Bankruptcy: Debtor's Exemption Request for Personal Property Disallowed in Chapter 7 Case

     The United States Bankruptcy Court at Alexandria, in the case of In re Potter, disallowed a Chapter 7 debtor’s exemption request under Bankruptcy Code §522(b)(2)(B) for stock. The debtor claimed that the stock was exempt because it was held as tenants by the entireties with his wife. The Court, however, ruled that the stock was not held as tenants by the entireties, but merely as joint tenants. Accordingly, the debtor was not entitled to the exemption. 

     The Court found that the debtor was estranged from his wife, and that the shares of stock listed the parties’ two names as joint tenants with right of survivorship, but without any indication of a marital relationship. In determining whether the stock was held as tenancy by the entireties or joint tenants the Court was required to review Virginia law. In doing so, the Court stated that under Virginia law, property held as tenants by the entirety could be reached by joint creditors of both spouses, but such property could not be reached for the debts of either spouse alone. The Court noted that while there was at one time a question as to whether personal property could be held as tenants by the entirety, Virginia Code §55-20.1, enacted in 1999, expressly provides that personal property can be held as tenants by the entirety. In order to create a tenancy by the entireties, it is necessary that the interest so created satisfy the five common-law “unities” of interest, time, title, possess and marriage. Further, under Virginia Code §55-21, a tenancy by the entireties cannot result unless the parties involved have manifested an intent that the part of the one dying should belong to the other. In Virginia, it is not necessary that the deed or other evidence of title actually use the magic words “tenants by the entirety” in order to create such an estate, so long as the owners are described as husband and wife jointly taking with the right of survivorship. On the other hand, the use of the words “tenants by the entireties” (or some reasonable abbreviation thereof) is sufficient to create a tenancy by the entirety even without words expressly describing the joint owners as husband and wife.

     In summary, the Court ruled that in order to create a tenancy by the entireties, the document by which the debtor and the debtor’s spouse acquire or hold joint title must either 1) designate them as tenants by the entireties, or 2) designate them as husband and wife, joint tenants with the right of survivorship.

     In Potter the Court ruled that since the stock shares were titled simply in two names as joint tenants with right of survivorship, but without any indication of marital relationship, the stock was not held as tenants by the entireties but merely as joint tenants. Accordingly, the debtor’s interest in the stock could not be claimed as exempt under Bankruptcy Code §522(b)(2)(B).

     The lesson of Potter is that creditors should not assume that an exemption is proper simply because it is claimed. Check the record of title.

Bankruptcy: Bankruptcy Exemption - Sale of Tenants by the Entirety Property

     In the case of In Re Zella, the United States Bankruptcy Court at Alexandria, Virginia ruled that a deed that conveyed the Virginia marital home to the debtor and his wife "as joint tenants with the full common law right of survivorship" created a tenancy by the entirety and proceeds from the sale of the property is exempt from claims on non-joint creditors in Bankruptcy Court.

     In Zella a creditor challenged a claim of exemption. The Bankruptcy Court determined that the key issue of the case was whether, in Virginia, a deed to parties described in the deed as husband and wife, and who are in fact husband and wife, as "joint tenants with the full common law right of survivorship," creates a tenancy by the entirety in accordance with Virginia Code §55-20, and thus makes the property exempt from the claims of non-joint creditors under Bankruptcy Code §522(b)(2)(B). The Bankruptcy Court concluded that the deed in question did create a tenancy by the entireties, notwithstanding the lack of language using those specific words, as the deed specifically contained the language "with the full common law right of survivorship". The Bankruptcy Court cited two Virginia Supreme Court cases which support such a finding: Allen v. Parkey and Burroughs v. Gorman. The Bankruptcy Court ruled that the language in the deed explicitly evidenced the intent to preserve the common-law right of survivorship.