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Supreme Court Rules On Chapter 7 Case

January 15, 1992

WASHINGTON (AP) _ The Supreme Court Wednesday ruled against a bankrupt Utah widow ordered to surrender her farmland to creditors.

The justices, by a 6-2 vote, ruled that federal bankruptcy law does not shield Aletha Dewsnup from having to turn over the land.

In 1984 Mrs. Dewsnup and her late husband, Lamar, filed a Chapter 7 bankruptcy petition to help liquidate their assets and pay off part of their debts.

They owed more than $120,000 to creditors who held the deed on two parcels of farmland in Millard County, Utah., which the bankruptcy court valued at $39,000.

The Dewsnups previously had filed a Chapter 11 petition - designed to let debtors reorganize their assets and pay off what they owe. A court-appointed trustee in that proceeding abandoned any claim to the farmland.

In the subsequent Chapter 7 proceeding, Mrs. Dewsnup sought to redeem the property by paying her creditors $39,000, in esssence ″stripped down″ the lein on the property to its real value.

The Denver-based 11th U.S. Circuit Court of Appeals ruled against her, and the Supreme Court upheld that ruling.

Writing for the court, Justice Harry A. Blackmun said Congress did not intend to allow such stripping down.

″The practical effect (would be) to freeze the creditor’s secured interest at the judicially determined valuation,″ Blackmun said. ″By this approach, the creditor would lose the benefit of any increase in the value of the property by the time of the foreclosure sale.″

Justices Antonin Scalia and David H. Souter dissented. Justice Clarence Thomas did not participate in the case.

The case is Dewsnup vs. Timm, 90-741.