Farrey v. Sanderfoot

Jean Farrey (plaintiff) and Gerald Sanderfoot (defendant) (debtor) divorced in 1987. The divorce decree gave Sanderfoot sole title to the couple’s real estate and marital home and most of the couple’s personal property, while Farrey received the remaining personal property and proceeds from the sale of the couple’s furniture. In order to ensure an equitable division of assets, the divorce decree ordered Sanderfoot to make payments to Farrey and issued Farrey a lien on Sanderfoot’s real estate property until Sanderfoot paid Farrey in full. Sanderfoot never paid Farrey and instead filed for Chapter 7 bankruptcy. In his bankruptcy petition, Sanderfoot listed the real estate and marital home as exempt homestead property. Sanderfoot sought to avoid Farrey’s lien on the property under 11 U.S.C. § 522(f)(1), claiming that Farrey’s lien was a judicial lien that impaired Sanderfoot’s homestead exemption. The bankruptcy court denied Sanderfoot’s motion to avoid the lien, but the district court reversed, holding that Farrey’s lien could be avoided because it was fixed on Sanderfoot’s interest in the property. The Seventh Circuit affirmed the district court’s decision, holding that the divorce decree had eliminated any preexisting interest that Farrey had held in the property and created a new interest, evidenced by Farrey’s lien, that attached to Sanderfoot’s interest in the property. Dissenting, Judge Posner asserted that to avoid a lien under § 522(f), the debtor must have an existing interest in the property at the time the court places a lien on that interest. According to Judge Posner, because Sanderfoot received the property in the same decree that created Farrey’s lien, the lien had not attached to a preexisting interest of Sanderfoot’s and could not be avoided. The United States Supreme Court granted certiorari.