If the property in question had been a car and not land, attorneys for a Utah widow told the U.S. Supreme Court that laws would have allowed her to reclaim a farm lost to creditors by paying its market value.
They feel a section of the Bankruptcy Code is designed to treat personal and real property the same, even though lower courts disagreed.That lower court decision would force Althea Dewsnup to pay more than $140,000 to reclaim her Millard County farm that has been estimated to be worth only $39,000.
Dewsnup lost the land in 1979 when a $119,000 mortgage secured by the land defaulted. After going through two unsuccessful Chapter 11 bankruptcies, she tried a different route in 1984 and filed a petition under the Bankruptcy Code Chapter 7.
Last February - 12 years since she first lost the farm - the Supreme Court agreed to hear her case.
In a written brief to the Supreme Court, her attorneys say the reasoning used by the 10th Circuit Court of Appeals in Denver against Dewsnup is incorrect statutory interpretation and the ruling was without merit.
Also in the brief, Dewsnup's attorneys say the 10th Circuit overlooked the end purpose of the Bankruptcy Code, which is "to enable debtors to get out from under the debilitating effects of too much debt . . . and obtain a fresh start."
The main arguments in the case involve the application of Section 506 of the Bankruptcy Code to land that is classified as real instead of personal property and to abandoned property.
In the court of appeals decision, the court said Section 722 of the Bankruptcy Code does not permit debtors to redeem real property through Chapter 7, but instead it should only apply to personal property.
Dewsnup's attorneys say this is an "erroneous conclusion" and that Section 506 applies to both types of property - real and personal. They say the confusion stems from Congress' attempt to prevent abuse of Chapter 7 by consumer credit, of which Dewsnup does not apply.
A second debate is over whether or not a clause found in a related section of the Bankruptcy Code applies. The clause states abandoned property is no longer "property of the estate" and therefore deprives the debtor of his or her right to void a lien.
The case will be heard by the Supreme Court when it convenes for debate next session. The Supreme Court said in written statements it is hearing the case to clarify the bankruptcy laws for future cases.