In re Thomas
| Citation | 261 BR 848 |
| Decision Date | 29 March 2001 |
| Docket Number | 00-11473-RGM.,No. 00-80673-RGM,00-80792-RGM,00-80673-RGM |
| Parties | In re Joseph Michael THOMAS and Myrtle Anne Thomas, Debtors. In re Peter A. Bunker and Michelina P. Bonanno, Debtors. In re William Gordon Prather and Ethel Fern Prather, Debtors. |
| Court | Bankr. V.I. |
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Klinette H. Kindred, Law Office of Robert Weed, Alexandria, VA, for Joseph Michael Thomas, Myrtle Anne Thomas, Peter A. Bunker and Michelina P. Bonanno.
H. Bradley Evans, Jr., Redmond, Peyton & Braswell, LLP, Alexandria, VA, for Gordon P. Peyton, Trustee in Bankruptcy of Joseph Michael Thomas and Myrtle Anne Thomas.
Gordon P. Peyton, Redmond, Peyton & Braswell, LLP, Alexandria, VA, Trustee in Bankruptcy of Peter A. Bunker and Michelina P. Bonanno.
Steven B. Ramsdell, Tyler Bartl Burke & Albert, PLC, Alexandria, VA, for William Gordon Prather and Ethel Fern Prather.
Jack I. Frankel, Office of the United States Trustee, Alexandria, VA.
The three cases before the court address the exemption and administration of real property held by joint debtors as tenants by the entireties. In each case, the debtors are married, own their home as tenants by the entireties with the common-law right of survivorship and filed voluntary joint petitions in bankruptcy.1 Thomas and Bunker are chapter 7 cases. Prather is a chapter 11 case.
The Thomas' scheduled their home on Schedule A. They state that it is owned by them as tenants by the entireties, has a current market value of $227,000 and is subject to a lien in the amount of $7,600. They scheduled unsecured claims in the amount of $80,296 and claimed all of their assets exempt. They assert that their home is fully exempt pursuant to § 522(b)(2)(B) of the Bankruptcy Code.2 Schedule F, which lists the unsecured nonpriority creditors, reflects that each creditor is a creditor of only one of the debtors. No joint unsecured creditor is listed. All joint debts, except the mortgage, were paid in full prior to the filing of the petition.3 The trustee has moved to substantively consolidate the two estates.
The Bunkers also scheduled their home. They state that it is owned by them as tenants by the entireties, has a current market value of $215,300 and is subject to two liens totaling $134,212, a first trust with a balance of $105,742 and a second trust with a balance of $28,469. Only the husband claimed the property exempt, asserting an exemption of $75,000 pursuant to § 522(b)(2)(B) of the Bankruptcy Code. His wife, Ms. Bonanno, did not claim her interest in the real property exempt. They scheduled 15 unsecured creditors with claims totaling $48,896. All of the claims are identified as either claims of the husband or of the wife. None is identified as a joint claim.
The Prathers, who also scheduled their home, state that it is owned by them as tenants by the entireties, has a current market value of $340,000 and is subject to two liens totaling $221,833, a first trust with a balance of $167,834 and a second trust with a balance of $53,999. They claim the house exempt pursuant to § 34-4 of the Code of Virginia in the amount of $1.00.4 They scheduled 16 unsecured creditors, 11 of which are identified as the husband's creditors and five as joint creditors. The claims of the husband's unsecured creditors total $74,198. The claims of the joint creditors total $44,857.5 The Prathers' chapter 11 plan proposes separate classes for the joint creditors (Class 5) and the husband's individual creditors (Class 6). The joint creditors are to be paid from the proceeds of the sale of the house. To the extent that the Class 5 joint claims are not paid in full from the sale of the house, the balance of their claims will be paid as part of the Class 6 individual unsecured claims. The Class 6 claims are to be paid, to the extent of funds available, from the proceeds of an accounting suit now pending in state court. It is expected that the Class 5 claims will be paid in full and that there will be a $20,000 surplus from the sale of the house. The plan provides that the surplus will be retained by the debtors. It is expected that the Class 6 claims will be compromised.
A debtor's interest in tenants by the entireties property is property of the bankruptcy estate. In re Ford, 3 B.R. 559, 570 (Bankr.D.Md., 1980), aff'd sub nom. Greenblatt v. Ford, 638 F.2d 14, 15 (4th Cir., 1981). See also Sumy v. Schlossberg, 777 F.2d 921, 924 (4th Cir., 1985); Liberty State Bank and Trust v. Grosslight (In re Grosslight), 757 F.2d 773, 775 (6th Cir., 1985); Napotnik v. Equibank and Parkvale Sav. Ass'n, 679 F.2d 316, 318 (3rd Cir., 1982).7 While Ford was an individual case, the principle is equally applicable in joint cases.
A joint petition does nothing more than simultaneously commence two individual cases. The Bankruptcy Code permits spouses to commence a joint case by filing a single petition, but does not require it. 11 U.S.C. § 302(a).8 Either spouse may file separately without the other ever filing. They may file sequential petitions. They may even file two separate petitions at the same time. In each instance, including the filing of a joint petition, two separate bankruptcy estates — the husband's and the wife's — are created. A joint petition more readily permits the two estates to be administered by one trustee, but, unless substantively consolidated, does not affect the legal rights or obligations of the debtors, the creditors or the trustee. Reider v. FDIC (In re Reider), 31 F.3d 1102, 1109 (11th Cir., 1994); In re Olien, 256 B.R. 280, 283 (Bankr.E.D.Tenn., 2000); In re McKenzie Energy Corp., 228 B.R. 854, 874 (Bankr.S.D.Tex., 1998); In re McCulley, 150 B.R. 358, 360 (Bankr. M.D.Pa., 1993); Matter of Stuart, 31 B.R. 18, 19 (Bankr.D.Conn., 1983); 2 Collier on Bankruptcy ¶ 302.011, at 302-3 (15th ed. rev., 2000). A joint petition is a mere procedural convenience for the debtors, creditors and trustee. Consequently, each debtor's interest in tenants by the entireties property becomes property of that debtor's bankruptcy estate. 11 U.S.C. § 541. The debtors are divested of all interest in the property. While each bankruptcy estate holds only its debtor's interest, the two bankruptcy estates between them possess the entire fee simple interest, holding it, as between the two bankruptcy estates, as tenants by the entireties. See Fairfield v. United States (In re Ballard), 65 F.3d 367, 372 (4th Cir., 1995) (); Ford, 3 B.R. at 571 () This is neither more nor less than the position that the spouses were in prior to filing their joint petition. Pre-petition, each spouse had an interest in the property and between them possessed the entire fee simple interest.
A debtor may, to the extent permitted by applicable law, exempt property from the bankruptcy estate. 11 U.S.C. § 522(b). The Thomas' and Bunkers assert that each spouse is entitled to claim his or her interest in their homes exempt from his or her own estate under 11 U.S.C. § 522(b)(2)(B) because the property is held by each debtor as a tenant by the entirety. They posit that since each spouse is entitled to assert his or her exemptions independently of the other spouse, each must be able to exempt his or her interest from the bankruptcy estate. 11 U.S.C. § 522(m). The result, because both spouses exempted the entireties property from each estate, is that the entireties property is wholly exempt.9 The debtors are relieved from the burden of their debts but retain the benefit of their entireties property.10
There is significant authority that in an individual case where a debtor's spouse does not file a petition, just such a result would obtain. Maryland Hotel Supply Co. v. Seats (In re Seats), 537 F.2d 1176, 1178 n. 1 (4th Cir., 1976); Reid v. Richardson, 304 F.2d 351, 353 (4th Cir., 1962); Phillips v. Krakower, 46 F.2d 764, 765 (4th Cir., 1931); Ford, 3 B.R. at 576. This derives from 11 U.S.C. § 522(b)(2)(B), which permits the tenants by the entireties exemption. The exemption allowed under § 522(b)(2)(B), however, is limited. It is available only to the "extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law." 11 U.S.C. § 522(b)(2)(B). In Virginia, one tenant by the entirety cannot convey, encumber, or otherwise dispose of any part of the entireties property without the joinder of the spouse. Hausman v. Hausman, 233 Va. 1, 3, 353 S.E.2d 710, 711 (1987); Drake v. Livesay, 231 Va. 117, 121, 341 S.E.2d 186, 188 (1986); Vasilion v. Vasilion, 192 Va. 735, 740, 66 S.E.2d 599, 602 (1951). A judgment creditor of only one tenant by the entirety cannot obtain a lien on property owned as tenants by the entireties.11 Consequently, since the entireties property is immune from the claim of a non-joint creditor, it is exempt from the bankruptcy estate only as to non-joint creditors in an individual case. It is not exempt as to joint creditors. Williams v. Peyton (In re Williams), 104 F.3d 688, 690 (4th Cir., 1997); Sumy, 777 F.2d at 924-25.
The three cases before the court are joint cases, not individual cases. Just as a husband and wife have the ability to jointly transfer, encumber and sell entireties property, the trustee,12 as successor to each debtor's individual interest, may also exercise the rights that the debtors could have exercised, including rights that the debtors could only exercise jointly. Therein lies the difference between a joint filing and one individual filing. If only one spouse files bankruptcy, the...
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