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When the Tenancy by the Entirety Doctrine Meets the Bankruptcy Code

Business Law

T he tenancy by the entirety doctrine is one of the most disputed and confusing

issues facing bankruptcy courts. Practitioners, trustees, and clients often are clueless as to how a debtor’s entireties assets will emerge from a bankruptcy proceeding. Usually, the answer will be decided based on which bankruptcy judge happens to hear the debtor’s case.

Bankruptcy judges across the U.S. must deal with entireties property. Twenty-five states, including the District of Columbia, currently recognize the tenancy by the entirety as a form of ownership.1 This note, though, focuses on possible solutions to the problems created when Florida’s tenancy by the entirety doctrine meets the current Bankruptcy Code.

Today’s Bankruptcy Code

Under the current version of the Bankruptcy Code, §541(a)(1) states that a debtor’s estate includes “all legal and equitable interests of the debtor in property as of the commencement of the case.”2 Courts across America have almost unanimously interpreted this section to include property held as tenants by the entirety.3 Therefore, entireties property is property of the estate, unless exempted.4

Section 522 allows an individual to exempt property from the estate and provides specific federal exemptions listed in §522(d).5 In place of these exemptions, though, §522 allows a state to opt out of the federal exemptions provided in §522(d) in favor of the exemptions provided by state law.6 Florida has exercised this option in F.S. Ch. §222.20, thus allowing a Florida resident to claim exemptions pursuant to §522(b)(2)(A)–(B), Fla. Const. Art. X, §4, and F.S. Ch. 222.7

Section 522(b)(2)(B) allows a debtor to exempt tenancy by the entirety property if the state, such as Florida, has opted out of the federal exemptions.8 Therefore, if no objections are made to the debtor’s claim that the property is exempt based on a tenancy by the entirety, the property will “emerge from the bankruptcy in the hands of the debtor subject to creditor’s claims” under state law.9 Any creditor, though, may file an objection to the debtor’s claimed exemption.10 Once the objection is filed, Florida bankruptcy courts must filter though a mountain of conflicting case law and public policies to find a solution.

Solutions and Analysis

The right of tenancy by the entirety may be claimed in any personal asset, including promissory notes,11 checking accounts,12 and tax exempt bonds.13 This broad, limitless range of the doctrine provides the careful debtor with a possible way to defeat the bankruptcy process in regards to unsecured creditors. Consequently, a debtor could theoretically own all of his or her assets as tenancies by the entireties, receive a full discharge, and exit the bankruptcy process with an enormous amount of property.

As for real property, Florida’s legislature has addressed this issue through creation of the homestead exemption. Article X, §4(a)(1) of the Florida Constitution already provides for a homestead exemption, limited by certain size restrictions. The doctrine of tenancy by the entirety, though, demands that all real estate, not only homesteads, may become exempt without any restrictions on the size of the property. Therefore, the tenancy by the entirety doctrine provides a way for all real property, including homesteads, to become exempt without size restrictions. This seemingly violates the legislature’s intent behind the homestead exemption as expressed in the Florida Constitution.

Another problem stems from courts’ efforts to curb the first problem. In attempting to solve the problems previously mentioned, courts have created vast amounts of differing opinions on several tenancy by the entirety issues. This lack of clarity creates difficulty for practitioners who must be extremely cautious when counseling clients and when attempting to use the tenancy by the entirety exemption.14 This also is a problem for the acting trustee of a case involving claimed exemptions based on the doctrine of tenancy by the entirety.

Additionally, due to the split in authority within districts, the outcome of a bankruptcy case could depend upon which judge within a district happens hear the case. Thus, in the Southern District, if your case is heard by Judge Cristol, all creditors of the estate may share in the proceeds from the sale of entireties property if a small joint claim exists.15 However, these proceeds would be exempt for a similar individual living in the Southern District who might have his or her case heard by Judge Mark.16 This provides an apparent lack of justice for both the creditors and the debtor.

Amending the
Bankruptcy Code

The first solution to these problems is to amend the bankruptcy code. The most appropriate place to make this amendment would be to §522(b)(2)(B), which recognizes the tenancy by the entirety exemption if available under state law.17 This amendment could be drafted to allow the tenancy by the entirety exemption only in the case where the state does not already recognize a homestead exemption. Through this mechanism, Congress could alleviate confusion in states such as Florida by recognizing the inherent difficulties in allowing the tenancy by the entirety into bankruptcy law.18 limiting the destruction of the entireties doctrine in bankruptcy situations to only those states with a homestead exemption, Congress could feel secure that the state legislature has made provisions to protect a potential debtor’s real estate.

For years, other commentators also have urged Congress to act.19 This solution would create a more uniform treatment of the problem among the circuit courts and bankruptcy districts within.20 Congress, though, is not likely to help in the near future. In order for Florida to resolve its own problems, it must enact its own legislation.

Amending State Law

Another possible solution to these problems resides in amending state law. This first solution would be to eliminate tenancies by the entirety completely. This idea is not original and has been the subject of many scholarly writings.21 More specifically, the entireties doctrine has been deemed an “ancient and archaic form of property ownership.”22 Consequently, 13 other states have clearly rejected the entireties doctrine.23

Without tenancies by the entireties, bankrupt debtors would look to the homestead exemption to protect real estate. Thus, the conflicting principles between the homestead exemption and the tenancies by the entireties exemption would be eliminated. Furthermore, debtors could not, theoretically, protect all types of personal property by holding it as a tenancy by the entirety. The major problem with this solution, though, is its effect upon Florida law as a whole.

Tenancies by the entireties often play a role in other areas of the law. The most noticeable area of law that would be seriously affected by the destruction of the entireties doctrine is estate planning. As a valuable tool for estate planners, the entireties doctrine often plays a legitimate role in protecting assets from taxes.24 Also, the entireties doctrine is important in determining the rights of surviving spouses.25 Furthermore, real estate and family law have developed years of case law relating to tenancies by the entireties that would be seriously impacted by the destruction of the doctrine.26 completely eliminating the entireties doctrine, there would invariably be negative and drastic effects upon other areas of the law.

To prevent a negative impact upon other areas of the law, the entireties doctrine should only be eliminated as it relates to bankruptcy. This would cure the problems associated with tenancies by the entireties without calling for an in-depth study of other areas of the law. The proposed amendment should be made to F.S. §222.20.

A Proposed Statute
Section 222.20 currently establishes that Florida has chosen to opt out of the federal bankruptcy exemptions enumerated in 11 U.S.C. §522(d).27 The proposed amendment to this section would have the effect of eliminating the doctrine of tenancies by the entireties from bankruptcy law. Thus, the modified statute, with the proposed additions underlined, would read:

In accordance with the provision of §522(b) of the Bankruptcy Code of 1978 (11 U.S.C. §522(b)), residents of this state shall not be entitled to the federal exemptions provided in §522(d) of the Bankruptcy Code of 1978 (11 U.S.C. §522(d)). Only for the purposes of any bankruptcy proceeding under Title 11 U.S.C., the doctrine of tenancy by the entirety is hereby abolished and all property held as such shall now be considered to be held as a tenancy in common. In relation to §522(b)(2)(B) of the Bankruptcy Code of 1978 (11 U.S.C. §522(b) (2)(B)), Florida law does not authorize any property to be held as a tenancy by the entirety, immediately before the commencement of the case or during the bankruptcy case, for the purposes of a bankruptcy proceeding only. Except as provided, othing herein shall affect the exemptions given to residents of this state by the State Constitution and the Florida Statutes ; nor is the doctrine of tenancy by the entirety removed from any part of the law other than bankruptcy proceedings affected. The abolition of the doctrine of the tenancy by the entirety provided for in this statute shall take effect retroactively and affects all property regardless of purchase date.

As amended, the majority of the old statute’s text would remain intact. The second sentence abolishes the tenancy by the entirety doctrine and provides that the property should be treated as a tenancy in common, but only for the purposes of a bankruptcy proceeding. The next sentence relates to a possible interpretation conflict with 11 U.S.C. §522(b)(2)(B). This section of the Bankruptcy Code could cause confusion about whether a state has the power destroy the tenancy by the entirety doctrine for only bankruptcy purposes. Opponents may argue that Florida would be improperly altering federal bankruptcy legislation.

This argument, though, ignores the entire purpose behind the opt-out provision of the Bankruptcy Code. Congress clearly intended to allow the states to decide which exemptions would be allowed by giving them the power to opt out of the federal exemption. Section 522(b)(2)(B) simply acknowledges the doctrine of tenancy by the entirety if state law recognizes it. Thus, under the proposed statute, §522(b)(2)(B) would have no effect. Also, it should be noted that the proposed statute includes language establishing that no property may be held as a tenancy by the entirety “immediately before the commencement of the case.” This language was chosen to track the language provided in §522(b)(2)(B).

Finally, the next-to-last sentence of the proposed statute establishes that this statute will not affect other areas of the law, such as real estate or estate planning. This precludes a probate judge from using the new statute to deny a tenancy by the entirety argument. The effects of this proposed statute would allow all unsecured creditors to share any unencumbered assets equally, pro rata, without regard to the entireties doctrine.

Constitutional issues raised by the proposed statute
In order for the proposed amendment to succeed, it must have a retroactive effect. This necessity, though, raises serious constitutional issues.

1) Retroactive effect of the proposed statute. The problems associated with permitting the proposed statute to take a prospective effect are twofold. First, before the legislation goes into effect, there would be a rush by Florida residents to establish their property as entireties property. This would result in a large additional amount of tenancy by the entireties problems that the proposed statute could not remedy. Second, after the legislation is enacted, debtors in bankruptcy will claim that they established ownership in the entireties before the statute came into effect. Thus, many years would pass without resolving the entireties problem. Therefore, the last sentence of the proposed statute explicitly provides for the retroactive effect of the statute.28

This retroactive effect, though, has constitutional implications. Although the U.S. and Florida constitutions do not expressly prohibit the enactment of retroactive laws,29 the proposed statute would be unconstitutional if it did not conform to several U.S. and Florida constitutional provisions. The relevant provisions would be those prohibiting ex post facto laws, the Fifth Amendment’s “taking” provision, and laws denying due process.30

Because the proposed statute is not penal and does not limit personal freedom, the ex post facto laws contained in the U.S. Constitution are inapplicable.31 Also, the proposed statute does not fall under the “taking” provision of the Fifth Amendment because the proceeds will not be appropriated for public use.32 Thus, the main inquiry is whether the proposed legislation violates the due process clause.

2) In re Rapp. The due process question involves two elements, procedural and substantive due process.33 The test for substantial due process is whether the challenged legislation is “unreasonable, arbitrary or capricious and (whether it has) a real and substantial relationship to a permissible legislative objective.”34 As discussed earlier, the proposed statute is necessary to cure the varied problems associated with entireties properties. Therefore, the substantial due process question is satisfied.35

The issues raised by procedural due process, though, are more difficult. The Southern District dealt with these due process questions in In re Rapp v. Pan American Bank of Miami, 16 B.R. 575 (Bankr. S.D. Fla. 1981).36 In In re Rapp, the defendant held a judicial lien on property the debtor claimed as homestead property.37 Consequently, the debtor sought to have the lien avoided under 11 U.S.C. §522(f). The defendant objected to the retroactive application of §522(f), claiming that it was passed after the time the defendant obtained the lien and, therefore, its application was an unconstitutional deprivation of property.38

The retroactive application of any law raises procedural due process issues.39 Procedural due process concerns the notice required to give a property owner the chance to challenge the validity of a legislative action.40 The court in In re Rapp, though, recognized that bankruptcy legislation is the subject of “broad, express constitutional power.”41 Additionally, the court noted that bankruptcy legislation is “inherently retroactive” because it necessarily alters contractual obligations entered before the filing of bankruptcy.42 Therefore, the court held that §522(f) was not an unconstitutional deprivation of due process because bankruptcy legislation necessarily must be retroactive in effect.43

Without doubt, the statute proposed in this note will cause debtors to allege that the government has taken away a vested interest without giving proper notice. Similar to In re Rapp, though, the proposed statute must necessarily be retroactive because of its bankruptcy nature. Additionally, notice could be provided by delaying the enactment of the proposed statute for approximately one year. This would provide the public with an opportunity to challenge the statute’s validity. It also would provide diligent attorneys and clients with enough time to rethink and restructure their bankruptcy strategies. Therefore, the statute proposed in this article would survive a due process challenge because of its bankruptcy nature and because the public would have enough notice to challenge and adapt to the statute.

Other State Law Ideas

Another idea is to provide a cap for limiting the exemptions provided under tenancies by the entireties. The proposed statue for this idea could affect all areas of the law, or just bankruptcy situations as previously discussed. These limits upon the ability of a debtor to use the entireties exemption in bankruptcy would cover two general areas: real property and personal property.

Regarding the real estate exemption, limits similar to those present in Florida’s homestead exemption could be placed on the amount of land that could be claimed exempt.44 Additionally, limits could be placed on a debtor’s ability to exempt personal property. For example, a debtor might only be allowed to claim $5,000 worth of personal property as exempt under the entireties doctrine. This would help alleviate the tendency debtors have to claim tens of thousands of dollars worth of property as held in the entireties.45

This solution, though, would not clear up the §726 problem expressed by some Florida courts. This is because joint creditors still could satisfy their claims with entireties property, while creditors without joint claims would be limited to nonexempt, unsecured assets.46 Under this scenario, a judge could find a violation of the principles set forth in §726 because all creditors would not receive equal treatment.47


Florida cannot allow the tenants by the entireties crisis to continue. Although bankruptcy problems might be considered a federal problem, they impact Florida residents. Congress does not appear ready and willing to clear up the problem. Also, although the 11th Circuit could clear up some of the confusion regarding tenancy by the entirety law, it has remained silent as to this issue.48

Florida must bite the bullet and enact its own legislation in order to solve the problem. This commentator believes that the best approach is to destroy the tenancy by the entirety exemption as it applies to bankruptcy situations. Therefore, Florida’s new legislation should resemble the proposed amendment offered in this article. q

1 Robert D. Null, Tenancy by the Entirety as an Asset Shield: An Unjustified Safe Haven for Delinquent Child Support Obligors, 29 Val. U. L. Rev. 1057, 1114 n.207 (1995) (citing Richard R. Powell, 4a Powell on Real Property 620.3 (Richard R. Powell and Patrick J. Rohan eds., 1993)).
2 11 U.S.C. §541(a)(1).
3 See In re Monzon, 214 B.R. 38, 40 (Bankr. S.D. Fla. 1997); Chippenham Hospital, Inc. v. Bondurant, 716 F.2d 1057, 1058 (4th Cir. 1983); Napotnik v. Equibank and Parkvale Savings Ass., 679 F.2d 316, 318 (3d Cir. 1982).
4 See In re Monzon, 214 B.R. at 40.
5 11 U.S.C. §522.
6 11 U.S. §522; In re Podzamsky, 122 B.R. 596, 598 (Bankr. M.D. Fla. 1990).
7 In re Dudley, 203 B.R. 786, 790 (Bankr. M.D. Fla. 1996).
8 11 U.S.C. §522(b)(2)(B).
9 Steven B. Chaneles, Tenancy by the Entireties: Has the Bankruptcy Court Found a Chink in the Armor?, 71 Fla. B.J. 22, 24 (Feb. 1997).
10 Id.
11 See In re Koelsing, 210 B.R. 487 (Bankr. N.D. Fla. 1997).
12 See In Marine Midland Bank-New York v. Arms, 409 So. 2d 215 (Fla. 4th D.C.A. 1982).
13 See In re Wincorp, 185 B.R. 914 (Bankr. S.D. Fla. 1995).
14 Chaneles, supra note 9, at 26.
15 See In re Planas, 199 B.R. 211 (Bankr. S.D. Fla. 1996).
16 See In re Monzon, 214 B.R. 38.
17 11 U.S.C. §522(b)(2)(B).
18 Missouri has a tenancy by the entirety problem also. See Paul C. Wilson, Note, “Fresh Start” or “Head Start”: Missouri Courts Rethink the Role of Tenancies by the Entirety in Bankruptcy 56 Mo. L. Rev. 817 (1991).
19 Patrick J. Concannon, Bankruptcy and Tenancy by the Entirety Property: Its Treatment Under the Code and in the Courts 58 Mo. L. Rev. 501 (1990).
20 Id. at 516.
21 See William G. Craig, Jr., An Analysis of Estates by the Entirety in Bankruptcy, 48 Am. Bankr. L.J. 255, 259 (1974); Roger A. Heaton, Note, Administration of Entireties Property in Bankruptcy, 60 Ind. L.J. 305, 305 (1985); William T. Vukowich, Debtor’s Exemption Rights Under the Bankruptcy Reform Act, 58 N.C. L. Rev. 769 (1980).
22 Judge Frank W. Koger & Thomas N. Lane, The Fiction is Fractured: Bankruptcy Breaks Entireties, 48 J. Mo. B. 507, 508 (1992).
23 Null, supra note 1, at 1114 n.209 (stating that 13 states have abolished the doctrine of tenancy by the entirety. These states are California, Connecticut, Iowa, Maine, Minnesota, Nevada, New Hampshire, New Mexico, North Dakota, South Dakota, Washington, West Virginia, and Wisconsin).
24 See Kenneth L. Black, Tenancy by the Entireties as a Tool in Estate Planning, 5 U. Fla. L. Rev. 378 (1952).
25 See Florida Probate Code Manual §§4.01-4.13.
26 For an interesting discussion of child support as it relates to tenancies by the entireties, See Null, supra note 1, at 1114 n.207. Also, See generally, Florida Real Estate Transactions §5.03; Gerald D. Schackow, 1 Florida Family Law Practice Manual 17.
27 See In re Planas, 199 B.R. at 215 n.1.
28 See Trustees of Tufts College v. Triple R. Ranch, Inc., 275 So. 2d 521, 524 (1973) (holding that any retroactive effect must be clearly expressed in the language of the statute).
29 Board of Comr’s v. Forbes Pioneer Boat Line, 86 So. 199, 202 (1920).
30 See id.
31 In re Rapp v. Pan American Bank of Miami, 16 B.R. 575, 577 (Bankr. S.D. Fla. 1981).
32 Id.
33 Id.
34 Id.
35 See Hanover National Bank v. Moyses, 186 U.S. 181, 192 (1902).
36 The Southern District has two other cases with similar facts and identical holdings of law. These cases are: In re Golden v. Flagship Factor Corp., 16 B.R. 585 (Bankr. S.D. Fla. 1981); In re Golden v. City National Bank of Hallandale, 16 B.R. 580 (Bankr. S.D. Fla. 1981).
37 In re Rapp, 16 B.R. at 576.
38 In re Rapp, 16 B.R. at 576.
39 Id. at 577 (citing Fuentes v. Shevin, 407 U.S. 67, 92 (1972)).
40 In re Rapp, 16 B.R. at 577 (citing Fuentes v. Shevin, 407 U.S. at 92).
41. In re Rapp, 16 B.R. at 577.
42 Id.; see also Wright v. Vinton Branch of the Mountain Trust Bank of Roanoke, 300 U.S. 440 (1937) (where the court upheld bankruptcy amendments providing for a foreclosure moratorium on preenactment liens).
43 In re Rapp, 16 B.R. at 578.
44 See Fla. Const. art. X, §4(a)(1)(a).
45 See In re Stanley, 122 B.R. 599 (Bankr. M.D. Fla. 1990) (where debtor claimed, among other things, a telephone, barn, and hat rack as exempt).
46 See In re Koesling, 210 B.R. 487, 489 (Bankr. N.D. Fla. 1997).
47 See In re Planas 199 B.R. at 213.
48 See Koger, supra note 22, at 508 (where 8th Circuit clarified Missouri law relating to tenancies by the entireties).

Michael O. Massey is with the Ft. Lauderdale office of Vezina, Lawrence & Piscitelli, P.A., concentrating his practice in construction litigation. He received his B.S. from Auburn University and his J.D. from the University of Florida. At the time this article was written, he was a student at the University of Florida College of Law.

This column is submitted on behalf of the Business Law Section, Howard J. Berlin, chair, and T.A. Borowski, Jr., editor.

Business Law