In re Hallenbeck

• Decision Date: 27 November 1962
• Docket Number: No. 3631,4080.,3631
• Citation: 211 F. Supp. 604
• Parties: In the Matter of Richard Francis HALLENBECK and Gertrude DeHaan Hallenbeck, Debtors.
• Court: U.S. District Court — Western District of Virginia

211 F. Supp. 604

In the Matter of Richard Francis HALLENBECK and Gertrude DeHaan Hallenbeck, Debtors.

Nos. 3631, 4080.

United States District Court W. D. Virginia, Roanoke Division.

November 27, 1962.

Edwin M. Young, Roanoke, Va., for bankrupts.

Wilbur L. Hazlegrove, Roanoke, Va., for Penn Mutual Life Insurance Company.

MICHIE, District Judge.

This matter is before me for the second time with the factual situation slightly changed. On October 2, 1962 I rendered an opinion herein in which I held that the Referee in Bankruptcy could not properly enjoin a proposed sale by the trustees under a deed of trust on real estate owned by the Debtor, Richard F. Hallenbeck, and his wife as tenants by the entirety, the debt secured thereby being in default and the creditor having directed a sale. 209 F.Supp. 263. My reasoning was, primarily, that a tenancy by the entirety under Virginia law is not such an asset as to become property of a trustee in bankruptcy if one of the tenants (in this case the wife) is not in bankruptcy and, secondarily, also on the theory that, since Chapter XIII of the Bankruptcy Act provides that a "claim" within the meaning of the Chapter shall not include "claims secured by estates in real property", the property securing such a debt could hardly be held to be an asset of the bankrupt estate since the trustee had no jurisdiction over the debt secured on such property.

Since my decision on that point Mrs. Hallenbeck has filed a petition in bankruptcy and her case has been consolidated with that of her husband so that under well settled principles the tenancy by the entirety has become an asset of the joint estates in bankruptcy. Roberts v. Henry V. Dick & Co., 275 F. 2d 943 (4th Cir. 1960).

In my previous opinion, while feeling certain that on account of the Virginia tenancy by the entirety rule the property involved in this matter did not become an asset of the bankrupt's estate, I also based my decision on the theory that, since the debt secured upon the tenancy by the entirety was not a "claim" under the express provision of Chapter XIII, the property which secured such claim could hardly be subject to the bankruptcy proceedings. However I expressed some doubt as to the latter ground of decision, principally because the only case upon the point is directly to the contrary — In re Garrett (1962), D.C., 203 F.Supp. 459.

The effect of the tenancy by the entirety to prevent the property from becoming an asset of the bankrupt estate having been removed by the adjudication of the wife as a bankrupt and the consolidation of the estates of the husband and wife, my decision must now be squarely based on the point discussed in the Garrett case. But again, while I expressed some doubt upon the point in my previous opinion, further consideration convinces me that the Garrett case was erroneously decided and that therefore I must decide this case as I did before.

As I said in my former opinion it is expressly provided in 11 U.S.C.A. § 1006 that "`Claims' shall * * * not include claims secured by estates in real property or chattels real". And § 1011 provides that "Where not inconsistent with the provisions of this Chapter, the court * * * shall for the purposes of this Chapter, have exclusive jurisdiction of the debtor and his property * * *."

Can it have been the intention of Congress to provide that the Referee shall have nothing to do with a debt secured upon real property but that nevertheless the property itself shall be subject to the jurisdiction of the bankruptcy court? For if the property can be dealt with in any way the debt itself (which of course is a "claim" in common parlance) will certainly be affected. And if the Referee cannot deal with the "claim" it would seem that the creditor should be left free to deal with the property upon which the claim is secured. Otherwise an intolerable situation might exist in which the Referee by dealing with the property in one manner or another might very adversely affect the security of the claim — over which under the express terms of the Act the Referee has no jurisdiction. It seems plain to me that when claims secured by estates in real property were excluded from the operation of Chapter XIII the property securing such claims was likewise by plain inference excluded from the jurisdiction of the Referee.

As indicated above § 606, sub. 1, of Chapter XIII of the Act expressly excludes from the definition of "claims" all claims secured by estates in real property. Section 606, sub. 2, defines a creditor as the holder of any claim. Since the debt secured on real property is not a "claim" under the Chapter the creditor holding that debt is not a "creditor" under the Chapter. He is therefore not entitled to participate in the proceedings and should not be directly affected by any proceedings had under the Chapter to which he is not allowed to be a party. He is not entitled to receive notice of the proceedings and no provision is made for the acceptance or rejection by him of the Wage Earner's Plan.

It may be doubted that § 646 of the Chapter makes any provision for dealing with debts that are not "claims" within the meaning of the Chapter. It does state that a plan under the...