In re Conrad, Case No. 15-18916-TJC

• Decision Date: 04 January 2016
• Docket Number: Case No. 15-18916-TJC
• Citation: 544 B.R. 568
• Parties: In re: Maria E. Conrad, Debtor
• Court: U.S. Bankruptcy Court — District of Maryland

544 B.R. 568

In re: Maria E. Conrad, Debtor

Case No. 15-18916-TJC

United States Bankruptcy Court, D. Maryland, at Greenbelt .

Signed January 04, 2016

Edward Gonzalez, Washington, DC, for Debtor.

MEMORANDUM OPINION

THOMAS J. CATLIOTA, U.S. BANKRUPTCY JUDGE

The Chapter 7 Trustee, Roger Schlossberg (the "Trustee"), objects to the exemption claimed under 11 U.S.C. § 522(b)(3)(B) by the debtor Maria Conrad (the "Debtor") of her tenant by the entireties interest in real property. The Debtor is the subject of a federal judgment of restitution entered pursuant to 18 U.S.C. § 3613. The Trustee's objection relies on United States v. Craft, 535 U.S. 274, 122 S.Ct. 1414, 152 L.Ed.2d 437 (2002), which held that one spouse's tenant by the entireties interest in real property is subject to attachment under 26 U.S.C. § 6321 of a federal tax lien levied solely against that spouse. The Trustee argues that the government's statutory enforcement rights for federal restitution judgments under 18 U.S.C. § 3613 mirror those for unpaid federal taxes, and therefore the rationale of Craft applies equally to the collection of a restitution judgment against an individual spouse. For the reasons stated herein, the court concludes that the Debtor's interest as a tenant by the entireties in real property is not exempt from process against a restitution judgment entered solely against her. Therefore, her entireties interest is not subject to exemption under 11 U.S.C. § 522(b)(3)(B), and the court will sustain the Trustee's objection.

The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334, 157(a) and Local Rule 402 of the United States District Court of the District of Maryland. This is a statutorily core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B), and the court has constitutional authority to resolve the dispute because it "stems from the bankruptcy case itself." Stern v. Marshall, –––U.S. ––––, 131 S.Ct. 2594, 2618, 180 L.Ed.2d 475 (2011).

Findings of Fact

The Debtor filed her individual petition under Chapter 7 on June 24, 2015. Shortly thereafter, the Trustee was appointed as the interim trustee and now serves as the permanent trustee pursuant to the provisions of 11 U.S.C. § 702(d).

Prior to the filing of the bankruptcy petition, on June 17, 2009, the Debtor was charged with conspiracy to commit wire and mail fraud under the provisions of 18 U.S.C. § 1349 in Criminal Case No. 09cr–00374–GBL–l in the United States District Court for the Eastern District of Virginia. On August 27, 2009, the Debtor, together with the United States Attorney for the Eastern District of Virginia, filed a Plea Agreement (the "Plea Agreement") in which she pled guilty to a count of conspiracy. ECF 18–4. The Debtor also agreed to the entry of a restitution order for the full amount of the losses sustained by the victims of her admitted fraudulent scheme.

Subsequently, the Honorable Gerald Bruce Lee found the Debtor guilty of the charged offense. Judge Lee sentenced the Debtor to pay, as restitution, the sum of $838,004.60 as set forth in the Restitution Judgment entered in the District Court case on December 4, 2009 (the "Restitution Judgment"). ECF 18–5.

The Debtor owns an interest in certain improved real property located at 2146 Duckwalk Court, Waldorf, Maryland (the "Property"). On Schedule A, the Debtor stated she held her interest in the Property as a tenant by the entireties with her husband, and this fact is not disputed. See ECF 1, at 8. The Property is listed as having an unencumbered value of $227,407.Id. The Debtor timely claimed her interest in the Property on Schedule C as exempt under 11 U.S.C. § 522(b)(3)(B). Id. at 12.

The Debtor listed the United States of America on Schedule F as holding an undisputed, unsecured claim in the full amount of the Restitution Judgment, $838,004.60. The bar date for filing claims was November 23, 2015. ECF 16. The United States did not file a proof of claim. On December 22, 2015, the Trustee filed a proof of claim on behalf of the United States asserting a claim in the amount of the Restitution Judgment. Claim 1; See Fed. R. Bankr.P. 3004.

Conclusions of Law

A debtor may exempt property from the bankruptcy estate pursuant to 11 U.S.C. § 522. Exempt property is not property of the estate or available for administration by a trustee. Pursuant to 11 U.S.C. § 522(b)(2), Maryland has opted-out of the federal exemption scheme provided in 11 U.S.C. § 522(d). Md.Code Ann., Cts. & Jud. Proc. § 1 l–504(g). Therefore, a debtor in Maryland is afforded the exemptions provided under Maryland law. However, a debtor that uses Maryland state exemptions may also exempt from property of the estate:

any interest in property in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law.

11 U.S.C. § 522(b)(3)(B).

Only the Debtor is liable on the Restitution Judgment. Under Maryland law, a debtor's individual creditors "cannot levy upon nor sell a debtor's undivided interest in entireties property to satisfy debts owed solely by the debtor." In re Bell–Breslin, 283 B.R. 834, 837 (Bankr.D.Md.2002). See also Sumy v. Schlossberg, 777 F.2d 921 (4th Cir.1985). Thus, if Maryland law is the "applicable nonbankruptcy law" for purposes of 11 U.S.C. § 522(b)(3)(B), there is no question that the Debtor's interest in entireties property is exempt from process on the Restitution Judgment and may be exempted from the bankruptcy estate. See id.

The Trustee argues, however, that with respect to the Restitution Judgment, "applicable nonbankruptcy law" is federal law, not state law. The Trustee argues that the Debtor's tenancy by the entireties interest in the Property is not exempt from process by the United States under 18 U.S.C. § 3613. He argues, therefore, that the Debtor cannot claim an exemption for her entireties interest against the Restitution Judgment and he can administer the Property for the benefit of the United States toward satisfaction of that claim. In support of his position, the Trustee relies on the rationale of the Supreme Court in Craft, 535 U.S. 274, 122 S.Ct. 1414.

In Craft, the Court concluded that a husband's interest in tenants by the entireties property is subject to attachment of a federal tax lien levied for the husband's sole tax obligation pursuant to 26 U.S.C. § 6321. Id. That section provides that the amount of any unpaid tax, after demand, shall be a lien in favor of the United States on "all property and rights to property" whether real or personal, belonging to the taxpayer. 26 U.S.C. § 6321. In reaching its conclusion, the Court found that "[t]he statutory language authorizing the tax lien 'is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have.' " Id. at 283, 122 S.Ct. 1414 (quoting United States v. National Bank of Commerce, 472 U.S. 713, 719–20, 105 S.Ct. 2919, 86 L.Ed.2d 565 (1985) ). The Court also noted that " '[s]tronger language could hardly have been selected to reveal a purpose to assure the collection of taxes.' " Id. (quoting Glass City Bank v. United States, 326 U.S. 265, 267, 66 S.Ct. 108, 90 L.Ed. 56 (1945) ).

The Court stated that it looked to state law to determine what rights the husband had in the property, and then to federal law to determine the federal question at issue: whether those rights constitute "property" or "rights to property" for purposes of 26 U.S.C. § 6321. Id. at 278, 122 S.Ct. 1414. Using the common idiom describing property as a "bundle of sticks" the Court considered the rights a tenant by the entireties holds under Michigan law—which "sticks" are in a person's bundle—to determine whether those sticks qualify as "property" or "rights to property" in answer to the federal question. Id. The state rights include, among others, the right to use and receive income from the property and the right to exclude others from using it. These rights, according to the Court, are among "the most essential property rights." Id. at 283, 122 S.Ct. 1414. The Court concluded that these and the other rights the husband held in entireties property fall within the broad statutory language of "property" or "rights to property" in 26 U.S.C. § 6321. Id.

The Court noted that the husband lacked the right to unilaterally alienate the property and that right is often included in the bundle of property rights.

Id. at 282, 122 S.Ct. 1414. According to the Court, however, there is no reason to believe "that this one stick ... is essential to the category of 'property.' " Id. As such, the husband's interest was subject to attachment of the tax lien that arose from his sole unpaid obligation to pay taxes.

The Court recognized that a different conclusion would be reached under Michigan law. Id. at 288, 122 S.Ct. 1414. But in answering the federal question, the Court was "in no way bound" by the state law determination: "exempt status under state law does not bind the federal collector." Id. at 288–89, 122 S.Ct. 1414.

Here, the enforcement scheme for restitution orders and judgments is contained in 18 U.S.C. § 3613.¹ Section 3613(a) provides that the United States may enforce a restitution judgment against "all property or rights to property" of the person fined. 18 U.S.C. § 3613(a). There is no meaningful difference between this language and the language in 26 U.S.C. § 6321, which the Supreme Court described as "broad" and intended "to reach every interest" that a person might have. Craft, 535 U.S. at 283, 122 S.Ct. 1414. Moreover, the parties agree that the Debtor's rights as a tenant by the entireties under Maryland law are the same as those of a tenant by the entireties under Michigan law, the applicable state law in Craft. Thus, the Debtor holds the same rights as the husband did in Craft. Because those rights in Craft constitute "property" or ...