Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Daniel Gill
A woman lost her homestead exemption when her husband died after her bankruptcy filing, but she was allowed to keep the home as property acquired after the bankruptcy, a Maryland federal judge ruled Aug. 29 ( Bellinger v. Buckley , 2017 BL 303887, D. Md., No. JKB-17-0068, 8/29/17 ).
The opinion by Judge James K. Bredar, U.S. District Judge for the District of Maryland, found that the bankruptcy court erred when it concluded that the woman’s homestead exemption survived the death of her spouse. But the district court agreed with the bankruptcy court that the property wouldn’t become property of the bankruptcy estate to be administered by the Chapter 7 trustee.
Joyce Buckley filed for Chapter 7 on June 10, 2016. In Chapter 7, a debtor’s nonexempt assets, those that don’t become part of the bankruptcy estate, are liquidated by a trustee, and the proceeds are distributed to creditors.
In her bankruptcy filing papers, Buckley claimed that her home was exempt because she owned it with her husband as tenants by the entirety. In a tenancy by the entirety, the survivor of a married couple owning a property gets sole ownership. Maryland state law provides that homes held as tenants by the entirety are exempt from claims against only one spouse.
However, less than one month after she filed for bankruptcy, Buckley’s husband died. The Chapter 7 trustee then objected to the homestead exemption, since the husband’s death ended the tenancy by the entirety.
Bredar agreed that the law in the Fourth Circuit was clear that the death of a non-debtor spouse terminates the tenancy by the entirety, and with it the homestead exemption.
But the court found the trustee nevertheless was not entitled to administer the house as property of the bankruptcy estate. Instead it was Buckley’s sole property.
When no one timely objected to Buckley’s original claim of exemption, her entire interest in the property, including the right of survivorship, revested in her individually.
“Thus, under state law, Appellee [Buckley]—not her bankruptcy estate—was entitled to sole ownership of the Property upon the severance of the tenancy by the entireties,” the court said.
The new ownership rights—which arose after the husband died—didn’t exist at the time of the bankruptcy filing, the court said, so it couldn’t be part of the bankruptcy estate under 11 U.S.C. §541(a)(1).
The trustee, Joseph J. Bellinger, was represented by Gregory P. Johnson, Silver Spring, Md. Buckley was represented by Robert M. Stahl IV, Lutherville, Md.
To contact the reporter on this story: Daniel Gill in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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