January 29, 2016
by Ruhi F. Mirza
Rosenberg & Associates, LLC – USFN Member (Washington, D.C.)
In a recent decision, the U.S. Bankruptcy Court for the District of Maryland held that a debtor’s interest as a tenant by the entirety in real property is not exempt from process against a federal restitution judgment entered solely against the debtor. In re Conrad, 2016 Bankr. LEXIS 10 (Bankr. D. Md. Jan. 4, 2016).
The debtor filed her individual petition under chapter 7. Prior to her bankruptcy filing, the debtor pled guilty to a count of conspiracy and agreed to the entry of a restitution order whereby she would pay $838,004.60. Her bankruptcy petition stated that she held an interest in real property as a tenant by the entirety with her husband. The debtor also listed the full amount of the restitution judgment on her schedules and claimed an exemption under 11 U.S.C. § 522(b)(3)(B), asserting that under Maryland law a debtor’s individual creditors “cannot levy upon nor sell a debtor’s undivided interest in entireties property to satisfy debts owed solely by the debtor.” In re Bell-Breslin, 283 B.R. 834, 837 (Bankr. D. Md. 2002). The chapter 7 trustee objected to the debtor’s claim of exemption, contending that federal law, not state law, determines whether an interest is protected based on tenancy and, pursuant to federal law, the debtor cannot claim an exemption.
The trustee relied upon the U.S. Supreme Court’s rationale in United States v. Craft, where the Court concluded that a husband’s property interest held as tenants by the entireties is subject to attachment of a federal tax lien levied for the husband’s sole tax obligation. [United States v. Craft, 535 U.S. 274, 122 S. Ct. 1414, 152 L. Ed. 2d 437 (2002)]. The Court reasoned that “[t]he statutory language authorizing the tax lien is broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have.” Id. at 283.
In Conrad, the bankruptcy court reviewed the enforcement statute for restitution orders, which provides that the United States may enforce a restitution judgment against “all property or rights to property of the person fined” and found a clear Congressional intent to treat the enforcement of restitution judgments and unpaid taxes equally. 18 U.S.C. § 3616(a). The bankruptcy court concluded that, given the broad description of the property interests that are subject to the United States’ enforcement rights in the enforcement statute and the clear Congressional intention to treat those rights on par with the government’s right to collect taxes, the rationale of Craft applies to the collection of a restitution judgment against an individual tenant by the entirety. Accordingly, the bankruptcy court sustained the trustee’s objection.
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