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TBE Pitfall in Florida Bankruptcy Law

In Florida, there exists an exemption in bankruptcy called Tenancy by the Entirety (TBE). TBE is a collection of property that can only exist between a husband and wife where both spouses own and control the entire collection. This property is exempt from creditors who own an individual debt in one of the spouse’s name. However, this property is not exempt from creditors who hold joint debts of both spouses.

Judge Kimball recently addressed a question dealing with the TBE exemption. The question was what portion of property owned by a debtor comes into the bankruptcy estate and becomes subject to being sold by the Trustee when there is at least one joint unsecured creditor. One argument is that only 50% of the property comes into the estate. That is with the other 50% remaining with the non-filing spouse. The other argument is that all of the equity in the entire property up to the amount of the joint debts comes into the estate.

Ultimately, Judge Kimball agreed with the second argument. It would be unfair for all unsecured creditors to receive money from the Debtor’s property. So a husband or wife can still file bankruptcy. And, they can use the TBE exemption to protect the property. This is even though there is a creditor holding a joint debt. However, where there is at least one joint debtor, all of the equity in the TBE property is part of the Bankruptcy Estate to the extent of the total joint debts. All of the remaining equity is exempt.

If you have questions about foreclosure, loan modification, bankruptcy, or other alternatives, please feel free to call my office at 954-484-9987. Or, send an e-mail to emil@fleysherlaw.com, or complete the contact form below.

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