In re Chinosorn, Bankruptcy No. 99 B 03025.
| Decision Date | 19 January 2000 |
| Docket Number | Bankruptcy No. 99 B 03025. |
| Citation | 243 BR 688 |
| Parties | In re Voravit CHINOSORN, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Bernard M. Kaplan, Northbrook, IL, for Debtor.
Sheldon L. Solow, Harold D. Israel, Chicago, IL, for Respondent.
This Chapter 7 case has come before the court on the motion of the debtor, Voravit Chinosorn, to avoid a judicial lien on his home. Chinosorn's motion is based on § 522(f)(1) of the Bankruptcy Code (Title 11, U.S.C.), which allows avoidance of judicial liens that impair an exemption to which the debtor would be entitled under § 522(b) of the Code. Chinosorn asserts that a lien on his home impairs an exemption to which he would be entitled under the Illinois statute establishing tenancy by the entirety. The holder of the asserted lien, Fleet Business Credit Corporation, opposes Chinosorn's motion on the ground that the Illinois statute does not exempt all of Chinosorn's interests in the home. However, Fleet did not object to Chinosorn's claimed exemption within the time required by the Federal Rules of Bankruptcy Procedure, and so Chinosorn argues both (1) that Fleet's argument regarding the validity of his exemption claim cannot be considered and (2) that, in any event, his claim of exemption is valid, so that Fleet's lien must be avoided.
As explained below, Chinosorn's motion must be denied for one of two reasons: First, there is some doubt as to whether Fleet actually holds a judgment lien against Chinosorn's interest as a tenant by the entirety. If, under Illinois law, no lien against entireties property comes into effect as a result of a judgment against only one of the tenants, Fleet's claim in the present case would be unsecured and Chinosorn's motion for lien avoidance would have to be denied as unnecessary.
On the other hand, if Illinois law does impose a lien on interests of a tenant by the entirety based on a judgment against that tenant individually, then, to that extent, Chinosorn would not be entitled to an exemption under § 522(b), as required for lien avoidance under § 522(f). Fleet is not precluded from arguing Chinosorn's lack of substantive entitlement to an exemption, and hence, the pending motion would have to be denied on the merits.
Since the motion must be denied in either event, the question of whether the lien arises may be left for resolution by the Illinois courts.
Pursuant to 28 U.S.C. § 1334(a), federal district courts have exclusive jurisdiction over bankruptcy cases. However, pursuant to 28 U.S.C. § 157(a), the district courts may refer bankruptcy cases to the bankruptcy judges for their district, and, by Internal Operating Procedure 15(a), the District Court for the Northern District of Illinois has made such reference of the pending case. When presiding over such a referred case, a bankruptcy judge has jurisdiction, pursuant to 28 U.S.C. § 157(b)(1), to enter appropriate orders and judgments as to core proceedings within the case. The determination of whether a lien is valid and enforceable is a core proceeding under 28 U.S.C. § 157(b)(2)(B), and so this court has jurisdiction to enter an order deciding the present motion for lien avoidance.
None of the facts relevant to the pending motion are in dispute; the following findings are drawn from the parties' filings.
In early 1995, Voravit Chinosorn was involved in a dispute regarding a sublease guarantee that he had executed. Fleet Business Credit Corporation ("Fleet") — then known as Sanwa Business Credit Corporation — eventually succeeded to the rights of the sublessor. At the time the dispute arose, Chinosorn and his wife lived together in a home located in Cook County, Illinois, and held title to their home as joint tenants. On February 24, 1995, Chinosorn and his wife executed a deed transferring title to themselves as tenants by the entirety; the deed was recorded on March 3, 1995.
Five days later, on March 8, a complaint was filed against Chinosorn in the Circuit Court of Cook County, based on the alleged breach of his sublease guarantee. After a little more than three years, on May 11, 1998, this complaint was adjudicated, with the entry of a judgment in Fleet's favor, against Chinosorn (but not his wife), in the amount of $216,215.57. Fleet recorded a memorandum of this judgment with the Cook County Recorder of Deeds on July 8, 1998.
About seven months after the judgment was recorded, on February 1, 1999, Chinosorn filed the pending Chapter 7 bankruptcy case. In the schedules accompanying his bankruptcy petition, Chinosorn listed his home as exempt under 765 ILCS 1005/1c, the Illinois statute establishing and defining tenancies by the entirety. The schedules state that the home has a value of $200,000, and that it is unencumbered by any liens other than the Fleet judgment. The claim arising from Fleet's judgment is scheduled in two different ways. First, Chinosorn listed the claim as secured by a "disputed and improper judicial lien" that "may exist" against his home, but which "should properly be vacated." Second, he scheduled Fleet's claim as unsecured.1
A meeting of creditors in Chinosorn's bankruptcy case was held, as required by § 341 of the Bankruptcy Code, on March 9, 1999. The notice of this meeting informed creditors, consistent with the provisions of Fed. R. Bankr.P. 4003(b), that they would have until 30 days after the conclusion of the meeting to object to exemptions claimed by Chinosorn. The meeting concluded on the date it was held, and so objections to Chinosorn's exemptions would have been required to be filed by April 8, 1999. No objections were filed by that date.
On May 19, 1999, Chinosorn filed the pending motion to avoid Fleet's judgment lien, pursuant to § 522(f)(1)(A) of the Bankruptcy Code. Fleet opposed the motion, and the parties have briefed the issues.
The question raised by the pending motion — whether there should be avoidance, under the Bankruptcy Code, of a judicial lien on Chinosorn's interest as a tenant by the entirety in his home — is a surprisingly complex one. The issues that impinge on the question require an understanding of the nature of tenancy by the entirety, and particularly the use made of this concept in current Illinois law. With that understanding, it is possible to address (1) whether there is a lien on Chinosorn's tenancy interest, and (2) if so, the extent to which Chinosorn's interest is exempt under the Bankruptcy Code so as to support avoidance of the lien.
Background. Tenancy by the entirety (or by the "entireties" — the singular and plural seem to be used interchangeably) is a vestigial remnant of the common law. Altered by statute in most American jurisdictions in the nineteenth century, and abolished in England in the early twentieth, tenancy by the entirety was the only manner in which a husband and wife could own real property at common law.2
Tenancy by the entirety was part of the general common law legal status of a married woman, known as "coverture," which was based on the metaphorical premise that a married couple was "one person" and that the husband was that person. Bassett v. Bassett, 20 Ill.App. 543, 544-45, 1886 WL 5526, *1 (4th Dist.1886). See Osborn v. Horine, 19 Ill. 124, 125 (1857):
The very term coverture implies that a wife is, during its continuance, under the protection of her husband, and the common law will not allow her to do anything which may prejudice her rights or interests, without his advice, consent and approval. In this respect, she is incapable of acting alone. In defining the meaning of the word coverture, Mr. Webster has laid down this rule of law, with such succinctness and perspicuity, that I gladly adopt his language. He says: "The coverture of a woman disables her from making contracts to the prejudice of herself or husband, without his allowance or confirmation."
As it concerned a wife's personal property, coverture implied an absolute gift to her husband. All personalty that a wife owned at the time of the marriage or that she acquired during it became the exclusive property of her husband. Phipps, supra n. 1, at 24. As to real property, coverture brought about tenancy by the entirety — real property owned by either the husband or the wife at the time of their marriage, or acquired by either during the marriage, was deemed owned by the marital entity, but subject to exclusive control by the husband. The only limit on the husband's control was that he could not unilaterally alienate the wife's right to the property if she survived him. Thus, to alienate the entire ownership interest, both husband and wife would have to consent, and only creditors with claims against the husband and wife jointly could enforce their claims by sale of complete title to the property. However, consistent with his control, the husband could obtain credit through his rights in the property — to use it during his life and to own it outright if he survived his wife — and his individual creditors could attach these rights if he defaulted on his obligations. In contrast, the wife had no right to the property other than her contingent right of survivorship, and her individual creditors could take no interest in the property during her husband's life. Id. at 25-26.
Unsurprisingly, these aspects of the common law were seen as inequitable in their treatment of women, and, beginning in the middle 1800's, nearly all American jurisdictions enacted "married women's property acts," allowing wives to own property separately from their husbands. Phipps, supra, at 27. Illinois enacted its Married Women's Act in 1861. 1861 Ill. Laws 143; Douds v. Fresen, 392 Ill. 477, 479, 64 N.E.2d 729, 730 (1946).
The courts of the various states differed in the way that they applied the married women's property acts to tenancies by...
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