LIEN FOILED AGAINST TENANTS BY THE ENTIRETIES PROPERTY DUE TO HUSBAND’S PRIOR FILING

LIEN FOILED AGAINST TENANTS BY THE ENTIRETIES PROPERTY DUE TO HUSBAND’S PRIOR FILING

| Oct 25, 2015 | Bankruptcy |

In Maryland and many other states, a husband and wife may own property together as tenants by the entirety (“T by E”). Owning a home as T by E can provide a safe harbor against creditors. A notable case in Maryland on this issue is Schlossberg v. Barney, 380 F.3d 174 (4th Cir. 2004), which provides that “while both spouses are alive, a tenancy by the entireties may only be severed by divorce or joint action by both spouses. Thus, under Maryland law, such property is exempt from process by creditors of an individual spouse.” This exemption has no dollar amount limit—it is infinite. The only sword that can pierce the T by E shield is a joint debt held by both the husband and wife.

Recently, there was a notable case in this area of the law. In the case of In re Carole M. Felton, 2015 WL 5177738 (Bankr. E.D. Pa. 2015), the court held that a formerly joint debt was transformed into a debt solely against the wife, as a result her husband’s prior individual Chapter 7 bankruptcy, and therefore, no lien attached to the property that was owned T by E.

In this case, the husband and wife entered into a note for a business loan. The borrowers defaulted on the loan, and then the husband filed individually for a Chapter 7 bankruptcy. The joint debt was scheduled and the creditor even obtained relief from stay, but failed to seek a sale of the home. The husband received a discharge in his Chapter 7 case. The creditor then confessed judgment against the wife, and the wife filed Chapter 7 bankruptcy. The wife claimed the property as exempt because it was owned T by E and the debt was no longer joint. The court agreed and found that the creditor had ample opportunity to act, but that it was now too late. Because the husband’s debt was discharged, the creditor was precluded from proceeding against the T by E property.

If you are considering filing for bankruptcy and have questions and concerns about how your property will be treated in your bankruptcy case, please contact us. The firm of Laura Margulies & Associates, LLC has successfully handled thousands of cases in Maryland and Washington, D.C., many involving unique or novel issues. Please contact us today for a consultation at (301) 816-1600. Our website address is: www.law-margulies.com