Each Spouse Wants To Protect Entireties Asset In Their Joint Chapter 7 Bankruptcy

Where one spouse files Chapter 7 bankruptcy and same debtor and the non-filing spouse has no joint unsecured debts any property owned jointly by the two spouses as tenants by entireties property is exempt and is not part of the bankruptcy estate. There is no entireties protection to the extent of any joint creditors.

Today I met a married couple who were considering bankruptcy. They were unsure if one spouse should file or if the should file jointly. Each spouse had separate debts; no joint unsecured debts. The spouses jointly owned some real estate free and clear. Even in today’s market the properties had significant value. They knew the general entireties rule from reading my website, and they knew if either spouse filed bankruptcy separately the jointly owned real estate would be exempt. They asked me if the result if different if they both file a joint bankruptcy. They assumed that bankruptcy law would not permit spouses to jointly file bankruptcy and protect jointly owned property with equity. Isn’t the joint bankruptcy filing, they asked, the same as having joint unsecured debts?

I think the entireties property would remain exempt even if both spouses jointly file bankruptcy where they have no joint debts. The entireties would be exempt in this case if the spouses filed separate bankruptcies either concurrently or sequentially. Joint filing for administrative convenience should not change the entireties exemption. Also, outside of bankruptcy court none of the creditors of either spouse could reach the entireties property. I am not aware of any bankruptcy case that dealt with the question posed by these clients.

Comments

[Bob Copeland]

This issue has already been decided in the Fourth Circuit in favor of the debtors, since they did not have joint debt

[Steve]

I agree, as does every other bankruptcy attorney in this office. Although I am not sure if it has been ruled on yet either.