In the recent Maryland bankruptcy case of In re Buckley, 2016 WL 7480233 (Bankr. D. Md 12.29.16), the court denied the trustee’s objection to the debtor’s tenants by the entireties exemption which the trustee had filed after the death of the debtor’s husband. In the Buckley case, the debtor and her non-filing husband owned their house free and clear of liens. The debtor filed a Chapter 7 case in June 2016 and had exempted the full equity in the house using the tenants by the entireties exemption. Shortly after she filed, in July of 2016, her husband passed away. The trustee filed an objection to the exemption arguing that the husband’s death extinguished the tenants by the entireties exemption. The court disagreed with the trustee and held that the rights of individual creditors against property held by the debtor by the entireties are fixed as of the petition date and the Bankruptcy Code does not provide for those rights to expand or contract upon the post-petition death of the non-filing spouse. Accordingly, the debtor was entitled to the entireties exemption.
This result does not apply to a situation where the parties divorce post-petition. If a debtor owns property with his or her spouse and claims tenants by the entireties exemption to protect his or her equity in the house, but then gets a limited or final divorce within 6 months of the filing of the case, the tenants by the entireties exemption no longer applies, see Bankruptcy Code Section 541(a)(5)(B). Should this happen, the court would sustain an objection by the trustee to the use of the entireties exemption.
If you are considering filing for bankruptcy, 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 .