Florida common law is that entireties property is exempt from all creditors of either spouse, but it is not exempt from joint creditors. Tenants by entireties property in bankruptcy proceedings has been the subjection of judicial debate over the years when one spouse files bankruptcy, and where the debtor spouse has both individual debts and joint debts with their non-filing spouse.
Some courts have held that when the debtor has any joint unsecured debts or claims with the non-filing spouse the debtor forfeits all of his entireties protection and that all tenants by entireties property is part of the debtor’s non-exempt bankruptcy estate. Other courts have previously held that the debtor’s entireties property can be taken by the bankruptcy trustee to the extent necessary to pay all of the debtor’s joint unsecured marital debts but that the remaining entireties assets are exempt in the debtor’s bankruptcy. Still another court held where there are joint unsecured debts only the debtor’s on-half interest in entireties property is available for distribution to creditors and that the non-filing spouse’s one-half interest is returned to that spouse. Note that joint mortgages, car loans, or other secured debts do not affect the entireties exemption in bankruptcy.
The issue arose once more in a recent Chapter 7 bankruptcy case in the Southern District of Florida. The debtor sought to exempt a joint bank account and household furniture as tenants by entireties property. Some of the debtor’s scheduled debts were joint debts with the non-filing spouse.
In this case, the court held that the chapter 7 trustee could take and liquidate the debtor’s entireties property to the extent of the joint unsecured claims, with any remainder to be returned to the debtor and spouse. Only the joint unsecured creditors of the debtor and spouse were entitled to a distribution from the entireties property. The court reasoned that this result gives the unsecured creditors the same rights to the debtor’s assets that the creditors would have outside of bankruptcy. The case is In re James T. Helm. Case No. 11-18801,
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