Chippenham Hospital, Inc. v. Robert E. Bondurant, in Re Robert E. Bondurant, Debtor, 716 F.2d 1057, 4th Cir. (1983)
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Scribd Government DocsChippenham Hospital, Inc. v. Robert E. Bondurant, in Re Robert E. Bondurant, Debtor, 716 F.2d 1057, 4th Cir. (1983)
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Scribd Government Docs716 F.
2d 1057
11 Bankr.Ct.Dec. 11, Bankr. L. Rep. P 69,346
CHIPPENHAM HOSPITAL, INC., Appellee,
v.
Robert E. BONDURANT, Appellant.
In re Robert E. BONDURANT, Debtor.
No. 82-1931.
United States Court of Appeals,
Fourth Circuit.
Argued May 10, 1983.
Decided Sept. 7, 1983.
George F. Tidey, Richmond, Va. (Tidey & Boice, Richmond, Va., on
brief), for appellant.
Barbara S. Picard, Richmond, Va. (John Dirffie Tyler, William A.
Diamond, John Tyler Law Offices, Richmond, Va., on brief), for appellee.
Before HALL and CHAPMAN, Circuit Judges, and WYZANSKI, * Senior
District Judge.
K.K. HALL, Circuit Judge:
Robert E. Bondurant appeals from an order of the district court, affirming a
decision of the bankruptcy court and granting Chippenham Hospital (Hospital)
relief from an automatic stay imposed pursuant to 11 U.S.C. Sec. 362(a). The
order permitted the Hospital to reduce its claim against Bondurant and his wife
to judgment and to enforce the judgment from property owned by the couple as
tenants by the entireties. We affirm.
I.
2
During 1981, Bondurant's wife, Doris, was a patient at the Hospital on three
separate occasions. Following her discharge, the Hospital claimed it was owed
an outstanding balance of $14,346.60.
In September, 1981, Bondurant filed a petition in bankruptcy under Chapter 7
of the Bankruptcy Reform Act of 1978, 11 U.S.C. Sec. 101 et seq., and listed
the Hospital as an unsecured creditor. Bondurant claimed an exemption for his
undivided interest in residential real property, which he and his wife owned as
tenants by the entireties. Doris Bondurant neither joined in her husband's
bankruptcy petition nor filed one of her own.
The Hospital maintained that Bondurant and his wife were jointly and severally
liable for payment of the charges incurred by Doris Bondurant during her
hospitalization. In December, 1981, the Hospital filed a complaint in
bankruptcy court, requesting relief from the automatic stay and a stay of the
debtor's discharge. Pursuant to this request, the bankruptcy court lifted the
automatic stay in order to permit the Hospital to seek a state court judgment
against the Bondurants and to enforce that judgment against the entireties
property. The bankruptcy court's order was subsequently affirmed by the
district court. From this judgment, Bondurant appeals.
II.
5
On appeal, Bondurant contends that the property, which he and his wife own as
tenants by the entireties, is exempt under the provisions of the Bankruptcy
Reform Act of 1978, 11 U.S.C. Sec. 522, and is, therefore, not reachable by
joint creditors. We disagree and conclude that this matter was properly resolved
by the district court in favor of the Hospital.
In the past, this court has addressed the very issue presented in this case under
the provisions of the previous Bankruptcy Act of 1898. In Phillips v. Krakower,
46 F.2d 764, 765-66 (4th Cir.1931), we concluded that when one spouse filed
for bankruptcy, a joint creditor could, before discharge and on lifting of the
stay, seek a judgment against the debtor and his spouse. Once a judgment was
obtained, the creditor could then enforce it against property held by the couple
as tenants by the entireties. To hold otherwise, we reasoned, would result in a
legal fraud:
The purpose of the bankruptcy act was to equitably distribute the assets of
distressed debtors among their creditors and to discharge them from further
liability after this had been done. It was never contemplated that it should be
used to perpetrate fraud or to shield assets from creditors. It is elementary that a
bankrupt is not entitled to a discharge unless and until he has honestly
surrendered his assets for the benefit of creditors; and he certainly is not in
position to ask a court of bankruptcy, which is a court of equity, to grant him a
discharge under the statute, when the effect of the discharge will be to withdraw
from the reach of creditors property properly applicable to the satisfaction of
their claims...
8
There is ample authority for the proposition that where the property is not
reachable through bankruptcy, but can be reached by a creditor under state
laws, the court of bankruptcy should delay granting a discharge to the bankrupt
to enable the creditor to proceed thereunder in the state courts. (Citations
omitted).
The reasoning in Krakower has been consistently restated and approved by this
Court in more recent cases, which have involved, as here, entireties property in
Virginia. See In the Matter of Seats, 537 F.2d 1176 (4th Cir.1976); Davison v.
Virginia National Bank, 493 F.2d 1220 (4th Cir.1974); Reid v. Richardson, 304
F.2d 351 (4th Cir.1962). Bondurant's contention is that the exemption
provisions of the Bankruptcy Reform Act of 1978, 11 U.S.C. Sec. 522, have in
effect overruled Krakower and its progeny. However, we see nothing on the
face of the statute, nor have we been directed to anything in the legislative
history of the Act, which persuades us that the rule in Krakower is no longer
viable.
10
Under the 1898 Bankruptcy Act property owned by the bankrupt and his
nonbankrupt spouse as tenants by the entireties was not included in the
bankruptcy estate. Lockwood v. Exchange Bank, 190 U.S. 294, 23 S.Ct. 751,
47 L.Ed. 1061 (1903). Under the 1978 Act, however, this is no longer the case.
11 U.S.C. Sec. 541(a)(1) provides that the debtor's estate includes, with
exceptions not relevant here, "all legal or equitable interests of the debtor in
property as of the commencement of the case." Section 541 has been construed
logically to include the debtor's interest in entireties property. Napotnik v.
Equibank and Parkvale Savings Association, 679 F.2d 316, 318 (3d Cir.1982).
That interest may be exempted by the debtor pursuant to 11 U.S.C. Sec. 522(b)
(2)(B),1 which states, in pertinent part, as follows:
11
Notwithstanding section 541 of this title, an individual debtor may exempt from
this property of the estate ... any interest in property in which the debtor had,
immediately before the commencement of the case, an interest as a tenant by
the entirety or joint tenant to the extent that such interest as a tenant by the
entirety or joint tenant is exempt from process under applicable nonbankruptcy
law. (Emphases added).
12
Section 522(c) further states in pertinent part:
13
Unless the case is dismissed, property exempted under this section is not liable
during or after the case for any debt of the debtor that arose, or that is
determined under section 502 of this title as if such claim had arisen before the
commencement of the case....
14
Under Virginia law, as in many other jurisdictions, entireties property is liable
for the joint debts of both spouses and is reachable against them by proper
process. Davison, supra; Reid, supra; Vasilion v. Vasilion, 192 Va. 735, 66
S.E.2d 599 (1951). Accordingly, a logical reading of the new exemption
provisions, including the phrase "to the extent that such interest as a tenant by
the entirety ... is exempt from process under applicable nonbankruptcy law,"
leads us inevitably to the same conclusion reached in Krakower.2
15
The equities on which the cases under the previous Bankruptcy Act were
decided remain unchanged and the reasoning of Krakower is just as persuasive
today as it was before the 1978 Act. Other courts that have considered this
question in light of the 1978 Act have reached the same conclusion. In re
Martin, 20 B.R. 374 (Bkrtcy.E.D.Va.1982); In re Ford, 3 B.R. 559
(Bkrtcy.D.Md.1982), affirmed sub nom. Greenblatt v. Ford, 638 F.2d 14 (4th
Cir.1981). Absent a clear showing that Congress intended otherwise, we are
convinced that the reasoning of Krakower and its progeny is still applicable.
III.
16
For the foregoing reasons, the judgment of the district court in favor of the
Hospital is hereby affirmed.
17
AFFIRMED.
Honorable Charles Edward Wyzanski, Jr., Senior United States District Judge
for the District of Massachusetts, sitting by designation
The Bankruptcy Reform Act provides for an election between designated
federal exemptions and exemptions permitted by state law. However, Section
522(b)(1) gives each state the option to restrict its residents to the exemptions
permitted by the laws of that particular state. Virginia has exercised that option
by enacting Virginia Code Sec. 34-3.1. Therefore, Section 522(b)(2) is the
source of Bondurant's exemptions
Cf. Ragsdale v. Genesco, 674 F.2d 277 (4th Cir.1982). In Ragsdale, a husband
and wife suffered a judgment against both of them in Virginia state court.
Subsequently, they filed a joint petition in bankruptcy, in which they claimed
an exemption under Section 522(b)(2)(B) for the equity in their residence held
by them as tenants by the entireties. We concluded as follows: "The phrase 'to
the extent that such interest ... is exempt from process under applicable
nonbankruptcy law' is of decisive importance. If the Ragsdales' residential real
property could be reached to satisfy a state court judgment in Virginia, it could
not be successfully claimed as exempt under Section 522(b)(2)(B)." Id. at 279.
See also Napotnik v. Equibank and Parkvale Savings Association, 679 F.2d 316
(3d Cir.1982) (holding that Section 522(b)(2)(B) did not exempt entireties
property in Pennsylvania held by the debtor and his wife, who did not join in
her husband's bankruptcy petition, where joint creditor held a judgment against
both of them)
