In re Yotis

• Decision Date: 26 September 2014
• Docket Number: No. 14–bk–2689.,14–bk–2689.
• Citation: 518 B.R. 481
• Parties: In re William W. YOTIS III, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

518 B.R. 481

In re William W. YOTIS III, Debtor.

No. 14–bk–2689.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Signed Sept. 26, 2014.

Entered Sept. 30, 2014.

Charles W. Dobra, Charles WM. Dobra, Ltd., Roselle, IL, for Debtors.

AMENDED MEMORANDUM OPINION ON AVOIDANCE OF LIEN OF ANTHONY GASUNAS

JACK B. SCHMETTERER, Bankruptcy Judge.

William W. Yotis, (“Debtor”) filed a petition seeking bankruptcy relief under Chapter 13 on January 29, 2014. On March 26, 2014 Debtor filed separate motions under 11 U.S.C. § 522(f)(1) to avoid six judicial liens which had allegedly attached to his home at 4635 Central Ave in Western Springs, Illinois (the “Property”), as assertedly impairing his exemption in his homestead under § 522(f)(1)(A) of the Bankruptcy Code. (Dkts. 63–68.) This opinion relates to the judicial lien asserted in favor of Anthony Gasunas (“Gasunas”) by reason of a judgment in his favor. The other liens were avoided by orders entered on June 19, 2014. (Dkts. 163, 164, 165, 167, 170.)

As discussed in detail below, the Debtor and his wife Karen (not a debtor in this bankruptcy) together hold title to their home in Western Springs, Illinois as tenants by the entirety. That is, they hold the fee simple interest in that property as tenants by the entirety. To the extent that a judicial lien extends to their fee interest, that fee interest is fully exempt under Illinois law and the lien may be avoided. However, the tenancy by the entirety gives the Debtor individually certain other rights beyond their fee interest under Illinois law to which a judicial lien may attach in the future. Those possible future interests (consisting of (a) an interest as tenant in common in the event of divorce, (b) an interest as a joint tenant in the event that another homestead is established, and (c) a survivorship interest in the entire property in the event of the other tenant's death) would not be exempt to any extent. As to those possible future interests, Gasunas's lien cannot be avoided.

FACTS ALLEGED

Anthony Gasunas alleges that he lent nearly $50,000 to William Yotis, as evidenced by a promissory note dated June 24, 2010. As alleged, the note called for repayment of $8,940 plus interest and fees incurred by Gasunas when Gasunas drew on a line of credit he had with Harris Bank on July 12, 2010, and a further $40,905 on August 30, 2010. Further, as alleged, the note pledged as security “an assignment of wages and commissions,” and also original art, and a comic book collection. As alleged, the loan was never repaid, nor was any of the collateral turned over.

Gasunas sued on the debt in state court, and obtained a judgment for $52,345 on April 25, 2012. The judgment was recorded with the Cook County Recorder of Deeds on February 5, 2013. With statutory post-judgment interest, the judgment has accrued to a balance of $60,531 as of the date Debtor's bankruptcy petition was filed.

No evidence as to the value of the Property was introduced or offered by either party. Debtor contends in Schedule A that the Property is worth $394,165 according to Zillow.com, a website that purports to track the value of real property.

Further findings of fact appear in the discussion below.

DISCUSSION

Jurisdiction

Jurisdiction lies over this motion to dismiss the adversary proceeding is provided by 28 U.S.C. § 1334. The matter is referred here by Internal Procedure 15(a) of the District Court for the Northern District of Illinois. This motion arises under § 522(f) of the Bankruptcy Code, and is therefore core under 28 U.S.C. § 157(b)(2)(K). It seeks to determine the extent of a lien and therefore “stems from the bankruptcy itself,” and may constitutionally be decided by a bankruptcy judge. Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 2618, 180 L.Ed.2d 475 (2011).

§ 522(f)(1)Lien Avoidance

Debtor's motion to avoid lien depends entirely on whether he is entitled to an exemption for a residence in which title is held by him and his wife as tenants by the entirety. Under 11 U.S.C. § 522(f)(1), “the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is (A) a judicial lien.” § 522(f)(1) [with exceptions not relevant here]. Section 522(b) provides an exemption for “any interest in property in which the debtor had, immediately before the commencement of the case, an interest as tenant by the entirety or joint tenant to the extent that such interest as tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law.” § 522(b)(2)(B). That latter provision depends by its terms on whether a debtor's interest in property held by a tenancy in the entirety is exempt from lawful process under Illinois law.

1. Illinois tenancy by the entirety

Illinois law recognizes tenancy by the entirety for real property held by a married couple and used as their homestead. 765 ILCS 1005/1c. Illinois law also provides:

Any real property, any beneficial interest in a land trust, or any interest in real property ... held in tenancy by the entirety shall not be liable to be sold upon judgment ... against only one of the tenants, except if the property was transferred into tenancy by the entirety with the sole intent to avoid the payment of debts existing at the time of the transfer beyond the transferor's ability to pay those debts as they become due. However, any income from such property shall be subject to garnishment as provided in Part 7 of this Article XII, whether judgment has been entered against one or both of the tenants.

735 ILCS 5/12–112.

While the language of that statute is unambiguous as to property held in tenancy by the entirety, it does not address the possibility of a future change in interest of each individual spouse. “[S]tate law governs the validity of most property rights, and except when the bankruptcy code specifies otherwise, bankruptcy courts must apply the relevant state law.”In re Jafari, 569 F.3d 644, 648 (7th Cir.2009) (citing Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) ). Where the state's highest court has not ruled, a federal court must estimate how the state supreme court would rule. Liberty Mut. Fire Ins. Co. v. Statewide Ins. Co., 352 F.3d 1098 (7th Cir.2003). “[T]he rulings of the state intermediate appellate courts must be accorded great weight, unless there are persuasive indications that the state's highest court would decide the case differently.” State Farm Mut. Auto. Ins. Co. v. Pate, 275 F.3d 666, 669 (7th Cir.2001).

On the one occasion the Illinois Supreme Court has discussed the meaning of tenancy by the entirety since its adoption by statute in Illinois, it held that “the tenancy by the entirety provision expressly includes its own standard to be used when a creditor challenges a transfer to that estate.” Premier Property Mgm't, Inc. v. Chavez, 191 Ill.2d 101, 109, 245 Ill.Dec. 394, 728 N.E.2d 476 (2000). Chavez overruled two conflicting cases in the state courts of appeal, In re Marriage of Del Giudice, 287 Ill.App.3d 215, 222 Ill.Dec. 640, 678 N.E.2d 47 (1st Dist.1997) (holding that the Illinois Uniform Fraudulent Transfer Act standard applied), and E.J. McKernan Co. v. Gregory, 268 Ill.App.3d 383, 205 Ill.Dec. 763, 643 N.E.2d 1370 (2d Dist.1994) (holding that a conveyance by spouses into a tenancy by the entirety could not be avoided as fraudulent under any circumstances). Instead, in Chavez the Illinois Supreme Court applied statutory language as amended, noting that the legislature “added language explaining that this amendment ‘is intended as a clarification of existing law and not as a new enactment.’ ” Premier Prop. Mgmt., Inc. v. Chavez, 191 Ill.2d 101, 108, 245 Ill.Dec. 394, 728 N.E.2d 476 (2000) (citing 735 ILCS 5/12; 1997 Ill. Laws 5779). Even though the Illinois courts have spoken on when transfers into a tenancy by the entirety may be avoided as a fraudulent transfer, they have not spoken about the exact contours of the tenancy by the entirety. Bankruptcy courts applying Illinois law have come to divergent results, as have various appellate courts in other states in applying their own, possibly analogous, tenancy by the entirety laws.

Bankruptcy judges in this district have had different approaches as to what effect Illinois state law on tenancies in the entireties has on the availability of exemptions in bankruptcy: In re Allard, 196 B.R. 402 (Bankr.N.D.Ill.1996) (Squires, J.); Contra In re Chinosorn, 243 B.R. 688 (Bankr.N.D.Ill.2000) (Wedoff, J., rev'd on other grounds, 248 B.R. 324 (N.D.Ill.2000), reversal disapproved of in In re Schoonover, 331 F.3d 575 (7th Cir.2003).).

In In re Allard, the opinion avoided a judicial lien on the ground that it impaired the debtor's exemption for entireties property. 196 B.R. at 407–8. It reasoned that “because under the Illinois statute the Debtor's Property cannot be sold upon the [creditor's] judgment, it is exempt [property]” under the Bankruptcy Code. Id. at 410. This follows because under Illinois state law, “where the right of sale cannot be asserted, the existence of the lien must be denied.” Id. citing Rochford v. Laser, 91 Ill.App.3d 769, 774, 46 Ill.Dec. 943, 414 N.E.2d 1096 (1st Dist.1980). That opinion also rejected the creditor's argument that the entireties statute is not found within the Illinois exemptions statute (735 ILCS 5/12–901 et seq. ), looking instead to the practical effect of the entireties statute for deciding whether it creates an exemption.Id. The undersigned has agreed with the reasoning in Allard. See In re Mukhi, 246 B.R. 859, 862 (Bankr.N.D.Ill.2000) and In re Moreno, 352 B.R. 455 (Bankr.N.D.Ill.2006).

In In re Chinosorn, as in Allard, the debtor sought avoidance of a judicial lien because it impaired his exemption for entireties property. Judge Wedoff reasoned that a judgment against the debtor could have resulted...