In re Giles
Decision Date | 01 July 1998 |
Docket Number | Bankruptcy No. 97-1-5460-PM. |
Citation | 222 BR 766 |
Parties | In re Robert L. GILES, Henrietta Giles, Debtors. Robert GILES, Henrietta Giles, Movants, v. CHEVY CHASE BANK FSB, Commercial Credit Corporation, Greenwood Trust Co., d/b/a Discover Card Services, Inc., Old Republic Surety Co., Vincent Butler, Montgomery Ward Credit Corp., Debra Aronson, Respondents. |
Court | U.S. Bankruptcy Court — District of Maryland |
Matthew A. Rizzo, Washington, DC, for Debtor.
Steven H. Greenfeld, Chapter 7 Trustee, Washington, DC.
Debra Aronson, Rockville, MD, Pro se.
Barry E. Gordon, Bethesda, MD, for Montgomery Ward Credit Corp.
Vincent Butler, Amherst Station, Silver Spring, MD, Pro se.
Stuart R. Blatt, Baltimore, MD, for Old Republic Surety Co.
Wolpoff & Abramson, Bethesda, MD, for Greenwood Trust Co.
Edgar H. Gans, Niles, Barton & Wilmer, Baltimore, MD, for Commercial Credit Corp.
Before the court are seven (7) motions filed by Robert L. Giles and Henrietta Giles (hereinafter "Debtors") to avoid judicial liens held by Chevy Chase Bank FSB, Commercial Credit Corporation, Greenwood Trust Co., d/b/a Discover Card Services, Inc., Old Republic Surety Co., Vincent Butler, Montgomery Ward Credit Corporation, and Debra Aronson (hereinafter "Creditors"). Each of these Creditors holds a judgment against Debtor, Robert L. Giles, individually.
Debtors own their residence located at 25 Yeatman Court, Silver Spring, Maryland, as tenants by the entireties. They claim their interest in the entireties property as exempt pursuant to 11 U.S.C. § 522(b)(2)(B). Debtors seek to avoid the judicial liens, alleging that these judgments against Robert L. Giles impair the exemption claimed.
I. RELEVANT BANKRUPTCY CODE PROVISIONS
Under Maryland law, judgments either are or can be made liens upon real property. Section 11-402(b) of the Courts and Judicial Proceedings Article of the Annotated Code of Maryland provides:
§ 11-402. Judgment constitutes lien.
(b) Judgment of court of original entry — If indexed and recorded as prescribed by the Maryland Rules, a money judgment of a court constitutes a lien to the amount and from the date of the judgment on the judgment debtor\'s interest in land located in the county in which the judgment was rendered except a lease from year to year or for a term of not more than five years and not renewable.
Md.Code Ann., Cts. & Jud. Proc. § 11-402 (1995 Repl.Vol.).
A husband and wife file a joint bankruptcy case under Chapter 7 in the District of Maryland. Several creditors have judicial liens arising from judgments against the husband only. The debtors claim their residence that they own as tenants by the entirety as exempt. The issue presented is whether these debtors may proceed under § 522(f)(1)(A) of the Bankruptcy Code and avoid the judicial liens against the husband's interest as liens impairing an exemption.
The court will begin with an admonition of what this case does not involve. The first category consists of those situations where one of two tenants by the entirety files a bankruptcy case and seeks a discharge so as to frustrate the efforts of a creditor holding a claim or judgment lien against both from collection. The Fourth Circuit has long pronounced such efforts as tantamount to "legal fraud." See Sovran Bank, N.A. v. Anderson, 743 F.2d 223, 224 (C.A.4 1984) ( ); Chippenham Hosp., Inc. v. Bondurant, 716 F.2d 1057, 1059 (C.A.4 1983) ( ); Reid v. Richardson, 304 F.2d 351, 355 (C.A.4 1962) ( ); Phillips v. Krakower, 46 F.2d 764, 765-66 (C.A.4 1931) () .
Neither does this case involve the situation where one of two spouses holding property as tenants by the entirety files a bankruptcy case and the trustee seeks to sell the entireties property for the benefit of creditors holding claims against both spouses. With respect to this second category of cases, the Fourth Circuit in Sumy v. Schlossberg, 777 F.2d 921 (C.A.4 1985), upheld the trustee's efforts to sell property owned by the debtor and his spouse pursuant to 11 U.S.C. § 363(h) for the benefit of creditors holding claims against both spouses. More recently, in the case of In re Williams, 104 F.3d 688 (C.A.4 1997), the Court of Appeals upheld the right of the trustee to sell property owned by the debtor and her husband, despite debtor's claim of exemptions, pointing out that, under Virginia law, property held by spouses as tenants by the entireties is exempt from individual (i.e., non-joint) creditors, but is not exempt from the claims of joint creditors. See also In re Sefren, 41 B.R. 747 (Bankr. D.Md.1984) ( ).
In a case more akin to the matter at hand, however, the U.S. Bankruptcy Court for the Eastern District of Tennessee was faced with this identical issue in In re Arango, 136 B.R. 740 (Bankr.E.D.Tenn.1992), aff'd, 155 B.R. 465 (E.D.Tenn.1992), aff'd 992 F.2d 611 (C.A.6 1993). Having claimed the entireties exemption, the debtor sought to avoid the judgment lien held by Third National Bank. Arango, 136 B.R. at 740. He was, however, unsuccessful. Id. at 743. In affirming the denial of the motion to avoid the judgment lien, the Sixth Circuit pointed out: Arango, 992 F.2d at 614.
The trial court's opinion explained that, in Tennessee, a tenancy by the entirety has two different constituencies of property interests. Arango, 136 B.R. at 741. These constituents are the collective right of the tenants for use of and dominion over the entireties property and the independent survivorship interest of each tenant. Id. The fact that the debtor and his nondebtor spouse are unable to convey marketable title without the consent of Third National Bank did not impair debtor's exemption. Id. at 742. As the court pointed out, "a third party's ownership or encumbrance of a debtor's survivorship interest does not impair the debtor's exempt interest in the entireties property." Id. See also Weaver v. Hamrick, 907 S.W.2d 385, 388-89 (Tenn.1995) ( ).
Moreover, under Tennessee law, "the right of survivorship, previously conveyed or attached by a judgment creditor, is not destroyed by the dissolution of the tenancy by the entireties." Third Nat'l Bank in Nashville v. Knobler, 789 S.W.2d 254, 255 (Tenn. 1990). Similarly, in Weaks v. Gress, 225 Tenn. 593, 474 S.W.2d 424 (1971), the court held that a conveyance by a husband and wife, after a judgment lien had attached to the interest of one of the tenants by the entirety, breached any covenant against encumbrances that may have been contained in the deed to the third-party purchaser. As will be explained later, Maryland law is far more protective of the entireties property than Tennessee.
In the instant matter, Debtor has availed himself of the entireties exemption. The amount of the exemption is unlimited, that is, unlike the limited amounts provided in Section 11-504(e) of the Courts and Judicial Proceedings Article of the Annotated Code of Maryland, the entireties exemption knows no limits. For example, if Debtor had $1 million in debts and owned a house worth $2 million free and clear as a tenant by the entirety with his wife, he...
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