In re Skelton

IN RE: WILLIAM SKELTON DEBTOR(S).

CASE NO.: 20-10636-SDM

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF MISSISSIPPI

December 16, 2020

The Order of the Court is set forth below. The case docket reflects the date entered.

CHAPTER 13

MEMORANDUM OPINION ADDRESSING DEBTOR'S MOTION TO AVOID JUDGMENT LIEN (DKT. #23)

THIS CAUSE comes before the Court on the Debtor's Motion to Avoid Judgment Lien (Dkt. #23) and the Response (Dkt. #29) thereto. On August 11, 2020, the Court heard oral arguments from the parties before taking the matter under advisement. The Court is now prepared to rule.

I. JURISDICTION

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. §157(a) and the Standing Order of Reference signed by Chief District Judge L.T. Senter and dated August 6, 1984. This is a "core proceeding" under 28 U.S.C. § 157(b)(2)(A) (matters concerning the administration of the estate), and (K) (determinations of the validity, extent, and priority of liens).

II. FACTS AND PROCEDURAL HISTORY

The Debtor is William Skelton ("Skelton"), who filed a petition for Chapter 13 bankruptcy on February 12, 2020. On April 29, 2020, Skelton filed the instant Motion to Avoid a Judgment Lien ("the Motion") against Creditor Strategic Funding Source, Inc. ("SFSI"). SFSI had previously obtained a judgment in the amount of $52,630.51 plus 6% interest against Skelton and properly recorded it on the judgment roll in Winston County, Mississippi, Skelton's home county. By its terms, the recorded lien attaches to all current and future property owned by Skelton in Winston County.¹

Skelton asserts that his homestead ("the Property"), a 2.40 acre lot with a house located in Winston County, is not owned by him in fee simple but rather by him and his wife as a tenancy by the entirety with full rights of survivorship and not as tenants in common.² Skelton argues that because SFSI only has a judgment against him but not against his spouse, the judgment lien should be avoided completely as to the Property, which is owned by the marriage as an independent entity rather than Skelton in his individual capacity.

On May 26, 2020, SFSI filed its Response to the Motion. The Response does not address any of the issues surrounding the Property's present status as a tenancy by the entirety. Instead, after relating the history of the lien and the conduct by Skelton which led to its creation, SFSI noted that the lien attached to any present and future property owned by Skelton in WinstonCounty. Accordingly, SFSI argues, it is premature to extinguish its lien when it is unclear whether Skelton will receive a discharge at all, let alone whether he will be able to discharge the debt owed to SFSI.³ Finally, SFSI also argued that if the Property is a true tenancy by the entirety, the lien may not have attached to it and thus the lien is not subject to avoidance anyway.

There are no factual disputes in the matter presently before the Court. Skelton does not dispute that SFSI obtained a valid and enforceable lien against him that has attached to any present or future property owned by him in Winston County. While SFSI initially questioned whether the Property at issue is a true tenancy by the entirety, that issue has been resolved in Skelton's favor by his late submission of the actual warranty deed into the court record. See Dkt. #45. Thus, the Court turns its attention to the legal analysis of the specific matter before it.

III. DISCUSSION

Regarding motions to avoid judicial liens, 11 U.S.C. § 522(f)(1)⁴ states in relevant part:

Notwithstanding any waiver of exemptions but subject to paragraph (3), the debtor may avoid the fixing of a lien on an interest of the debtor in property to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section, if such lien is--

(A) a judicial lien, other than a judicial lien that secures a debt of a kind that is specified in section 523(a)(5) . . . .

11 U.S.C. § 522(f)(1). Thus, the questions the Court must consider before ruling on the Motion are:

1. Is there a valid lien attached to the Property?

2. Does that lien impair an exemption to which Skelton is entitled?

3. Should the lien be avoided even though future circumstances may destroy the tenancy by the entirety?

The Court will address each of these questions in turn.

A. Is There A Valid Lien Attached To The Property?

The gravamen of Skelton's argument for avoiding SFSI's lien lies in the fact that the Property is held as a tenancy by the entirety with full right of survivorship, a subset of joint tenancy that is limited to married couples and designed to provide special protections to the surviving spouse in the event of the death of the other. Mississippi has long recognized the estate of tenancy by the entirety as a valid and statutorily protected species of real property. In re Pace, 521 B.R. 124 (Bankr. N.D. Miss. 2014)(citing Miss. Code Ann. § 89-1-7). As Judge Samson held in In re Dixon:

Mississippi law clearly states that in an estate by entirety, each spouse simultaneously is seised of the whole estate, that is title, interest and possession, and the Mississippi Supreme Court has emphasized that no action taken by one of the two tenants in entirety can terminate the rights of the other to the full panoply of rights in the estate.

In re Dixon, No. 10-51214-KMS, slip op. at 12 (Bankr. S.D. Miss., March 31, 2011). The Dixon court further noted that Mississippi law treats property held under a tenancy by the entirety as if it were not actually owned by the individual spouses jointly, but rather by "a third, fictional corporate entity consisting of the combined legal personals of the husband and wife." Id. at 10. In Pace, Judge Woodard held that any non-exempt equity in such an estate "may be administered only to the extent of the joint claims against the Debtors." Pace, 521 B.R. at 133.

While a tenancy by the entirety is a creature of state law (whether statutory or common law) and the precedential value of non-Mississippi law is thus somewhat limited, this appears to be the majority rule among jurisdictions where tenancies by the entirety are recognized. See generally In re Locust, 2005 WL 1288616 (Bankr. M.D. N.C., Feb. 2, 2005)("[T]he individualcreditors of either the husband or wife cannot reach entireties property in order to satisfy a judgment against only one of the spouses.")

However, that does not fully answer the question of whether or not the lien attached to the Property in the first place, and there is disagreement on whether such attachment to an entirety property can occur at all where only one of the two spouses is subject to the lien. In In re Locust, for example, Judge Wooten reasoned that:

the judgment referred to in the motion does not constitute a judicial lien against Debtor's homestead since such homestead is owned as a tenancy by the entirety and the judgment is against the Debtor alone. Hence, there is no judicial lien to avoid and no grounds for relief under § 522(f)(1)(A).

Id. (citing In re Hamilton, 286 F.R. 291, 293 (Bankr. D. N.J. 2002)("Where a judgment has not become a lien on any of the debtor's property at the filing of the bankruptcy petition, Section 522(f) cannot apply.")).

Other courts have noted that even if a tenancy by the entirety is protected against liens that apply to only one spouse, any lien which, by its terms, covers all present and future property interests of the debtor may attach to the debtor's contingent future interest in the entirety estate. See Davis v. Carrington, 2019 WL 4090224, slip copy at 3 (N.D. Indiana, Aug. 28, 2019). That is, a debtor who is seised of a tenancy by the entirety may see that property interest alter in the future in response to changing circumstances. For example, if the debtor's spouse dies, the debtor will obtain a 100% free-and-clear ownership of the entirety property, but if the debtor dies first, the surviving non-debtor spouse will claim 100% ownership of it instead with nothing going to the debtor's creditors after his death. Likewise, if the entirety property were sold, the sale proceeds would be divided equally between the Skeltons with the Debtor's half subject to the lien.

In an interesting peculiarity of Mississippi law, if the Skeltons were to divorce, a property settlement agreement or divorce decree might require the Property to be conveyed to one spouseor the other in fee simple, but absent such an agreement or judicial order, the right of survivorship (and thus, presumably, protection from SFSI's lien) would be preserved even after the divorce. Shepherd v. Shepherd, 336 So. 2d 497, 499 (Miss. 1976)(holding that, upon divorce, spouses holding property as tenants by the entirety become joint tenants with right of survivorship and not tenants in common absent clear intention otherwise).⁵

In the instant case, SFSI argues that, regardless of whether its lien can attach to Skelton's entirety homestead, it can still attach to his contingent future interest in possibly gaining ownership of the Property at some point under another form of title. While this appears to be a question of open law both in this jurisdiction and under Mississippi law, the Court, for purposes of this opinion, assumes that Skelton has, at the very least, a contingent future interest⁶ in the Property in addition to the interest which he shares with his spouse.

Because a property interest of some kind exists, it follows that SFSI's lien can attach to it even though the Property's current entirety status precludes SFSI from exercising its rights against Skelton and the Property. And so, the Court must turn to the question of whether that valid lien is subject to avoidance.

B. Does That Lien Impair An Exemption To Which Skelton Is Entitled?

As noted previously, the Bankruptcy Code permits a debtor to avoid the fixing of a lien (such as the one held by SFSI) on any interest in property to the extent it impairs an exemption to which the...