In re Lashley, Adv. No. 95-4403-172

Decision Date19 March 1997
Docket NumberAdv. No. 95-4403-172,Bankruptcy No. 95-40297-172.
Citation206 BR 950
PartiesIn re Lindell E. LASHLEY, Debtor. Lindell E. LASHLEY, Plaintiff, v. Jon FUHRER, Defendant.
CourtU.S. Bankruptcy Court — Eastern District of Missouri

A. Thomas DeWoskin, Trustee, St. Louis, MO.

Joseph S. Rosenthal, St. Peters, MO, for Debtor/Plaintiff.

William F. Whealen, Jr., St. Louis, MO, for Jon Fuhrer.

MEMORANDUM

JAMES J. BARTA, Chief Judge.

This matter is before the Court on the Adversary Complaint of Lindell E. Lashley ("Debtor") to avoid a prepetition judgment lien held by Jon Fuhrer ("Defendant"). At the conclusion of the trial, the Court announced certain determinations and orders from the bench including that the Defendant's prepetition judgment had been entered against both the Debtor and his non-debtor spouse; and that the real property that is the subject of this proceeding is held by the Debtor and his non-debtor spouse as tenants by the entirety. After a discussion among the parties concerning the interaction between Missouri law and the 1994 Amendments to 11 U.S.C. § 522(f)(2)(A), the Court granted each side additional time to submit memoranda of law.

Approximately nine days after the conclusion of the trial, the Debtor filed an Amendment to his Schedule C — Property Claimed as Exempt, to read as follows:

Home; tenants by entirety property — All.

As part of his post-trial memorandum, the Defendant included a timely objection to the Debtor's amended claim of exemption, contending that the exemption is contrary to Missouri law.

This is a core proceeding pursuant to Section 157(b)(2)(B) of Title 28 of the United States Code. The Court has jurisdiction over the parties and this matter pursuant to 28 U.S.C. Sections 151, 157 and 1334, and Rule 9.01 of the Local Rules of the United States District Court for the Eastern District of Missouri. These findings and conclusions are the final determination of the Bankruptcy Court. This Memorandum is based on a consideration of the record as a whole.

The facts necessary for this determination are uncontroverted. The Debtor's real property, located in Jefferson County, Missouri, is a one and one-half acre lot improved with a 14' × 55' mobile home. The Debtor lives on the property alone, but holds the property as a tenant by the entirety with his non-debtor spouse. Farmers Bank has a lien of a first deed of trust on the property which secures a debt in the amount of $11,900. Prior to the commencement of this case, the Defendant obtained a judicial lien against the property pursuant to a judgment, not related to the real property, against the Debtor and his non-debtor spouse in the amount of $53,000.

The Debtor's expert witness testified at the Bankruptcy trial that the value of the property is between $15,700 and $16,800, based on the value of comparable property in the area. The Defendant's expert witness presented testimony in support of his opinion that the value of the property was between $28,000 and $33,000. The Debtor had previously expressed his intention to reaffirm the first deed of trust debt with Farmers Bank.

The Claim of Exemption

A debtor's interest in tenancy by the entirety property enters the bankruptcy estate of a debtor pursuant to Section 541(a)(1), which provides that the bankruptcy estate includes "all legal and equitable interest of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). A debtor is then permitted to exempt certain property from the estate pursuant to Section 522. Unless a party in interest objects, a debtor is allowed to retain such property as exempt from administration by the bankruptcy trustee. 11 U.S.C. § 522(l).

An interest of the debtor in property held as of the commencement of the case as a tenant by the entirety is exempt under bankruptcy law to the extent that it is exempt from process under applicable nonbankruptcy law. 11 U.S.C. § 522(b)(2)(B). The applicable non-bankruptcy law in this case is Missouri property law and Missouri exemption law. In Missouri, entireties property is free from the claims of the creditors of only one of the tenants, but is never immune from the claims of joint creditors. See In re Townsend, 72 B.R. 960, 965 (Bankr. W.D.Mo.1987); Dickey v. Thompson, 323 Mo. 107, 18 S.W.2d 388 (1929). In the case at bar, the Defendant obtained a judicial lien against the entireties property because he had obtained a judgment against both spouses. Mo.Rev.Stat. §§ 511.350, 511.360 and 511.440 (1994).

Under Missouri law, the homestead of every person, not to exceed $8,000, is exempt from attachment and execution. If the property is owned by more than one owner, a single owner can claim the entire amount. Mo.Rev.Stat. § 513.475(1) (1994). Missouri law also allows the debtor to apply a $400 "wild card" exemption to any real or personal property. Mo.Rev.Stat § 513.430(3) (1994). Initially, the Debtor in this matter had claimed a homestead exemption in the property in the amount of $8,000. In the amended Schedules, the Debtor restated the $8,000 exemption claim and added the reference to tenancy by the entirety, claiming the full value of the real estate as exempt. The Debtor has not claimed an exemption under the "wild card" provisions of Missouri law.

In support of his objection to the Debtor's Amended Claim of Exemption, the Defendant has argued that because he holds a joint judgment against the Debtor and the Debtor's spouse, the Debtor cannot separately exempt property that is held by the Debtor and his non-debtor spouse as tenants by the entirety. The Defendant's position is tenable in those situations where the creditor holds a judgment against both spouses in the entireties tenancy. However, the argument must fail when only one spouse is a debtor in a bankruptcy case. Under Section 544, the bankruptcy trustee is a hypothetical lien...

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