October 7, 2007
Bankruptcy Jurisprudence from the Supreme Court - Long v. Bullard
Bankruptcy history told through Supreme Court decisions is fascinating to me. A great example, is the comment I have made a million times to students, colleagues and certainly clients - "liens don't go away in bankruptcy." I didn't realize myself until I started reading the Supreme Court opinions that that rule was set down by the Supreme Court 120 years ago in Long v. Bullard.
Long v. Bullard, 117 U.S. 617 (1886)
Held: No, The rights of the secured creditor to foreclose its lien survive the discharge. The homestead exemption does not change that result.
Chief Justice Morrison R. Waite
The debtor received a loan from Bullard in 1872 giving Bullard a lien on his home. The debtor “was adjudged a bankrupt” in 1873 and received his discharge in 1874. Creditor Bullard thereafter filed an action to foreclose his lien on the home. The debtor defended on the basis that the debt was discharged and that the residence was exempt under the bankruptcy code. He argued that the action “charging the property with the debt ‘is in violation of his discharge in bankruptcy,’” “in contravention and in violation of that act of congress” and “insisted that [his] homestead rights . . . were superior to the claim of Bullard under his conveyance, and that the property could not be sold to pay him.” The court ruled in favor of the creditor giving him a judgment ordering foreclosure notwithstanding a state law defense of usury and the Court of Appeals affirmed.
The Supreme Court affirmed also saying,
“[T]here cannot be a doubt of the correctness of the decision. By section 5119 of the Revised Statutes the discharge releases the bankrupt only from debts which were or might have been proved, and by section 5075 debts secured by mortgage or pledge can only be proved for the balance remaining due after deducting the value of the security, unless all claim upon the security is released. The dispute in the court below was as to the existence of the lien at the time of the commencement of the proceedings in bankruptcy. That depended entirely on the state laws, as to which the judgment of the state court is final and not subject to review here. The setting apart of the homestead to the bankrupt under section 5045 of the Revised Statutes did not relieve the property from the operation of liens created by contract before the bankruptcy. It is not the decree in this case which constitutes the lien on the property, but the conveyance of Long and wife before the bankruptcy.”
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