Jasmine Keller v. Steven Johnson

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 03-1576
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In re: Steven R. Johnson *
*
Debtor. *
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* Appeal from the United States
Jasmine Z. Keller * Bankruptcy Appellate Panel
* of the Eighth Circuit.
Appellant, *
*
v. *
*
Steven R. Johnson *
*
Appellee. *
*
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Submitted: February 13, 2004
Filed: July 12, 2004
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Before MELLOY, MCMILLIAN, and COLLOTON, Circuit Judges.
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MELLOY, Circuit Judge.
Steven Johnson (“debtor”) and his wife divorced in 2001. As part of the
property settlement, the debtor’s former spouse was awarded “all right, title and
interest of [sic] the homestead of the parties,” subject to all encumbrances of record
and a lien in favor of the debtor. The debtor’s former spouse and their minor
daughter reside on the premises.
The debtor filed for Chapter 13 bankruptcy relief in 2002. He claimed that his
lien on his ex-wife’s homestead was exempt under 11 U.S.C. § 522(d)(1). The
Chapter 13 Trustee, Jasmine Z. Keller (“trustee”), objected to the exemption. The
bankruptcy court overruled the objection, and the bankruptcy appellate panel
affirmed. We reverse and hold that the debtor’s lien does not qualify as an exemption
under 11 U.S.C. § 522(d)(1).
We review the bankruptcy court’s legal conclusions in the same manner as the
bankruptcy appellate panel, using a de novo standard of review. Cedar Shore Resort,
Inc. v. Mueller (In re Cedar Shore Resort, Inc.), 235 F.3d 375, 379 (8th Cir. 2000).
Pursuant to 11 U.S.C. § 522(d)(1), a debtor may exempt “[t]he debtor’s
aggregate interest, not to exceed $17,425 in value, in real property or personal
property that the debtor or a dependent of the debtor uses as a residence . . . .” The
question we must resolve is whether the debtor’s lien interest in his dependent’s
residence, which arose out of a Minnesota marriage dissolution decree, qualifies as
an aggregate interest in real or personal property that the debtor or a dependent of the
debtor uses as a residence.
The Bankruptcy Code defines “lien” as a “charge against or interest in property
to secure payment of a debt or performance of an obligation.” 11 U.S.C. § 101(37).
Because the Bankruptcy Code does not indicate whether a lien arising from a
dissolution decree is a mere charge against property or, instead, an interest in
property, we turn to state law for guidance. See Barnhill v. Johnson, 503 U.S. 393,
397-98 (1992) (“What constitutes a transfer and when it is complete is a matter of
federal law . . . . [T]he [Bankruptcy Code] itself provides a definition of ‘transfer’
. . . that . . . in turn includes references to parting with ‘property’ and ‘interest in
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property.’ In the absence of any controlling federal law, ‘property’ and ‘interests in
property’ are creatures of state law.”) (internal quotation omitted); Butner v. United
States, 440 U.S. 48, 55 (1979) (“Property interests are created and defined by state
law. Unless some federal interest requires a different result, there is no reason why
such interests should be analyzed differently simply because an interested party is
involved in a bankruptcy proceeding.”).
Under Minnesota law, a lien is a “[c]harge upon land for the payment of a debt
or duty. A lien is [in] no sense an estate or interest in the land.” Gau v. Hyland, 41
N.W.2d 444, 448 (Minn. 1950) (citations omitted). Liens arising out of Minnesota
marriage dissolution decrees are no different. Such a lien does not represent a
continuation of the debtor’s prior common ownership of the marital estate, but rather
is “simply collateral for a debt.” State Bank of Pennock v. Schwenk, 395 N.W.2d
371, 375 (Minn. Ct. App. 1986); see also Mueller v. Buckley (In re Mueller), 215
B.R. 1018, 1024 n.8 (B.A.P. 8th Cir. 1998) (noting that under Minnesota law, a lien
arising out of a dissolution decree is “merely collateral for a debt” and “does not
constitute an interest in land”) (internal quotations omitted). This collateral is
considered “personal property rather than an interest in real property.” Granse &
Assocs., Inc. v. Kimm, 529 N.W.2d 6, 8 (Minn. Ct. App. 1995).
Thus, we must consider whether a “[c]harge upon land for the payment of a
debt or duty,” Gau, 41 N.W.2d at 448, qualifies as an “aggregate interest . . . in real
property or personal property that the debtor or a dependent of the debtor uses as a
residence . . . .” 11 U.S.C. § 522(d)(1). We hold that it does not. First, although the
debtor’s lien is a personal property interest under Minnesota law, neither the debtor
nor his dependent uses the lien as a residence. Second, the debtor has no ownership
or possessory interest in the residence. We do not believe the debtor’s mere collateral
interest in the residence rises to the level of a homestead right under 11 U.S.C.
§ 522(d)(1).
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Based on the foregoing, we reverse the judgment of the bankruptcy appellate
panel and remand to the bankruptcy court for further proceedings consistent with this
opinion.
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