Submitted: September 22, 2016
from the United States Bankruptcy Appellate Panel for the
RILEY, Chief Judge, MURPHY and SMITH, Circuit Judges.
MURPHY, Circuit Judge.
Drew O'Sullivan filed for Chapter 7 bankruptcy and
claimed a $15, 000 exemption in a homestead he owned as a
tenant in the entirety with his wife. O'Sullivan then
sought an order from the bankruptcy court avoiding CRP
Holdings, A-1, LLC's (CRP) judicial lien on the homestead
property to the extent that it impaired his claimed
exemption. The bankruptcy court granted O'Sullivan's
motion to avoid CRP's judicial lien, and the bankruptcy
appellate panel (BAP) affirmed. See In re
O'Sullivan, 544 B.R. 407 (B.A.P. 8th Cir. 2016).
Judgment creditor CRP appeals, asserting that its judicial
lien is not subject to avoidance. We reverse and remand to
the bankruptcy court for further proceedings.
CRP obtained a default judgment in Platte County, Missouri
circuit court against O'Sullivan and his business in the
amount of $765, 151.18. O'Sullivan's wife was not
included in the judgment, but she and her husband owned
property in Barton County, Missouri (the property) as tenants
in the entirety. After obtaining the default judgment, CRP
filed a notice of foreign judgment with the Barton County
circuit court in an attempt to obtain a judicial lien on that
property. See Mo. Rev. Stat. § 511.440.
months later O'Sullivan filed a voluntary Chapter 7
bankruptcy petition which his wife did not join.
O'Sullivan listed the property in his schedules and
claimed a $15, 000 homestead exemption under both Mo. Rev.
Stat. § 513.475 and 11 U.S.C. § 522(b)(3)(B).
O'Sullivan simultaneously moved to avoid CRP's
purported judicial lien under 11 U.S.C. § 522(f)(1),
asserting that the lien impaired his claimed homestead
exemption. The bankruptcy court granted the motion,
concluding that "CRP's judgment lien - although
perhaps not enforceable - certainly affixed upon
[O'Sullivan's] home upon CRP's recording of its
judgment in Barton County" and therefore impaired
O'Sullivan's claimed exemption.
appealed to the BAP, which affirmed the bankruptcy court
order. The BAP similarly concluded that "an
unenforceable judgment lien arose" on the property held
in the entireties and therefore it was "possible for
[O'Sullivan] to avoid it under § 522(f)."
In re O'Sullivan, 544 B.R. at 413. CRP appeals
the BAP's affirmance of the bankruptcy court order
avoiding its purported judicial lien.
challenges the BAP's conclusion that O'Sullivan could
avoid its purported judicial lien on the property. We have
jurisdiction to review final decisions of the BAP under 28
U.S.C. § 158(d). When reviewing a decision of the BAP,
"we act as a second reviewing court of the bankruptcy
court decision, independently applying the same standard of
review as the BAP." In re Lasowski, 575 F.3d
815, 818 (8th Cir. 2009). This appeal turns on the bankruptcy
court's interpretation of law which we review de novo.
7 of the bankruptcy code provides a means for insolvent
debtors to receive a "fresh start" through
bankruptcy proceedings. In re Thompson, 750 F.2d
628, 630 (8th Cir. 1984). To ensure that debtors have
sufficient property to realize fully that fresh start, the
code permits debtors to exempt certain property from their
bankruptcy estate. See 11 U.S.C. § 522(b).
Ordinarily, "liens and other secured interests survive
bankruptcy" and can subsequently be levied against a
debtor's exempted property, thereby impeding a
debtor's ability to obtain a fresh start. Farrey v.
Sanderfoot, 500 U.S. 291, 297 (1991); see 11
U.S.C. § 522(c). To shield exempt property from such
post bankruptcy collection efforts, 11 U.S.C. §
522(f)(1) provides a mechanism for bankruptcy courts to
avoid, or extinguish, secured debts that would otherwise pass
through the bankruptcy proceeding.
§ 522(f)(1), debtors may move to "avoid the fixing
of [certain] lien[s] on an interest of the debtor in property
to the extent that such lien[s] impair an exemption to
which the debtor would have been entitled under [§
522(b)]." To avoid the fixing of CRP's purported
judicial lien, O'Sullivan therefore had to establish that
CRP's notice of foreign judgment had (1) created an
avoidable lien under § 522(f)(1), that (2) affixed on
O'Sullivan's interest in property exempted under
§ 522(b), and (3) impaired O'Sullivan's claimed
exemption in the property. CRP does not challenge
O'Sullivan's claimed $15, 000 homestead exemption or
the bankruptcy court's impairment analysis. The only
contested issues on appeal are whether a judicial lien
existed and, if so, whether that lien affixed on
O'Sullivan's interest in the property.
the bankruptcy proceedings and on appeal, neither party has
addressed whether CRP had a judicial lien properly subject to
avoidance under § 522(f)(1)(A). Rather, the parties and
the bankruptcy court assumed that CRP had a cognizable
judicial lien under Missouri law. On appeal, the BAP noted
that it had "serious doubts as to whether CRP has a lien
at all, much less one that attached or fixed to
[O'Sullivan's] interest in property, " but
nonetheless proceeded with the avoidance analysis. In re
O'Sullivan, 544 B.R. at 412 n.5. Like the BAP, we
have serious doubts as to whether CRP has a lien that affixed