Asian Journal- The Filipino-American Community Newspaper

TENANCY by entireties (TE) is joint ownership of title by husband and wife, in which both have the right to the entire property, and, upon the death of one, the other has title (right of survivorship). TE allows spouses to own property together as a single legal entity. Under a TE, creditors of an individual spouse may not attach and sell the interest of a debtor spouse. Only creditors of the couple may attach and sell the interest in the property owned by TE. There are 3 types of concurrent ownership. This means ownership by two or more persons. There is TE, Joint Tenancy and Tenancy in common. TE can only be created by married persons. The most significant difference between a TE and a joint tenancy or tenancy in common is that a TE may not sell or give away his interest in the property without the consent of the other tenant. Upon the death of one of the spouse, the deceased spouse’s interest in the property transfers to the surviving spouse, not to the other heirs of the deceased spouse.

The facts of In Re Etoll involving TE are as follows. Debtor filed her chapter 7 case with her residence as her main asset. She owned her residence with her non-filing husband as TE. Debtor died a few months after she filed for bankruptcy. A month after she died, chapter 7 trustee filed and adversarial case asking for court authority to sell the house where surviving spouse and his son lived. Chapter 7 trustees have no heart, I hear you say. Yes, that is correct. But getting debtor assets is what they do for a living. You cannot blame a snake for biting you because that is what snakes do.

Widower answered the adversary complaint by arguing that he became the sole owner of the house when his wife died. Widower argued that the TE was not severed upon filing of his wife’s bankruptcy and that the trustee’s right to sell the property pursuant to Section 363 ended when the debtor died. The court agreed: "The Third Circuit has expressly stated that ‘bankruptcy does not sever a tenancy by the entireties, but leaves its general characteristics in place…The trustee’s authority does not generally supersede that power.’ In Re Brannon, applying Pennsylvania law involving issue of exemptions). The court added: "The trustee merely obtains and retains custody of the debtor’s undivided interest consisting of the same unities, intact and unaltered, as they existed immediately prior to the filing of the petition, until such time as that interest, still intact and unaltered, is exempted from the estate,". Looking to state law, the court found that state law "allows the creditors of either spouse to reach his interest in entireties property, subject, however, to the other spouse’s right of survivorship. It is well established that if the non-debtor spouse were to die, a tenancy by the entirety operates to immediately vest the whole of the property in the surviving spouse, eliminating any interest in the deceased spouse or anyone claiming through her. It would be illogical not to apply this same principle upon the death of the debtor spouse. Bankruptcy does not terminate a tenancy by entireties; therefore, in this situation, the tenancy by the entirety operated to immediately divest the debtor, and thus the trustee, of her interest in the property upon her death."

Thus, the bankruptcy court denied the trustee’s request to sell the debtor’s residence because upon her death, the TE automatically transferred her share of ownership to her surviving spouse who did not file a bankruptcy. Since widower now owns the entire residence and he did not file bankruptcy, the residence is beyond the reach of the chapter 7 trustee.

The situation is different in case the residence is held in Joint Tenancy (JT). In JT, when one joint tenant files for bankruptcy, the share of the other tenant is not affected by the bankruptcy, UNLESS, the joint tenants are married to each other!

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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803.