In re Rentfro
| Decision Date | 26 May 1999 |
| Docket Number | Bankruptcy No. 99-20169. |
| Parties | In re Donald Leroy RENTFRO, Debtor. |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Western District of Missouri |
John Lewis, Jr., for trustee.
George T. Johnson, Kansas City, MO, trustee.
Lewis Z. Bridges, Lake Ozark, MO, for debtor.
Donald Leroy Rentfro filed a voluntary Petition for Relief under Chapter 7 of the Bankruptcy Code on February 8, 1999. Debtor is married, but he filed his Petition individually and so his wife is not a debtor in bankruptcy. On March 26, 1999, the Trustee filed an Objection to the Debtor's Claimed Exemption based on the debtor's attempt to exempt a large amount of equity in property he holds as tenants by the entirety with his non-debtor wife. Hearing on the objection was held May 11, 1999, neither side sought briefing time and the following Order is entered.
In his Schedules, Debtor lists his residence as having a value of $86,000 and a joint mortgage of $18,545.28. He seeks to exempt as entireties property the entire $67,454.72 in equity in the house. In addition, the debtor lists exemptions for three vehicles as entireties property: a $1,000 exemption in a 1978 LTD which he values at $1,000; a $2,000 exemption in a 1985 Dodge Van which he values at $2,000; and a $1,000 exemption in a 743B Diesel Bobcat valued at $8,000. In other words, he asserts $4,000 in exemptions in vehicles as entireties property.
The debtor lists only two joint debts in his schedules: an unsecured nonpriority debt to Mercantile Bank on a credit card in the amount of $5,754.86; and the $18,545.28 mortgage on the residence. The remainder of the debts, including some $35,000 in general unsecured debts (which are mostly credit card debts), are apparently the debtor's individual debts.
Finally, in Schedules I and J, Debtor lists $850.00 per month in social security benefits as his sole income, and indicates that his wife grosses $450.00 per month in social security and $275.00 gross income per month which she earns as a baker, for a total monthly household income $1,575.00. Debtor lists $1,503.00 in household expenses, including $300.00 per month in expenses relating to the wife's business as a baker.
The Trustee objected to the debtor's claimed exemptions, asserting that the entireties assets should be retained and administered by the Trustee as part of the estate. The Trustee seeks to use the entireties assets to pay the joint creditor in full through the estate. However, at the hearing on the Trustee's Objection, the Court was informed that the debtor and his wife have reaffirmed the joint debt.1 As such, the debtor seeks to exempt all of his entireties property, discharge his individual unsecured debt, and pay the joint debt outside of bankruptcy. The Trustee, on the other hand, wishes to retain and administer at least a portion of the entireties assets and use the proceeds to pay the joint creditor through the estate. The Trustee points out that the Debtor could later rescind the reaffirmation agreement with the joint creditor under § 524(c) and then it would be too late for the Trustee to bring in the entireties property for purposes of paying the joint creditor. Finally, the Trustee seeks clarification on the claimed exemptions in the vehicles.
In 1991, the Eighth Circuit Court of Appeals first addressed the treatment of Missouri entireties property when one spouse files bankruptcy in Garner v. Strauss (In re Garner), 952 F.2d 232 (8th Cir.1991). The Eighth Circuit revisited the issue very recently in Van Der Heide v. Labarge (In re Van Der Heide), 164 F.3d 1183 (8th Cir.1999). Following Van Der Heide, when only one of the entireties tenants files bankruptcy, their entireties property is treated in Missouri as follows:
Under 11 U.S.C. § 522(b)(2)(B), an interest of the debtor in property held as a tenant by the entirety at the commencement of the case is exempt under bankruptcy law to the extent that it is exempt from process under applicable nonbankruptcy law. Van Der Heide, 164 F.3d at 1184. In Missouri, a debtor's interest in entireties property is not subject to the claims of creditors of only one of the tenants, but is subject to the claims of joint creditors. See Garner v. Strauss, 952 F.2d at 235; In re Van Der Heide, 164 F.3d at 1184. Thus, if only one of the tenants files bankruptcy, the entireties property may be used to satisfy only the claims on which the non-filing spouse is jointly liable. Id.; see also In re Smith, 200 B.R. 213, 216 (Bankr.E.D.Mo.1996) ().
If there are joint debts and the entireties asset is incapable of partition, the trustee may liquidate the entireties property, and in such a case, the trustee would distribute the net proceeds to the estate and the non-debtor spouse according to their respective interests. In re Van Der Heide, 164 F.3d at 1184-85; 11 U.S.C. § 363(j). Recognizing what it perceived to be an impermissible result in following Garner, the Court in Van Der Heide announced that despite Missouri law which plainly provides that each tenantspouse may claim the entire $8,000 exemption amount, see Mo.Rev.Stat. § 513.475.1 (1994), bankruptcy courts are to treat an entireties tenant who files bankruptcy individually as being entitled to claim only one-half of the total homestead exemption authorized under state law. Id. at 1186.
In the case at bar, there is only one joint debt other than the mortgage on the residence and the debtor's share of the equity in the entireties property is more than enough to satisfy that claim. Because the entire joint debt could be satisfied out of the debtor's respective interest, under normal circumstances, the Trustee in this case would be permitted to sell at least some of the entireties property and use the proceeds therefrom to satisfy that joint debt in full. Any equity above the amount necessary to...
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