In re Guzior

• Decision Date: 23 August 2006
• Docket Number: No. 04-23413.,04-23413.
• Parties: In re Regina GUZIOR, Debtor.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan

347 B.R. 237

In re Regina GUZIOR, Debtor.

No. 04-23413.

United States Bankruptcy Court, E.D. Michigan, Northern Division — Bay City.

August 23, 2006.

J. Edmund Frost, Bay City, MI, for Debtor.

SUSTAINING TRUSTEE'S OBJECTION TO DEBTOR'S EXEMPTION

WALTER SHAPERO, Bankruptcy Judge.

This case involves the Chapter 7 Trustee's objection to a tenancy by the entireties property exemption claimed by the debtor, Regina Guzior (Debtor), pursuant to 11 U.S.C. § 522(b)(2)(B). Trustee argues that Debtor is not entitled to her exemption, as claimed, since she and her non-debtor spouse were indebted to joint creditors at the time she filed her bankruptcy petition. Debtor challenges the standing of the Trustee as well as the basis of the Trustee's objection. For the reasons stated below, the Court sustains the Trustee's objection.

I. Facts

These are the undisputed facts. On August 27, 2004, Debtor filed an individual chapter 7 bankruptcy petition.¹ Debtor is married and her spouse did not file bankruptcy. In her Schedule A, Debtor disclosed her interest in real property located at 206 Graham Street, Midland, Michigan ("Marital Property"). Debtor represented that she held the Marital Property with her non-debtor spouse as a tenant by the entirety. She stated the current market value of the Marital Property as $ 172,400 and the value of her "undivided" interest as $ 86,200. On her Schedule C, Debtor elected to claim an exemption of the Marital Property based on her tenancy by the entirety interest under Michigan law through 11 U.S.C. § 522(b)(2)(B) and stated the value of her exemption as $ 61,533.01.²

Debtor disclosed that the Marital Property was encumbered by two mortgages. The first mortgage is held by Chemical Bank and Trust in the amount of $ 19,-473.50. (Sch. D). The second mortgage is held by Comerica Bank in the amount of $ 29,860.48. (Sch. D). The total amount of these secured joint claims is $ 49,333.98. (Sch. D). The total amount of Debtor's unsecured claims is $ 96,040.49, which consists of $ 82,068.20 of individual debt, $ 5,109.92 in joint debt with her non-debtor spouse, and $ 8,862.37 of joint debt with a defunct business listed as the co-debtor. (Sch. F). On her Schedule H, Debtor stated that her and her husband were jointly liable on the debts to Chemical Bank & Trust, Comerica Bank, and Discover Card Services.

On October 13, 2004, the § 341 hearing was held. Based on Debtor's sworn testimony and the Trustee's review of documents provided by the Debtor, Trustee timely filed an objection to Debtor's claimed exemption of the Marital Property on October 27, 2004. On November 9, 2004 Debtor filed a response challenging the standing of the Trustee as well as the merits of the Trustee's objection.

A hearing was held on December 2, 2004. During the hearing, Debtor explained that her intention was to reaffirm the mortgages on the Marital Property. Debtor represented that the first mortgage holder, Chemical Bank, did not require her to sign a reaffirmation agreement; but that the second mortgage holder, Comerica Bank, did. The parties did not dispute that the docket indicates that a reaffirmation agreement between Comerica Bank and the Debtor had been filed. (Doc. No. 16).

Trustee argued that under In re Grosslight, 757 F.2d 773 (6th Cir.1985) and In re Dembs, 757 F.2d 777 (6th Cir.1985) when a chapter 7 debtor has joint debt and elects to exempt joint property under Michigan law, such an exemption should be disallowed. Debtor disputed Trustee's reliance and interpretation of In re Grosslight and In re Dembs. Debtor argued that these cases "do not apply" to the circumstances of this case and were factually distinguishable. In reply, the Trustee disagreed that the facts in this case were different and maintained that any factual distinctions were irrelevant. At the conclusion if the hearing, the Court permitted the parties to file post-hearing briefs.

II. Jurisdiction

This Court has subject matter jurisdiction over this bankruptcy case under 28 U.S.C. § 1334(a), 157(a), and 157(b)(1) and Local Rule 83.50 (E.D.M.). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B).

III. Discussion

A. Issues

There are two issues before the Court. The first one involves whether a Chapter 7 trustee has standing to object to a debtor's exemption of a tenancy by the entireties property interest under Michigan law pursuant to 11 U.S.C. § 522(b)(2)(B). The second issue is the extent a debtor may exempt real property held as a tenant by the entirety under Michigan law pursuant to 11 U.S.C. § 522(b)(2)(B).

B. Analysis

1. Standing of Trustee to Object to Debtor's Exemption

In order to address the merits of the Trustee's objection the Court must first determine whether a Chapter 7 trustee has standing to object to a debtor's exemption of entireties property interest pursuant to 11 U.S.C. § 522(b)(2)(B). Debtor opposes the Trustee's authority to object to her exemption of the Marital Property on two grounds.

First, Debtor contends that there is "no basis under federal or state law" that provides the Trustee with the right to object to her exemption. Debtor maintains that the only entities who are entitled to object to her exemption of the Marital Property are her joint creditors. In support of her position, Debtor does not cite to or rely on a particular section of the Bankruptcy Code or a specific Federal Rule of Bankruptcy Procedure. Instead, Debtor argues that Grosslight and Dembs are "distinguishable on their facts from the case at bar." Debtor contends that Grosslight stands for the proposition that only joint creditors may object to the exemption of entireties property. In addition, Debtor points out that neither of these cases involved objections raised by a trustee but instead were objections raised by joint creditors. Debtor contends that "[t]he joint creditor[s] [were] special status creditor[s] and Trustee does not step into the shoes of a hypothetical `special status' creditor." (Debtor's "Brief in Opposition to Trustee's Objection to Debtor's Claim of Exemption") ("Debtor's Br. in Opp'n"). In further support of her position, Debtor relies on the decision of the Western District Court of Michigan in Spears v. Boyd (In re Spears), 313 B.R. 212 (W.D.Mich. 2004). Debtor argues that the district court in following Grosslight held that "only joint creditors may object to the claim of exempt for entireties property, and that they must make a timely objection." (Debtor's "Supplemental Brief in Opposition to Trustee's Objection to Debtor's Claim of Exemptions" ("Debtor's Supplemental Br.") at 3).

In further support of her position, Debtor relies on Mich. Comp. Laws Ann. § 600.2807(1), which states that "[a] judgment lien does not attach to an interest in real property owned as tenants by the entirety unless the underlying judgment is entered against both the husband and wife." Debtor contends that since there "are no judgment creditors, either individual or joint, and no creditor has objected to the claim of exemption[,) the Trustee has no basis for objection under either federal or state law." (Debtor's Supplemental Br. at 2). The Court is not persuaded by Debtor's arguments. The Court finds that the Bankruptcy Code empowers the Trustee, as a "party in interest," with the right to object to Debtor's exemption of the Marital Property.

It is undisputed that upon the Debtor's filing of her bankruptcy petition, her tenancy by the entirety interest in the Marital Property became "property of the estate." 11 U.S.C. § 541(a)(1); see also Arango v. Third National Bank in Nashville (In re Arango), 992 F.2d 611, 613 (6th Cir.1993) (acknowledging that in order for one spouse to exempt her interest in entireties property, it must first be property of the estate.); Liberty State Bank and Trust v. Grosslight (In re Grosslight), 757 F.2d 773, 775 (6th Cir.1985) (recognizing that lilt is now established law that [§ 541(a)(1)] brings entireties property into the bankruptcy estate.") (citations omitted); In re Smith, 246 B.R. 540, 542-43 (Bankr.E.D.Mich.2000). A debtor may 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 ... to the extent that such interest as a tenant by the entirety ... is exempt from process under applicable nonbankruptcy law." 11 U.S.C. § 522(b)(2)(B). See also Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991) (stating that lain exemption is an interest withdrawn from the estate (and hence from the creditors) for the benefit of the debtor."). A debtor exempts property from property of the estate by "fil[ing] a list of property that the debtor claims as exempt under [§ 522(b)]." 11 U.S.C. § 522(l). A "party in interest" must file an objection to property that is claimed as exempt or such property "is exempt" from property of the estate. 11 U.S.C. § 522(l); "A party in interest may file an objection to the list of property claimed as exempt only within 30 days after the meeting of creditors held under § 341(a) is concluded or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later." Fed. R. Bankr.P. 4003(b).

For purposes of Chapter 7, the phrase "party in interest" is not defined. Brady v. McAllister (In re Brady), 101 F.3d 1165, 1170 (6th Cir.1996) (holding that a Chapter 7 trustee as a "party in interest" has standing pursuant to Federal Rule of Bankruptcy Procedure 4007(c) to request an extension of time for creditors to file nondischargeability complaints); See, e.g., In re Citi-Toledo Partners II, 254 B.R. 155, 162-63 (Bankr.N.D.Ohio 2000) (explaining that "the legislative history preceding the enactment of the Bankruptcy Code indicates that a court should give the term [party in interest] a broad interpretation after giving due consideration to the particular context in which the term will be applied.") (...