Bankruptcy: Exemption - Ownership of Realty by Tenants by the Entirety

     In In Re Scialdore, the United States Bankruptcy Court, Eastern District of Virginia, Judge Tice sustained a creditor's objection to a debtor's claimed exemption of real estate as "tenants by the entirety" under Bankruptcy Code §522 (b)(2)(B). The creditors objected on the ground that the debtor and his wife did not own the property as tenants by the entirety. 

     Under Virginia law, creditors of one spouse may not attach property held by the entirety; only joint creditors of both spouses may reach entireties property. If property owned by an individual debtor and nondebtor spouse is not held by the entirety then the debtor's interest is an asset of the bankruptcy estate. 

     In Virginia, estates by the entirety are abolished except where the deed or will manifests an intent of survivorship. When real property is conveyed to a husband and wife, the deed must specify that a tenancy by the entirety is intended, or this intent must otherwise appear in the deed. 

     In Scialdore, the objecting creditor claimed that the deed did not create a tenancy by the entirety because the grantors did not acknowledge the tenancy by the entirety language inserted by the debtor, nor was the deed re-executed by the grantors after the insertion. Consequently, the debtor's interest was not exempt under Virginia law and not entitled to exemption under Bankruptcy Code §522(b)(2)(B). The debtor argued that the deed, although altered, specifically conveyed a tenancy by the entirety and is thus exempt under Virginia Law. 

     In Allen v. Parkey, the Virginia Supreme Court held that an unsigned memorandum, attached to a deed that was complete and duly signed, had no effect. The facts in Parkey are substantially similar to Scialdore. 

     In Scialdore, the debtor altered the delivered deed, seeking to establish a tenancy by the entirety which was not specified originally. Accordingly, the language added by the debtor, "as tenants by the entirety with right of survivorship as at common law," had no effect on the type of estate conveyed to the grantees. The Court ruled, "Once the tenancy by the entirety language is removed, the deed does not manifest intent to create a survivorship estate. To the contrary, the deed unequivocally states that the conveyance was made to the debtor as his sole and separate estate free of any interest of his wife." 

     The creditor's objection to the exemption was therefore sustained.