Bankr. E.D.N.C.: Alexander- Avoidance of Judgment Lien against Debtor and Non-Debtor Spouse in Tenants by the Entireties Property

Summary:

Medical Creditor obtained a judgment against the Debtor and Non-Filing Spouse, with such lien attaching to the property that the Debtor and the Non-filing Spouse own as Tenants by the Entireties. After filing Chapter 7, the Debtor sought to avoid, pursuant to 11 U.S.C. § 522(f), the judgment lien.

The Bankruptcy Court first restated that property owned as Tenants by the Entireties “is a form of ownership where the husband and wife are each ‘deemed to be seized of the entire estate, with neither spouse having a separate or undivided interest therein.’” Accordingly, pursuant to 11 U.S.C. § 541(a), the Debtor’s interest in the property, i.e. 100% of the property, is an asset of the bankruptcy estate and the judgment lien impairs her exemption. As such “[s]o long as the Debtor owns a tenancy by entirety, tenancy in common, or fee simple interest in this property, the judgment lien cannot be enforced against the Debtor’s interest and is avoided.” This avoidance does not avoid any interest as to the non-filing spouse in the same real property.

Commentary:

Even though the judicial lien is not avoided as to the non-filing spouse’s interest in the real property, as long as the Debtor and the non-filing spouse remain married, this judgment lien is unenforceable. Should the Debtor die before the non-filing spouse, the judgment lien would then (assuming it was not stale) be enforceable. If the Debtor and the non-filing spouse were to divorce and the entire property was distributed to the Debtor as part of a Property Settlement or Equitable Distribution Order, then similarly the judgment would not be enforceable. If the non-filing spouse retain some portion of the property following a divorce, then the judgment could be enforced against him.

The question that follows from this opinion is whether a junior mortgage can be stripped-off if only one spouse files Chapter 13. While strip-offs utilize different sections (either §§ 506 or 1322(b)(2)) that avoidance of judgment liens, the argument would not be dissimilar. Such avoidance or strip-off would not terminate the liability of non-filing spouse for the debt, just the lien as long as the Debtor “owns a tenancy by entirety, tenancy in common, or fee simple interest in this property….”

For a copy of the opinion, please see:

Alexander- Avoidance of Judgment Lien against Debtor and Non-Debtor Spouse in Tenants by the Entireties Property.pdf

About

1. Bachelor of Arts degree in English Literature from Washington University, 1993. 2. Juris Doctor degree from George Washington University, 1996. Admissions to Practice of Law: North Carolina Bar, 1996. Federal District Courts for the Eastern and Middle Districts of North Carolina. Specialty Certification: North Carolina State Bar: Certified as a Specialist in Consumer Bankruptcy. Areas of Practice: Practice limited to consumer and business debtor bankruptcy law, 1998 to present. Memberships: National Association of Consumer Bankruptcy Attorneys (NACBA). North Carolina Academy of Trial Lawyers (NCATL). North Carolina Bar Association, Bankruptcy Section. Lectures prepared and presented: North Carolina Academy of Trial Lawyers seminar on bankruptcy; Topic: Counseling the Consumer Debtor Prior to Court - C.Y.A. Forms to Help 'Gird They Loins'; 2001. Middle District Bankruptcy Seminar; Topic: Preparing Chapter 13 Plans; 2002. NACBA National Convention; Topic: Efficient Office Practices; 2003. NACBA National Convention; Topic: Chapter 7 vs. Chapter 13 Debates; 2004. Middle District Bankruptcy Seminar; Topic: Chapter 7 & 13 Hot Issues; 2004. Positions held: NACBA National Convention; Convention Chair; 2008. NACBA National Convention; Panel Moderator: Topic: Basic Bankruptcy Issues; 2008. NACBA National Convention; Panel Moderator; Topic: Chapter 13-Disposable Income and Other Issues; 2007. NACBA National Convention; Panel Moderator; Topic: Representing Members of the Military and Their Families; 2007. NACBA, Member of National Board of Directors, 2006 to present. NCATL, Chair of the Bankruptcy Section, 2003 to 2007. NACBA, Chair of the North Carolina Section, 2003 to 2007. NC Bar Association, Bankruptcy Section, Bankruptcy Council Member, 2004 to present.

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