In re Rizzo

• Decision Date: 27 July 1982
• Docket Number: 81-20747.,Bankruptcy No. 79-24030
• Parties: In re Edward RIZZO, Debtor. In re Garret J. LEMON, Debtor.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Western District of New York

21 B.R. 913 (1982)

In re Edward RIZZO, Debtor.

In re Garret J. LEMON, Debtor.

Bankruptcy Nos. 79-24030, 81-20747.

United States Bankruptcy Court, W.D. New York.

July 27, 1982.

Relin & Goldstein, Rochester, N.Y., for trustee.

Bernstein, White & Bernstein, Rochester, N.Y., for debtor, Rizzo.

Edward Massare, Rochester, N.Y., for Joan LeMon.

MEMORANDUM AND DECISION

EDWARD D. HAYES, Bankruptcy Judge.

These two cases brought under Chapter 7 of the 1978 Bankruptcy Code are being considered together because they contain similar factual situations and legal questions. Each of these debtors are individual debtors, whose residences are held by the entirety with their respective non-debtor wives. In each case, their trustee is the same, and he has moved for an Order authorizing him to sell both the interest of the bankruptcy estate and the interest of the co-owner in the residences pursuant to 11 U.S.C. § 363(h). The debtors oppose the sale of the property and their respective spouses have offered to pay for the non-exempt portion of their estates. The problem arising is how much of the bankrupt estates are non-exempt. In each case, the debtor has claimed the New York State exemption of $10,000. The trustee argues that the debtors be permitted to claim only half of the exemption, since their wives are entitled to the other half of the exemption.

The facts are as follows. In the Rizzo case, the debtor filed his petition on October 10, 1979 and was discharged on January 23, 1980. The debtor's primary residence is listed in Schedule B as 43 Little Briggins Circle, Fairport, New York. It has an appraised value of $53,000 subject to a mortgage held by Monroe Savings Bank on which there was due $17,900. Rizzo and his non-debtor wife own the property as tenants by the entirety. The debtor claims a $10,000 homestead exemption in the property pursuant to 11 U.S.C. § 522(b)(2)(A) and CPLR 5206.

The LeMon case was an individual proceeding under Chapter 7 filed on May 4, 1981 and the debtor was discharged on September 4, 1981. The debtor's schedule of assets lists a house located at 42 Colonmade Drive, Rochester, New York. The appraised value is $48,500, which is subject to a $12,000 first mortgage and a second collateral security mortgage of $8,000. The home is held by LeMon and his non-debtor wife as tenants by the entirety. The debtor, again, claims the $10,000 homestead exemption pursuant to 11 U.S.C. § 522(b)(2)(A) and CPLR 5206.

The trustee argues that there is a distinction between the language of the Federal exemption under 11 U.S.C. § 522(d)(1) and the State homestead exemption under CPLR 5206, and this affects how the exemption is calculated. His position is that the Federal exemption is deducted from the debtor's half interest in the entirety estate. The trustee argues that because of the language of the New York homestead exemption, the homestead exemption is deducted from the entire estate held by the entirety rather than the debtor's one-half interest in the estate. The effect of the trustee's argument would be to limit the $10,000 State homestead exemption in a single bankruptcy to a $5,000 deduction from the debtor's interest in real property which has become part of the estate in bankruptcy. The debtors oppose the trustee's position.

The one debtor's argument that 11 U.S.C. § 522(b)(2)(B) exempts all entirety property from the estate is not creditable because of 15 N.Y.Jur. Page 422 (see quote infra) and (Hiles v. Fisher, 144 N.Y. 306, 39 N.E. 337).

The wording of CPLR 5206, which provides the $10,000 homestead exemption in New York State, has posed interpretive problems for bankruptcy courts seeking to apply the exemption provisions of 11 U.S.C. § 522.

The cases at bar have in common a single issue which is at the heart of the interpretation problem. When a tenant by the entireties files in bankruptcy and elects the State homestead exemption, can that debtor elect only one-half the $10,000 exemption or the full $10,000 exemption against the debtor's equity in the property and can tenants by the entirety have available to them in the bankruptcy context a total of $20,000 in homestead exemptions.

CPLR 5206 reads in part as follows:

(a) Exemption of homestead. Property of one of the following types, not exceeding ten thousand dollars in value above liens and encumbrances, owned and occupied as a principal residence, is exempt from application to the satisfaction of a money judgment, unless the judgment was recovered wholly for the purchase price thereof:

It then proceeds to spell out various ways of owning property, none of which affects the problem at hand.

11 U.S.C. § 522(m) reads as follows:

(m) This section shall apply separately with respect to each debtor in a joint case.

The clear meaning of this provision is that in a joint case, the husband and the wife may each claim the exemption that State or Federal law grants to either of them. The question then becomes would a New York Court in a non-bankruptcy case grant a judgment debtor a full $10,000 against the creditor seeking to levy on his home.

A tenancy by the entirety in New York State has been described in 15 New York Jurisprudence as follows:

Section 145 reads in part as follows:

. . . The chief characteristic which distinguishes a tenancy by the entirety from a joint tenancy is its inseverability, whereby neither the husband nor the wife, without the assent of the other, can dispose of any part of the estate so as to affect the right of survivorship in the other. . . .

Section 163 reads in part as follows:

The general rule is that upon the death of one of the spouses, the whole of an estate by the

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