Bankruptcy
Farrey v. Sanderfoot, 500 U.S. 291 (1991)
Study notes for Farrey v. Sanderfoot: professor notes, cold call prep, exam angles, and memory aids.
A lien from a divorce settlement cannot be avoided in bankruptcy if it attaches at the same time as the property interest.
In Farrey v. Sanderfoot, the Supreme Court addressed the intersection of family law and bankruptcy law, focusing on the nature of a lien resulting from a divorce settlement. The Court emphasized that the lien in question did not attach to a pre-existing property interest but was created simultaneously with the divorce decree. This distinction is crucial, as it informs the interpretation of 'exemptions' under the Bankruptcy Code and the circumstances under which they can be avoided. Professors would likely stress the implications of this ruling for similar cases involving divorce settlements and bankruptcy filings.
Additionally, educators might explore the broader implications of the ruling for debtors attempting to shield property from creditors in bankruptcy. The case illustrates how the timing of the creation of an interest and accompanying liens affects a debtor’s ability to claim homestead exemptions. This serves as important precedent for both family law and creditors’ rights, and could be pivotal in discussions relating to the priorities of claims in bankruptcy proceedings.
Lien Attaches = No Avoid
| Case | Distinction |
|---|---|
| In re Fazio | In In re Fazio, the lien was based on pre-existing interests, which allows for potential avoidance under the Bankruptcy Code, unlike in Farrey where the interests arose simultaneously. |
| Baldwin v. Jones | Baldwin v. Jones dealt with a lien attached to a pre-existing property interest which was found to be avoidable, contrasting with Farrey's simultaneous attachment. |
The decision upholds the integrity of divorce settlements by maintaining that liens directly created by court orders should be honored even in bankruptcy, preventing exploitation of the bankruptcy system.
Opponents argue that this decision can undermine the ability of debtors to claim necessary exemptions, potentially leaving them vulnerable to claims from ex-spouses.
This case frequently appears on exams in questions dealing with the avoidance of liens under bankruptcy law and the treatment of divorce settlements. Students should be prepared to analyze how the timing of property interests affects exemption claims under the Bankruptcy Code.