Genova Burns Bankruptcy Law Specialist Scott Rever Argues Winning Position on Major Precedential Decision

Genova Burns is pleased to confirm a recent win for our client. In this matter, a Debtor argued in his bankruptcy case that he could keep his interest in his home he owned with his wife that had 1 million dollars of equity and thumb his nose at his creditors. The court adopted our firm’s argument that the debtor’s interest in the property was not exempt, the Debtor could not retain his interest in the home, and the home was subject to being sold so the equity could be used to pay his creditors.

Scott S. Rever, Esq. represented Donald Biase, Chapter 7 Trustee, who was charged with the responsibility of liquidating the Debtor’s assets for distribution to creditors. The debtor, an attorney, owned his residence with his non-debtor spouse as tenants by the entirety. The Debtor alleged the Property was worth 1,130,000 and had two mortgages totaling approximately 130,000.

Accordingly, there was significant equity in the Debtor’s interest in the Property over and above the mortgages for distribution to creditors. Presumably the Debtor’s interest was worth half the equity or 500,000. The Debtor asserted that his interest in the Property was exempt and could not be sold by the trustee pursuant to 11 U.S.C. 363(b)(3)(B). That provision provides that a debtor may exempt property owned immediately prior to the filing of the bankruptcy case, so long as the property is held as tenants by the entirety and the debtor’s entireties interest is exempt from process under state law.

If the Debtor was successful the Debtor would retain his interest in his residence and creditors would get nothing on account of their claims. Genova Burns, on behalf of the Trustee, objected to the Debtor’s exemption in his interest in the Property on the basis that the Debtor’s interest in the Property was not exempt from process under New Jersey Law.

The Court analyzed N.J.S.A 46:3-17.4 which provides neither spouse may sever, alienate, or otherwise affect their interest in a tenancy by the entirety during the marriage without the written consent of both spouses. The court concluded that the statute and New Jersey law does not preclude a creditor from levying on a debtor’s interest in entireties property, as the interest contains a right of survivorship that is separate from the joint interest of the husband and wife.

Accordingly, since the Debtor’s interest was subject to process under New Jersey law, the Debtor’s interest is not exempt, and can be administered by the Trustee for distribution to creditors. Accordingly, the Trustee could seek to sell both the bankruptcy estate’s and the non-debtor spouse’s interest in the Property under 11 U.S.C. 363(h), which permits the sale of certain co-owned interests, including property held by tenancy by the entirety, under certain conditions.

To access the full published opinion, please click the below attachment.