Bloomberg Law’s® Bankruptcy Law News publishes case summaries of the most recent important bankruptcy law decisions, tracks major commercial bankruptcies, and reports on developments in bankruptcy...
By Diane Davis
Jan. 19 — A Chapter 13 debtor is entitled to an exemption for her beneficial interest in a home owned by her non-debtor husband's living trust, a district court in Illinois held Jan. 13.
Judge Elaine E. Bucklo of the U.S. District Court for the Northern District of Illinois affirmed the judgment of the bankruptcy court, concluding that the creditor's objection to the debtor's claimed exemption was overruled.
Creditor/appellant Leonard Loventhal failed to carry his burden of showing that debtor Zisl Taub Edelson and her husband Claude Edelson severed their tenants by the entirety exemption with respect to their residence when they conveyed it to Claude's living trust, the court said.
“Tenants by the entireties” is a unique concurrent ownership that exists between married persons who have the right of survivorship, the court said. Unilateral transfer of ownership of a spouse's interest in entireties property typically isn't possible without severance of the joint tenancy, according to the court, and severance usually requires the consent of both spouses or the ending of the marriage in divorce.
Bankruptcy Code Section 522(b)(3)(B) allows a debtor to exempt from her estate “any interest in property in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety … to the extent that such interest … is exempt from process under applicable nonbankruptcy law.”
In 2001, Zisl and her husband purchased a home in Illinois and owned it as tenants by the entireties. In 2004, they conveyed the residence to Claude's living trust, and the warranty deed stated that “the beneficial interest of said trust [is] held by Claude J. Edelson and Zisl Taub Edelson, husband and wife, as tenan[ts] by the entirety.”
Subsequently, Zisl filed for Chapter 13 protection, which allows individuals receiving regular income to obtain debt relief while retaining their property. She listed Loventhal as an unsecured creditor to whom she owed a judgment debt of $66,000.
Zisl also claimed the tenants by the entirety exemption of the residence.
Loventhal objected, arguing that the debtor severed her exemption when they conveyed the residence to Claude's living trust because the trust agreement gave Claude unilateral powers over the property that aren't consistent with a tenants by the entireties arrangement.
The bankruptcy court overruled Loventhal's objection. According to the court, Loventhal hadn't shown that “the transfer into trust was inconsistent with a tenancy by the entirety under Illinois law.”
Loventhal appealed to the district court, arguing that the debtor can't shield the residence from her creditors under the tenancy by entireties exemption. According to Loventhal, although Zisl retains survivorship rights, Claude's trust declarations rather than the tenants by the entireties exemption law controls the residence's disposition.
The district court rejected Loventhal's argument as exalting “form over substance.” The survivorship clause in Claude's trust declaration is a statement of the law rather than an attempt to displace it, the court said.
The court also interpreted the trust's declaration to mean that under Claude's general powers, he can't take unilateral actions with respect to the residence.
As a result, the court found that Loventhal didn't carry his burden of showing that the Edelsons severed their tenants by the entireties exemption with respect to the residence when they conveyed it to Claude's living trust.
Andrew Robert Schwartz, Thomas James Kanyock, and Karen Irene Jeffreys, Schwartz & Kanyock, LLC, Chicago, represented appellant/creditor Leonard Loventhal; Scott J. Kofkin, Kofkin Law, Roselle, Ill., represented appellee/debtor Zisl Taub Edelson.
To contact the reporter on this story: Diane Davis in Washington at email@example.com
To contact the editor responsible for this story: Jay Horowitz at firstname.lastname@example.org
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)