly exempted under § 522 [of the
Bankruptcy Code] is (with some exceptions) immunized against
liability for prebankruptcy debts. § 522(c).” Owen v Owen, 500
U.S. 305, 308 (1991) (emphasis added). The issue in this case is
whether the bankruptcy court’s judgment in favor of the debtor’s
former spouse against the debtor for unpaid alimony, maintenance,
and child support debts falls within one of § 522(c)’s exceptions
so that the debtor’s otherwise exempted property is not immunized
against liability, seizure and sale for their payment. Because the
majority opinion decides this question in diametric contradiction
to § 522(c)’s clear language, and in conflict with the decisions of
the Supreme Court, other circuits, and numerous bankruptcy courts
in this and other circuits that have followed the panel opinion in
this case, I respectfully dissent.
I. Background
Appellant Sandra Davis (Sandra) and her former husband, Thomas
Cullen Davis (Mr. Davis), the debtor in bankruptcy, were divorced
in 1968. Pursuant to their property settlement, support and child
custody agreement, and divorce judgment, Mr. Davis agreed to make
monthly payments to Sandra through January 1, 1991, and thereafter
to pay her other sums subject to certain contingencies. Mr. Davis
made all payments until he declared bankruptcy in 1987. In 1979,
Mr. Davis married Karen Joyce Davis, also a debtor in this action.
In 1984, Mr. Davis acquired property that he claimed as his
homestead. The property was unencumbered and valued at $500,000.
Mr. Davis and Mrs. Karen Davis filed a voluntary Chapter 7
petition in 1987, which was converted to a Chapter 11 case. They
elected to exempt from the estate property that was exempt under
the state homestead exemption laws. In an adversary bankruptcy
court proceeding, Mr. Davis sought a determination that his
indebtedness pursuant to the property settlement agreement and
divorce judgment was dischargeable. Sandra counterclaimed,
asserting that the indebtedness was nondischargeable under §
523(a)(5). In 1991, the parties compromised and acceded to a final
consent judgment by the bankruptcy court declaring the debt to be
for nondischargeable alimony, maintenance, and child support under
§ 523(a)(5) and awarding Sandra a principal sum of $250,000 plus
$50,000 in attorney’s fees. Thus, the judgment Sandra seeks to
enforce is not a “divorce judgment” as stated by the majority, but
a judgment of the bankruptcy court based on Mr. Davis’s debts for
unpaid alimony, child support, and maintenance.
Sandra moved in bankruptcy court for turnover relief ordering
Mr. Davis to execute a warranty deed conveying the homestead to her
to enforce the bankruptcy court judgment. After a hearing, the
bankruptcy court concluded that Sandra could not levy upon Mr.
Davis’s exempted homestead property to collect her judgment for
alimony, maintenance, and child support, holding that the
Bankruptcy Code does not preempt the state constitutional homestead
exemption law. In re Davis, 170 B.R. 892, 898 (Bankr. N.D. Tex.
1994). Sandra appealed. The district court affirmed. In re
Davis, 188 B.R. 544 (N.D. Tex. 1995). Sandra appealed to this
court.
A panel of this court vacated the district and bankruptcy
court judgments and remanded for further proceedings, holding that
alimony, maintenance, and child support debts fall within the
exceptions provided for by § 522(c) to the immunity of exempted
property against liability for prebankruptcy debts; that the state
homestead exemption laws were superseded by the Bankruptcy Code;
and that the debtor’s property is liable to seizure and sale to pay
the bankruptcy court’s judgment against the debtor in favor of his
former spouse based on his unpaid alimony, child support, and
maintenance debts. Davis v. Davis, 105 F.3d 1017 (5th Cir. 1997).
II. Discussion
22
Property that is properly exempted under § 522 is, as a
general rule, immunized by § 522(c) against liability for
prebankruptcy debts. Owen, 500 U.S. at 308. Certain debts are
excepted from the protection of § 522(c), however, for which
exempted property is liable: (1) nondischargeable debts for
alimony, maintenance, and child support, § 523(a)(5), and taxes,
§ 523(a)(1); (2) valid liens that may not be avoided under the
trustee’s powers and certain tax liens in exempt property that are
not affected by the bankruptcy; and (3) nondischargeable debts for
fraud and willful injury owed to a federal depository institutions
regulatory agency acting as a conservator, receiver, or liquidating
agent under §§ 523(a)(4) and (6). The debt at issue in the present
case is a debt of a kind specified in § 523(a)(5), which makes
nondischargeable any debt “to a spouse, former spouse, or child of
the debtor, for alimony to, maintenance for, or support of such
spouse or child, in connection with a separation agreement, divorce
decree or other order of a court of record. . . or property
settlement agreement. . . .” 11 U.S.C. § 523(a)(5).
Property that is exempted under § 522 and therefore immune
from all other liability is liable for and may be seized to pay
nondischargeable alimony, maintenance, and child support debts and
other obligations excepted from § 522(c) protection. See Owen, 500
U.S. at 308 (“Property that is properly exempted under § 522 is
(with some exceptions) immunized against liability for
prebankruptcy debts.”) (emphasis added); Walters v. United States
Nat’l Bank of Johnstown, 879 F.2d 95, 97 (3d. Cir. 1989) (Tax and
alimony and child support debts “are neither dischargeable nor
exemptible.”); RESNICK, WEINTRAUB & RESNICK, BANKRUPTCY LAW MANUAL ¶ 4.08
at 4-54 (4th ed. 1996) (“Exempt property may be seized to pay
nondischargeable tax liabilities and obligations to pay alimony,
maintenance, or support.”); 2 DAVID G. EPSTEIN ET AL., BANKRUPTCY, § 8-1
n.17 (1992) (“Exemptions are not effective, however, with respect
23
to two types of nondischargeable debts: tax debts and debts for
alimony, maintenance, or child support.”); DON CAMPBELL ET AL.,
CREDITORS’ RIGHTS HANDBOOK, A GUIDE TO THE DEBTOR-CREDITOR RELATIONSHIP, §
20.03[4] (1993) (“Exempt property may be used to satisfy certain
tax debts or for obligations for child support or alimony.”); DAVID
G. EPSTEIN & STEVE H. NICKLES, DEBT, BANKRUPTCY, ARTICLE 9 AND RELATED LAWS,
759 (1994) (“After bankruptcy, creditors with domestic claims
excepted from discharge by section 523(a)(5) will have recourse to
exempt property.”).
This reading of § 522 is in accord with its legislative
history. Referring to that section the Senate report, with which
the House report is virtually identical, reads:
Subsection (c) insulates exempt property from
prepetition claims other than tax claims
(whether or not dischargeable), and other than
alimony, maintenance, or support claims that
are excepted from discharge. The rule of Long
v. Bullard, 117 U.S. 617 (1886), is accepted
with respect to the enforcement of valid liens
on nonexempt property as well as on exempt
property.
S. REP. NO. 95-989, 95th Cong., 2d Sess. 76 (1978), reprinted in
1978 U.S.C.C.A.N. 5787, 5862; see H.R. REP. NO. 95-595, 95th Cong.,
2d Sess. 361 (1978), reprinted in 1978 U.S.C.C.A.N. 6317. The
drafters of the exemption section thus were aware that exempt
property would be protected against some, but not all,
nondischargeable debts. See Walters, 879 F.2d at 97.
In the present case, the panel opinion’s interpretation of §
522(c) is confirmed by the legislative history of § 522(c)(3), the
third exception added by the Crime Control Act of 1990, Pub. L. No.
101-647, relating to the enforcement of certain nondischargeable
debts owed to a federal depository institutions regulatory agency
acting as a conservator, receiver, or liquidating agent. Referring
to that new exception, the section-by-section analysis pursuant to
24
the remarks of Representative Charles Schumer on the Banking Law
Enforcement section of the Crime Control Act of 1990 provides:
Currently, section 522(c) provides that the
property exemptions described elsewhere in
section 522 do not apply in the case of tax
obligations, alimony and child support
responsibilities, or security agreements in
which the otherwise exempt property is pledged
as collateral. The new exception would apply
to certain debts owed by institution-
affiliated parties to federal depositary
institutions regulatory agencies acting in
their capacity as receiver, conservator, or
liquidating agent. Specifically, the debts
covered are debts for fraud or defalcation
while acting in a fiduciary capacity,
embezzlement, or larceny, as described in
section 523(a)(4); and for willful and
malicious injury to another entity or to the
property of another entity, as described in
section 523(a)(6). These acts represent the
highest form of financial criminality against
a federally insured depositary institution by
a person entrusted under the law with the care
and safekeeping of the institution.
136 CONG. REC. E3687 (Nov. 2, 1990) (emphasis added). Also, Senator
Biden, Chairman of the Senate Judiciary Committee, remarked:
I accepted changes drafted by the House only
because they maintained the core Senate-passed
bankruptcy language that prevents all S&L
wrongdoers from discharging their debts by
filing for bankruptcy. The final language
specifically preempts State homestead laws,
which would otherwise allow S&L crooks to
retain lavish homes through the excessive
protections in some State bankruptcy laws.
Mr. President. . . [u]nder the bill,
major S&L offenders will spend time behind
bars. Their assets will be seized. And every
possible dollar will be recovered for
depositors and taxpayers.
136 CONG. REC. S17602 (Oct. 27, 1990) (emphasis added).
25
Bankruptcy courts consistently have interpreted the tax and
tax lien provisions of §§ 522(c)(1) and (2), correlative to the
alimony provision of § 522(c)(1), to authorize creditors and
lienholders to reach the exempted property of the debtor to satisfy
tax liabilities. See, e.g., In re Holl, 35 B.R. 206 (Bankr. D.
Haw. 1983) (IRS was able to levy on exempted proceeds of sale of
homestead to satisfy a debt for a tax nondischargeable under §
523(a)(1)); In re Hebermehl, 132 B.R. 651 (Bankr. D. Colo. 1991)
(same as to exempted wages); In re Braddock, 149 B.R. 636 (Bankr.
D. Mont. 1992) (tax lien took priority over homestead exemption as
to exempt proceeds derived from sale of homestead). Accord
Davenport v. United States, 136 B.R. 125 (W.D. Ky. 1991); Crow v.
Long, 107 B.R. 184 (E.D. Mo. 1989). See also In Re Reed, 127 B.R.
244 (Bankr. D. Haw. 1991) (tax lien could be enforced against
exempt pension plan contributions).
Section 522(c)(1) was not intended, as the majority asserts,
merely to preserve judgments and judicial liens securing alimony,
maintenance, and child support debts against exempted property.
That purpose is effectuated by § 522(f)(1), which excepts from the
debtor’s right under § 522 to avoid the impairment of the fixing of
liens on exempted property, inter alia, judicial liens securing
alimony, maintenance, and child support debts. Nor was § 522(c)(1)
intended merely to put alimony or child support judgment creditors
on the same footing with other creditors holding nondischargeable
claims. That result is expressly accomplished by § 523(a)(5). The
context in which § 522(c)(1) occurs, the text of the Bankruptcy
Code as a whole, including particularly §§ 522(b), (c) and (f) and
§ 523(a)(5), in pari materia, and the legislative history of those
provisions, clearly show that § 522(c)(1) does not redundantly
duplicate the lien preservation function of § 522(f)(1)(A)(i) or
the exception to discharge function of § 523(a)(5). By §
522(c)(1), Congress clearly intended to insulate nondischargeable
26
alimony, child support, and maintenance debts from the effects of
the debtor’s exemptions.
The en banc majority erroneously concludes that the Bankruptcy
Code does not preempt the state homestead exemption laws. They
fail to recognize the scope of the federal preemption of the field
of bankruptcy law or the exclusivity of the federal-law basis of
the debtor’s qualified right to exempt property from the bankruptcy
estate. The power of Congress to establish uniform laws on the
subject of bankruptcies throughout the United States is
unrestricted and paramount. U.S. CONST. art. I, § 8, cl. 4;
International Shoe Co. v. Pinkus, 278 U.S. 261, 265 (1929); Pereira
v. United Jersey Bank, N.A., 201 B.R. 644, 678 (S.D.N.Y. 1996).
Congress exercised this power by enacting national, uniform
bankruptcy laws, the most recent of which is the Bankruptcy Code,
which necessarily exclude or displace any conflicting state
regulation. International Shoe, 278 U.S. at 265. Consequently,
states may not pass or enforce laws to interfere with or complement
the Bankruptcy Code or to provide additional or auxiliary
regulations. See id. at 266.
A. Recent Decisions Following the Davis v. Davis Panel Opinion
Analysis11
A number of recent circuit court, bankruptcy appellate court,
and bankruptcy courts have agreed with some or all of the foregoing
principles. Many of those courts have followed, quoted or cited
the Davis v. Davis panel opinion in the present case with approval.
See Leicht v. Bruin Portfolio, LLC (In re Leicht), 222 B.R. 670,
677, 678, 679 n.9 (B.A.P. 1st Cir. 1998) (“[A]lthough through §
522(b) Congress provided states with the opportunity to define the
category and content of exemptions resident debtors may invoke in
11
The majority’s failure to acknowledge and address all but
one of these cases is difficult to understand.
27
bankruptcy . . ., it defined the operative effect of exemptions in
bankruptcy through §§ 522(c) and (f). . . . Section 522(c)
completes the Code’s treatment of nondischargeable debts,
complementing inter alia §§ 523(a), 524(a)(3) and 727(b), by
providing that exempt property is immunized against liability for
prebankruptcy debts, including ‘some, but not all, nondischargeable
debts’. . . . § 522(c) may not be a one-way street. It may
operate to subject exempt property to liabilities for which it
could not be reached under state law.”) (quoting Davis, 105 F.3d at 1020,
1022-23); In re Gregory, 214 B.R. 570, 574 (Bankr. S.D. Tex. 1997) (“Section 522(c)(1) of
the Bankruptcy Code provides that exempt property can be used to pay certain pre-petition
debts such as those for taxes under § 523(a)(1) and for alimony and child support under
§ 523(a)(5). These debts are neither dischargeable nor exemptible. Because these
provisions of the Bankruptcy Code preempt state homestead exemption law, ‘the state
homestead exemption law is inoperative’ against claims pursuant to § 523(a)(1) and §
523(a)(5) and creditors with claims under these provisions are ‘entitled under the
Bankruptcy Code to proceed against the debtor’s otherwise exempted property.’”) (quoting
Davis, 105 F.3d at 1020, 1023); S & C Home Loans, Inc., v. Farr (In re Farr), 224 B.R.
438, 439 (Bankr. N.D. Cal. 1998) (“A debtor’s rights under section 522(c) are governed by
federal law, not state law. The clear intent of Congress in section 522(c) was to preserve
property exempted in bankruptcy for satisfaction of tax and support obligations.”) (citing
Davis, 105 F.3d at 1021-23); In re Pascucci, 225 B.R. 25, 28 (Bankr. D. Mass. 1998)
(“‘[F]ederal law determines whether property is exempted and immunized against seizure
and sale for prebankruptcy debts.’”) (quoting Davis, 105 F.3d at 1022); In re Van Zant,
210 B.R. 1011, 1015 (Bankr. S.D. Ill. 1997) “[W]hile state law identifies and quantifies the
property a debtor may exempt from the bankruptcy estate in those states that have ‘opted-
out’ of the federal exemptions, the Code does not adopt or preserve the state exemptions
with all their built-in limitations.”) (citing Davis, 105 F.3d at 1022-23); In re Richardson, 224
B.R. 804, 808 (Bankr. N.D. Okla. 1998) (“‘The power of Congress to establish uniform laws
on the subject of bankruptcies throughout the United States is unrestricted and paramount.
28
. . . Consequently, states may not pass or enforce laws to interfere with or complement the
Bankruptcy Code or to provide auxiliary regulations.’”) (quoting Davis, 105 F.3d at 1022).
See also Patriot Portfolio, LLC v. Weinstein (In re Weinstein), 164 F.3d 677, 683 (1st Cir.
1999) (Reavley, J.) (“We recognize that Congress afforded significant deference to state
law by allowing bankruptcy debtors to choose state exemptions and by further allowing
states to opt out of the federal exemption scheme entirely. Yet, . . . the state’s ability to
define its exemptions is not absolute and must yield to conflicting policies in the
Bankruptcy Code.”) (citing Owen, 500 U.S. at 313).
B. Response to Majority’s Erroneous Reasoning
The majority’s decision is based on two arguments: (1) that § 522(c) of the
Bankruptcy Code is ambiguous as to whether the types of creditors’ claims that §§
522(c)(1)-(3) except from immunization of exempted property against liability may be
enforced against exempted property after bankruptcy; and (2) that the most plausible
interpretation of § 522(c) is that it “leave[s] exempt property exposed to post-bankruptcy
liability only to the extent it would have been exposed if the bankruptcy had not occurred.”
Maj. Op. at 7-8. Both arguments are incorrect for the many reasons discussed below.
Perhaps the best short refutation of the majority’s arguments is contained in
Professor Resnick’s explanation of how § 522(c) is designed to protect the debtor’s
exempted property from most, but not all, nondischarged creditors’ claims:
It is easy to see that if property that is exempt under the Code
but not under state law is available to creditors with
nondischargeable claims, the effect of the exemption may be
wiped out.
Congress was aware of this problem, and, for this
reason, the Code provides that exempt property may not be
levied upon for any prepetition debt, whether or not the debt is
discharged. There are, however, several exceptions. Exempt
property may be seized to pay nondischargeable tax liabilities
and obligations to pay alimony, maintenance, or support.
Moreover, valid liens that may not be avoided under the
trustee’s powers and certain tax liens in exempt property are
not affected by the bankruptcy. A third exception was added
in 1990 relating to the enforcement of certain
nondischargeable debts owed to a federal depository
29
institutions regulatory agency acting as a conservator,
receiver, or liquidating agent.
RESNICK, supra ¶ 4.08[1], at 4-53 to 4-54 (footnotes omitted).
Thus, § 522(c) is designed to perform two essential functions. In general, it shields
exempted property from liability to seizure and sale for the payment of nondischargeable
debts. As exceptions to that general rule, it allows piercings of the shield and permits
levies upon exempted property for the payment of a small number of certain types of
nondischargeable debts. The exceptions are narrowly and carefully drawn to uniformly
further several policies deemed by Congress to be of national importance.
The indiscriminate rendering of § 522(c) by the majority opinion erroneously
obliterates the important distinction Congress drew between the small class of particular
types of nondischargeable debts specified by §§ 522(c)(1)-(3) and all other
nondischargeable debts listed in § 523(a). The majority wrongfully relegates needy former
spouses with unpaid alimony and child support claims, and other claimants given
legislated preference by §§ 522(1)-(3), to the ordinary nondischargeable creditor class,
forces them to compete with all comers for basic sustenance from the scarce non-exempt
assets of the debtor, and defeats the goals envisioned by Congress in its well thought out
and deliberately crafted legislation.
The majority opinion does not follow the plain meaning of the Bankruptcy Code’s
words. Section 522(c) is not ambiguous, especially when it is read within the context of
the Code as a whole. Contrary to the majority opinion, § 522(c)’s exception of specific
debts named therein from the effects of the debtor’s exemptions is not qualified according
to whether the debt is accompanied by a lien. The majority’s attempt to read such a
qualification or distinction into § 522(c) is an unconcealed attempt to substitute its own
policy making for that of Congress. When the words of § 522(c) are applied as written and
within the context of the Code as a whole, they clearly and unambiguously conflict with and
preempt the state homestead exemption laws with respect to the debtor’s alimony, child
support, and maintenance obligations. Section 105 of the Bankruptcy Code
unquestionably authorizes a bankruptcy court to issue any order, process, or judgment
30
necessary to carry out the provisions of the Code, including an order to seize and sell the
debtor’s property to satisfy the bankruptcy court’s judgment. Federal Rule of Civil
Procedure 69(a) must be used by federal courts in accordance with other applicable
statutes of the United States to enforce, not thwart, federal court judgments. The majority
is clearly wrong in ignoring §105 of the Bankruptcy Code and in misapplying Federal Rule
of Civil Procedure 69(a) to unpreempt and exalt the state homestead exemption laws over
the Bankruptcy Code and to defeat the enforcement of the bankruptcy court’s judgment.
1. The Meaning of “Exemption” and “Liability”
Section 522(c) is not “ambiguous” as the majority contends. The plain meaning of
the term “exemption,” as used in § 522 of the Bankruptcy Code, refutes the majority’s
argument that the term “liable,” as used in that section, means that a debtor’s property is
only subject to a judgment lien, and remains immune from seizure and sale.
The Supreme Court has defined “exemption” as the “right . . . which withdraws the
property from levy and sale under judicial process.” White v. Stump, 266 U.S. 310, 313
(1924) (emphasis added). This court has defined “exemption” as “the freedom of property
of debtors from liability to seizure and sale under legal process for the payment of their
debts.” Clark v. Nirembaum, 8 F.2d 451, 452 (5th Cir. 1925), (emphasis added) (citing
25 C.J. § 8 (now 35 C.J.S. § 1 (1960)), cert. denied, 270 U.S. 649 (1926). Similarly,
bankruptcy courts have defined an “exemption” as a “‘privilege allowed by law to a
judgment debtor, by which he may hold property to a certain amount or certain classes of
property, free from all liability to levy and sale on execution or attachment.’” In re Komet,
104 B.R. 799, 806 (Bankr. W.D. Tex. 1989) (emphasis added) (quoting BLACK’S LAW
DICTIONARY 571 (5th ed. 1979).12 See also In re Hudspeth, 92 B.R. 827, 830 (Bankr. W.D.
Ark. 1988) (same); In re Pritchard, 75 B.R. 877, 878 (Bankr. D. Minn. 1987) (same).
“Exemption” also has been defined as “a right given by law to a debtor to retain a portion
12
The current definition of “exemption” in Black’s Law Dictionary is “[a] privilege
allowed by law to a judgment debtor, by which he may retain property to a certain amount
or certain classes of property, free from all liability to levy and sale on execution,
attachment, or bankruptcy.” BLACK’S LAW DICTIONARY 571 (6th ed. 1990).
31
of his personal property free from seizure and sale by his creditors under judicial process.”
31 AM. JUR. 2D Exemptions § 1 (1989).
This definition of exemption is critical to an understanding of the meaning of the
word “liable” in 11 U.S.C. § 522:
(c) Unless the case is dismissed, property exempt under this
section is not liable during or after the case for any debt of the
debtor that arose, or that is determined under Section 502 of
this title as if such debt had arisen, before the commencement
of the case, except --
(1) a debt of a kind specified in section . . . 523(a)(5) of
this title.
The word “liable,” as used in the section of the Bankruptcy Code entitled
“Exemptions,” means “liable to levy and sale on execution or attachment.” In re Komet,
104 B.R. at 806. More specifically, the statutory reference to “liable,” in the context of
exemptions, means that property exempted by a debtor under “Federal law” or “State or
local law” pursuant to § 522(b)(2)(A) is free from liability for seizure and sale by his or her
creditor under judicial process unless the debt is, inter alia, a debt “to a spouse, former
spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse
or child, in connection with a separation agreement, divorce decree or other order of a
court of record.” 11 U.S.C. § 523(a)(5). Because alimony and child support debts are an
exception to the debtor’s privilege to exempt certain property from seizure and sale (see
discussion infra of “exceptions to exemptions”), it follows that the property is liable for
seizure and sale by a former spouse with a judgment for alimony and child support that is
nondischargeable under § 523(a)(5).
The majority asserts without any support in federal law that “liable” in § 522(c)(1)
means only that an alimony and child support creditor can “perfect a judgment lien against
the property. . . although it is immune from seizure.” The majority cites only Texas law for
the proposition that Congress intended “liable” in § 522(c)(1) as an esoteric proxy for
“nondischargeable debt” and “nonavoidable lien.”13 “Liable” taken in its usual sense and
13
See Maj. Op. at 17-18 & n.9.
32
as used in § 522, however, means “liable for seizure and sale” and not merely “liable to
attachment by a nonavoidable but unenforceable lien.” Section 522(c) of the Bankruptcy
Code expressly abrogates a debtor’s privilege allowed by state law by which he may hold
property free from all liability to levy and sale under legal process for the payment of debts
defined by § 523(a)(5). By denying the debtor this privilege of exemption for certain
nondischargeable debts, § 522(c) permits the property to be seized and sold to satisfy
these obligations.
2. Section 522's “Exception to Exemptions” For Family Support Debts
The Bankruptcy Code does not confer upon a debtor an absolute or unqualified
right to exempt property from seizure and sale. Section 522 expressly makes
nondischargeable debts for alimony, maintenance or child support an exception to the
debtor’s general privilege to exempt certain property from liability for seizure and sale.
Thus, property exempted under § 522 is nevertheless liable for seizure and sale to satisfy
debts specified in § 523(a)(1) (tax obligations) and § 523(a)(5) (child and spousal support).
See In re Citrone, 159 B.R. 144, 146 (Bankr. S.D.N.Y. 1993). The majority uses circular
and obverse reasoning in an attempt to show that Texas state exemption law (by virtue of
Fed. R. Civ. P. 69(a)) “reverse preempts” federal court enforcement of judgments for
nondischargeable alimony and support debts under § 522(c) of the Bankruptcy Code. To
the contrary, however, Congress, by the specific terms of § 522 and its constitutional
power, has superseded and preempted the effect of the state exemption law upon this
particular kind of debt. While the Bankruptcy Code allows a debtor to claim state
exemptions, it also revokes this privilege as to the debtor’s nondischargeable child and
spousal support obligations.
In addition to the numerous authorities cited above, other bankruptcy scholars and
practitioners interpret 11 U.S.C. § 522(c) as establishing exceptions to the exemptions
provided generally under § 522(b): The bankruptcy exemptions do not apply to protect
property from seizure and sale to satisfy family support obligations. See Howard N. Cayne
et al., Overview of Comprehensive Thrift and Bank Fraud Prosecution Act of 1990 and the
Enforcement Provisions of the Financial Institutions Reform, Recovery and Enforcement
33
Act of 1989, in CIVIL AND CRIMINAL LIABILITY OF OFFICERS, DIRECTORS, AND PROFESSIONALS:
BANK &
THRIFT LITIGATION IN THE 1990'S , at 545, 562-63 (PLI Comm. Law & Practice Course
Handbook Series, PLI Order No. A4-4355, 1991) (“Under existing law, subsection (c)
provides that the bankruptcy exemptions do not apply in the case of . . . alimony and child
support payments.”); see also John K. Villa & Robert M. Krasne, A Preliminary Review of
Banking Enforcement Provisions Contained in Title XXV of the Crime Control Act of 1990,
in CIVIL AND CRIMINAL LIABILITY OF OFFICERS, DIRECTORS, AND PROFESSIONALS: BANK & THRIFT
LITIGATION IN THE 1990'S, at 597, 616 (PLI Comm. Law & Practice Course Handbook Series,
PLI Order No. A4-4355, 1991) (Section 2522 of the Crime Control Act of 1990 “amends the
U.S. Bankruptcy Code, 11 U.S.C. §§ 523, 522, 365, 507 and 101, to create (i) two
additional exceptions to the discharge of indebtedness, through bankruptcy, [and] (ii) a
new category of obligations to which property exemptions do not apply. . . .”). Significantly,
section 2522(b) of the Crime Control Act of 1990, which amended 11 U.S.C. § 522(c), is
entitled “EXCEPTION TO EXEMPTIONS.” Crime Control Act of 1990, PL 101-647, 104
Stat. 4789, 4866 (Nov. 29, 1990); see also In re Colonial Realty Co., 980 F.2d 125, 133
(2d Cir. 1992) (Section 2522 “add[ed] § 522(c)(3) as an additional exception to § 522
exemption”).
One commentator has declared that “[a]t present, a person with a claim for alimony,
support, or maintenance has a solution under bankruptcy law. . . . If the debtor becomes
insolvent, and a voluntary or involuntary petition in bankruptcy is filed, the homestead will
not be exempt from this type of prebankruptcy debt.” Donna Litman Seiden, There’s No
Place Like Home (Stead) in Florida -- Should It Stay That Way?, 18 NOVA L. REV. 801, 859
(Winter 1994). The author’s reasoning follows that of this dissenting opinion: Because
the Bankruptcy Code has the effect of subordinating the exemption to certain debts,
creditors with claims for alimony, maintenance, or support can reach exempt property, by
means of a forced sale to satisfy this preferred debt, regardless of the state law exemption.
Id. at 815 & n. 257. 3. Preemption
34
To decide whether the Bankruptcy Code preempts the Texas homestead exemption
laws, a court must begin by comparing § 522(c) with the state homestead constitutional
and statutory provisions to determine if there is a conflict. Section 522(c) provides that
during or after bankruptcy, exempt property is not liable for any debt that arose prepetition,
or is deemed to have so arisen under § 502, except those debts specified in
subparagraphs (1) through (3). See 11 U.S.C. §§ 522(c)(1) - (3). This list includes: (1)
debts for certain taxes and customs duties; (2) debts for alimony, maintenance, or support;
(3) liens that cannot be avoided; (4) liens that are not void; (5) tax liens; and (6) certain
nondischargeable debts owed to federal depository institutions. See id.Congress has plenary power to enact uniform federal bankruptcy laws. See U.S.
CONST. art. 1, § 8, cl. 4; International Shoe, 278 U.S. at 265. Consequently, "[s]tates may
not pass or enforce laws to interfere with or complement the Bankruptcy Act or to provide
additional or auxiliary regulations." International Shoe, 278 U.S. at 265 (noting that the
intent of Congress in establishing uniform bankruptcy laws necessarily excludes
inconsistent state regulation). I recognize that Congress afforded significant deference
to state law by allowing bankruptcy debtors to choose state exemptions and by further
allowing states to opt out of the federal exemption scheme entirely. See Weinstein, 164
F.3d at 683 (citing In re Boucher, 203 B.R. 10, 12 (Bankr. D. Mass. 1996) (citing 11 U.S.C.
§ 522(b))). Yet, such deference does not warrant the conclusion that the detailed
exceptions in § 522(c) to the general immunity from liability of the "property exempted"
provided for by the same section must yield to or be controlled by the state exemption
laws. As the Supreme Court recognized in discussing the interplay between § 522(f) and
state exemption exceptions in Owen, the state's ability to define its exemptions is not
absolute and must yield to conflicting policies in the Bankruptcy Code. See Owen, 500
U.S. at 313.
Only by adding a heavy Texas spin to gloss over the plain words and meaning of
§ 522(c) is the majority able to close its eyes to the obvious conflict between the state laws
that exempt homestead property from liability to seizure and sale for alimony and child
support debts and § 522(c)(1), which excepts nondischargeable alimony and child support
35
debts from the effects of that exemption. The majority struggles to avoid acknowledging
the conflict by theorizing that § 522(c)(1) does not mean what it says but strangely enough
has a meaning that produces substantially the same result Texas courts have reached
when a Texas court judgment creditor seeks to enforce her alimony and child support
decree based solely on state law against the judgment debtor’s homestead: The former
spouse may have her lien attached to the property but she cannot enforce it until the
debtor dies or abandons his homestead.14 In fact, as we have learned during the course
of this case, under Texas law, she cannot enforce it against the proceeds of his sale of the
homestead if he invests them in another Texas homestead within six months of the sale.15
The conflict between the Bankruptcy Code and the Texas homestead exemption
laws, however, is too sharp and too real to be covered up by any amount of ingenious
judicial gloss. The state laws provide for an exemption of property from liability to seizure
and sale for the owner’s alimony and child support debts. The federal bankruptcy law in
§ 522(c)(1) provides for an exception to that exemption of the same property from liability
to seizure and sale for the debtor-owner’s alimony and child support debts.
Consequently, there is a conflict between the state and federal laws. Therefore,
it must be concluded that the state homestead laws are preempted by the federal
Bankruptcy Code. State law is void to the extent it is in conflict with a federal statute. See
Maryland v. Louisiana, 451 U.S. 725, 747 (1981) and authorities cited therein.
4. Bankruptcy Court’s Broad Enforcement Powers Under 11 U.S.C. § 105The majority insists that the Bankruptcy Code provides no means by which federal
courts can enforce a final judgment rendered by a bankruptcy court.
Section 105 of the Bankruptcy Code, however, plainly states:
(a) The court may issue any order, process, or judgment that
is necessary or appropriate to carry out the provisions of this
title. No provision of this title providing for the raising of an
issue by a party in interest shall be construed to preclude the
court from, sua sponte, taking any action or making any
14
See Maj. Op. at nn.9-10.
15
See Maj. Op. at n.10.
36
determination necessary or appropriate to enforce or
implement court orders or rules, or to prevent an abuse of
process.
11 U.S.C. § 105(a).16
This court has declared that “[t]he language of this provision is unambiguous.
Reading it under its plain meaning, we conclude that a bankruptcy court can issue any
order. . . necessary or appropriate to carry out the provisions of the bankruptcy code.” In
re Terrebonne Fuel and Lube, Inc., 108 F.3d 609, 613 (5th Cir. 1997). The Supreme Court
has declared that the “statutory directives [of § 105(a)] are consistent with the traditional
understanding that bankruptcy courts, as courts of equity, have broad authority to modify
creditor-debtor relationships.” United States v. Energy Resources, Inc., 495 U.S. 545, 549
(1990). For example, a bankruptcy court has the authority under § 105 to void a debtor’s
exemption in order to compensate the estate for damage caused by the debtor’s contempt
of the court’s orders. In re Haddad, 68 B.R. at 951.
One leading commentator on bankruptcy law characterizes § 105 as “an omnibus
provision phrased in such general terms as to be the basis for a broad exercise of power
in the administration of a bankruptcy case. The basic purpose of § 105 is to assure the
bankruptcy courts power to take whatever action is appropriate or necessary in aid of the
exercise of its jurisdiction.” 2 L. KING, COLLIER ON BANKRUPTCY § 105.01, at 105-3 (1996).
The second sentence of § 105(a) was expressly intended to broaden the authority of
bankruptcy courts to act, sua sponte, to promote the Code’s provisions. See In re Kestell,
99 F.3d 146, 148 (4th Cir. 1996) (citing 132 CONG. REC. S15074-05 (Oct. 3, 1986)).
In In re Moody, 837 F.2d 719 (5th Cir. 1988), this court held that pursuant to § 105,
“a district court has jurisdiction to enforce [nondischargeable] judgments against property
other than property of a bankruptcy estate. . . . This jurisdiction properly extends to an
order in aid of collecting valid claims and judgments of the bankruptcy trustee against the
16
Bankruptcy courts have inherent power to enforce settlement agreements
between parties. In re Haddad, 68 B.R. 944, 953 (Bankr. D. Mass. 1987); In re Bienart,
48 B.R. 326, 328 (Bankr. N.D. Iowa 1985).
37
beneficiary of the trust.” Id. at 723-24. More recently, under the authority of Moody, the
district court in Bass v. Denney, No. 3:97-CV-2043-P, 1998 WL 59486 (N.D. Tex. Feb. 9,
1998), held that the bankruptcy court had the power and authority under § 105 to fashion
remedies to assist a judgment creditor in enforcing or collecting a nondischargeable
judgment obtained against a debtor entered pursuant to 11 U.S.C. § 523. Id. at *1-2.
The broad grant of authority conferred upon bankruptcy courts and district courts
by 11 U.S.C. § 105 permits these courts to issue “any order, process, or judgment that is
necessary or appropriate to carry out the provisions of this title.” Therefore, § 105
provides federal courts with a means of enforcing the bankruptcy court’s judgment based
on nondischargeable alimony, maintenance, and child support debts by ordering the
debtor’s homestead seized and sold to satisfy this nondischargeable, nonexemptible debt.
5. Assimilation of State Practices and Procedures
Federal Rule of Civil Procedure 69(a) provides that the procedure “on execution,
in proceedings supplementary to and in aid of a judgment, and in proceedings on and in
aid of execution shall be in accordance with the practice and procedure of the state in
which the district court is held, existing at the time the remedy is sought, except that any
statute of the United States governs to the extent that it is applicable.” Fed. R. Civ. P.
69(a) (emphasis added). Thus, the emphasized exception makes any applicable federal
statute controlling, as well as any relevant civil rule, because those rules have the force
of a statute. 12 CHARLES A. W RIGHT ET AL., FEDERAL PRACTICE & PROCEDURE §3012, at 142
(1997) (citing Gary W. v. State of La., 622 F.2d 804 (5th Cir. 1980) (district court had
power to order Secretary of Louisiana Department of Health and Human Resources to pay
money judgment from Department funds even though Louisiana Constitution prohibited
payment of judgment against state except from funds appropriated for such purpose by
legislature), cert. denied, 450 U.S. 994 (1981)).
Section 105 of the Bankruptcy Code is a fitting, fully applicable, and, therefore,
controlling federal statute authorizing the bankruptcy court to enforce its judgment.
Consequently, Federal Rule of Civil Procedure 69(a), and state practice and procedure
adopted thereby, do not prevent a federal court from using whatever means are necessary
38
to guarantee compliance with its judgments. The Fourth Circuit aptly summed up the
relationship between state procedural vehicles and federal statutes as follows:
Even though we look to state law to determine the practice and
procedure to be followed in the execution of a judgment, we do
so in furtherance of federal law, giving effect to rules entitling
parties to enforce federal judgments in federal courts.
Consequently, any aspects of the assimilated practices and
procedures that are uniquely designed to enforce state
judgments are not assimilated, nor is any aspect that may be
inconsistent with the federal policy of affording judgment
creditors the right to a writ of execution to enforce money
judgments in federal courts.
United States v. Harkins Builders, Inc., 45 F.3d 830, 833 (4th Cir. 1995) (emphasis added)
(citing 12 CHARLES A. W RIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE §
3012, at 69 (1973)).17 Consequently, a debtor cannot accomplish “through the back door,”
ostensibly under Rule 69(a), what cannot be accomplished under the federal Bankruptcy
Code: invoking state exemption laws to immunize or protect homestead property from
seizure and sale to satisfy nondischargeable, nonexemptible child and spousal support
debts.
III. Conclusion
The Bankruptcy Code provides that the commencement of a voluntary bankruptcy
case creates an estate comprised of legal and equitable interests of the debtor in property,
wherever located and by whomever held. 11 U.S.C. § 541. Under the Code, an individual
debtor has a qualified right, under defined circumstances, to exempt from the estate the
same property that is exempt from levy under state, local, and nonbankruptcy federal law.
11 U.S.C. § 522(b)(2)(A). Property that is exempted from the estate is immunized against
liability for prebankruptcy debts, subject to the exception of, inter alia, debts for alimony,
17
More than 150 years ago, the Supreme Court declared that early federal acts,
which prescribed that modes of process and proceedings in execution in state court should
be applicable to federal courts in those states, did not manifest legislative intent to defeat
the execution of judgments rendered in the courts of the United States. Duncan v. Darst,
42 U.S. 301, 306 (1843).
39
maintenance, child support, taxes and other liabilities specified by the Code. 11 U.S.C.
§ 522(c). The debtor’s qualified right to exempt property from the estate, and the
relationships between the debtor, his creditors, and exempted or non-exempted property
with regard to prebankruptcy debts, are governed exclusively by federal law.
Consequently, it is clear that the provisions of the state homestead exemption law that
seek to immunize the debtor’s homestead against liability to seizure and sale for
nondischargeable alimony and support debts conflict with and have been superseded by
the Bankruptcy Code. The state law cannot alter the obligations of a bankruptcy debtor
and his creditors as provided for by federal bankruptcy law. See International Shoe, 278
U.S. at 265; In re John Taylor Co., 935 F.2d 75, 78 (5th Cir.1991). For these reasons, the
state homestead exemption laws are inoperative against the debtor’s former spouse in this
case and she is entitled under the Bankruptcy Code to proceed against the debtor’s
otherwise exempted property to satisfy her alimony, maintenance, and child support
judgment. Accordingly, the judgments below should be vacated and the case should be
remanded to the bankruptcy court with directions to allow the appellant to obtain a writ of
execution and all other relief to which she is entitled by law.
40