In re Harry
| Decision Date | 31 December 1992 |
| Docket Number | Bankruptcy No. 92-01386. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Virginia |
| Parties | In re Donna M. HARRY, Debtor. |
W. Alan Smith, Jr., trustee.
John E. Slough, Charlottesville, VA, R. Mitchell Garbee, Lynchburg, VA, for debtor.
Before the court is an objection filed by the chapter 7 trustee, W. Alan Smith, Jr., to the claim of the debtor, Donna M. Harry, to an exemption in real property.
The debtor filed a voluntary petition under chapter 7 of the Bankruptcy Code on July 27, 1992. In Schedule A filed with her petition, the debtor stated that she was the joint owner of the five parcels of real property described as follows:
On Schedule C, all five parcels were listed as exempt pursuant to "Vasilion v. Vasilion, 192 Va. 735, Sumy v. Schlossberg, 4th Cir." The debtor also executed a homestead deed on September 10, 1992 in which she claimed an exemption of $1.00 in her principal residence.
In Schedule I the debtor stated that she was married to and living with Richard T. Harry. Mr. Harry did not file his own, or join in his wife's, bankruptcy petition.
On September 10, 1992, the meeting of creditors was held pursuant to 11 U.S.C. § 341.
On October 7, 1992, the "Trustee's Objection to Debtor's Claim of Exemption in Real Property" was filed. It states first that the debtor has claimed an exemption of $1.00 in her principal residence. In paragraph 5 of the Objection, Taylor v. Freeland and Kronz, ___ U.S. ___, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992), is cited for the proposition that a trustee loses any claim to administer property claimed exempt by a debtor, unless the trustee objects to the exemption within the 30 days provided for under Federal Rule of Bankruptcy Procedure 4003(b). Paragraph 6 states that the trustee:
"does not object to the claim of exemption as such, but requests that it be limited to the $1.00 claimed in the homestead deed, or to the extent that $1.00 can be amended up to the limit of the debtor\'s unused homestead exemption, with the remaining equity in the property, as may be recovered by the trustee, to be an asset of the bankruptcy estate to be administered by the trustee for the benefit of the unsecured creditors in this case."
In paragraph 2, the trustee states that 2½ months before the debtor filed her bankruptcy petition, she conveyed her principal residence and a parcel of real estate located in Fluvanna County to herself and her husband as tenants by the entirety. (The copy of the deed which is attached as an exhibit to the trustee's objection identifies the two conveyed parcels as the 2.5 and 4.5 acre parcels located in Fluvanna County, not the Charlottesville principal residence.) In paragraph 4, the trustee states that he believes that the debtor's conveyance of the two parcels to herself and her husband as tenants by the entirety constitutes a fraudulent or voluntary conveyance that can be avoided by a bankruptcy trustee under federal bankruptcy and Virginia law.
A hearing was held on November 23, 1992. Debtor's counsel appeared at the hearing and contested the objection. He did not, however, dispute the trustee's objection to the debtor's claimed homestead exemption. Instead, counsel argued that the trustee had failed to object to the debtor's assertion that her real property was held as tenants by the entirety with her husband.
The debtor's interest in property owned as a tenant by the entirety with her non-debtor spouse became property of the bankruptcy estate when she filed her bankruptcy petition. 11 U.S.C. § 541. Section 522(b) of the Bankruptcy Code, however, allows a debtor to prevent the distribution of property by claiming it as exempt. Subsection 522(b)(2), which Virginia Code § 34-3.1 makes applicable to debtors domiciled in Virginia, provides that the following property may be exempted from the estate:
Under Virginia common law, property held as tenants by the entirety is liable for the joint debts of both spouses but is not liable for the individual debts of either. Vasilion v. Vasilion, 192 Va. 735, 66 S.E.2d 599, 602 (1951). In Virginia, therefore, pursuant to 11 U.S.C. § 522(b)(2)(B), a trustee may not reach entireties property to pay a debt owed by only the debtor spouse. The trustee can, however, administer entireties property for the benefit of any joint creditors of the debtor and the non-debtor spouse, pursuant to the conditions set forth in 11 U.S.C. § 363(h), even if the property is claimed exempt pursuant to section 522(b)(2)(B). Sumy v. Schlossberg, 777 F.2d 921, 928 (4th Cir.1985).
Section 522(1) states the procedure for claiming exemptions is as follows:
The debtor shall file a list of property that the debtor claims as exempt under subsection (b) of this section. . . . Unless a party in interest objects, the property claimed as exempt on such list is exempt.
Federal Rule of Bankruptcy Procedure 4003(b) provides in part that:
The trustee or any creditor may file objections to the list of property claimed as exempt within 30 days after the conclusion of the meeting of creditors held pursuant to Rule 2003(a) or the filing of any amendment to the list or supplemental schedules unless, within such period, further time is granted by the court.
Presumably, then, property held as tenants by the entirety must be listed by a debtor in the bankruptcy schedules as exempt pursuant to section 522(b)(2)(B) in order to make it exempt from individual creditors.1 Arguably, the only effect on entireties property of claiming the...
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