In re Weiss

638 B.R. 543

IN RE: Stephen Norman WEISS, Debtor.

CASE NO.: 21-10514 (SLM)

United States Bankruptcy Court, D. New Jersey.

Signed March 15, 2022

Daniel Brian Weiss, Esq., 90 Prospect Terrace, Tenafly, NJ 07670, Counsel to Debtor, Stephen Norman Weiss.

Jesse M. Weiss, Esq., Admitted Pro Hac Vice, 79 Midwood Road, Glen Rock, NJ 07452, Counsel to Debtor, Stephen Norman Weiss and, Non-Debtor Spouse, Roberta Gail Weiss.

Scott S. Rever, Esq., Genova Burns, LLC, 110 Allen Road, Suite 304, Basking Ridge, NJ 07920, Counsel to Chapter 7 Trustee, Donald V. Biase.

John V. Baranello, Esq., Jessica K. Bonteque, Esq., Admitted Pro Hac Vice, Alan E. Gamza, Esq., Admitted Pro Hac Vice, Moses & Singer LLP, 405 Lexington Avenue, New York, NY 10174, Counsel to Creditor, Moses & Singer LLP.

OPINION

STACEY L. MEISEL, UNITED STATES BANKRUPTCY JUDGE

The Bankruptcy Code and state law often intertwine. One area in which this occurs is when debtors elect to utilize state law exemptions rather than federal exemptions. While the Bankruptcy Code permits debtors to utilize state law exemptions—that permission comes with certain requirements. Specifically, 11 U.S.C. § 522(b)(3)(B) allows, among other things, debtors to exempt property owned immediately prior to filing the case, so long as the property is held as a tenant by the entirety and that entirety interest is exempt from process under state law. By its express terms, the Bankruptcy Code does not provide an automatic exemption of an entirety interest simply because it is exempt under state law. In New Jersey, tenants by the entirety possess a right to survivorship. Under New Jersey law, that survivorship interest is subject to levy. Levy is a form of process. A debtor relying on section 522(b)(3)(B) cannot exempt property in New Jersey that is held in a tenancy by the entirety.

JURISDICTION AND VENUE

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(a) and 157(a) and the Standing Order of Reference from the United States District Court for the District of New Jersey dated July 23, 1984 and amended September 18, 2012. This matter constitutes a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) because it involves the allowance or disallowance of exemptions from the bankruptcy estate. Venue is proper under 28 U.S.C. § 1408.

FACTUAL AND PROCEDURAL BACKGROUND

THE REAL PROPERTY EXEMPTION

Stephen Norman Weiss (the "Debtor ") filed a voluntary petition for bankruptcy under Chapter 7 of Title 11 of the United States Code (the "Bankruptcy Code ") on January 22, 2021. ECF No. 1.¹ The Debtor's Schedule A/B lists an interest in a single-family residence located at 90 Prospect Terrace, Tenafly, New Jersey (the "Property "). ECF Nos. 7 at 3, 98-2 at 1 and 124-1 at 1. The Debtor exempts his interest in the Property from the bankruptcy estate pursuant to 11 U.S.C. § 522(b)(3)(B), which permits a debtor to utilize state exemptions. ECF Nos. 7 at 10, 107 at 1, 109 at 2 and 111 at 1. Here, the Debtor asserts an exemption under New Jersey law. ECF Nos. 45 at 1-3 and 111 at 1. Specifically, the Debtor contends that the Property is owned as a tenancy by the entirety under New Jersey law and, therefore, it is exempt under the Bankruptcy Code.

The Debtor owns the Property with his non-debtor spouse, Roberta Gail Weiss ("Mrs. Weiss "). ECF No. 45-1 at 2. The Debtor and Mrs. Weiss acquired the Property by deed conveying the property to "Stephen Norman Weiss, and Roberta Gail Weiss, his wife," dated and recorded September 7, 1989. Id . at 2-3. The Debtor and Mrs. Weiss own the property as tenants by the entirety. ECF Nos. 45-1 at 2 and 124-1 at 2. The Debtor values the Property at $1,130,000.00, subject to two mortgages totaling approximately $130,000.00. ECF Nos. 7 at 12 and 124-1 at 1. The Debtor, by relying on New Jersey law, seeks to shield his interest in the Property. ECF Nos. 45 at 1-3 and 124-1 at 1. Based upon the information provided by the Debtor, after deducting the mortgages and dividing the equity, the Debtor's potential interest in the Property appears to be valued at approximately $500,000.00. ECF Nos. 7 at 12 and 124-1 at 1.²

THE DEBT OWED TO MOSES & SINGER LLP

Besides the two mortgage holders, the Debtor lists Moses & Singer LLP ("M&S ") as his only other secured creditor. ECF No. 7 at 12-13. On November 16, 2012, the Debtor executed a Demand Note (the "Note ") in favor of M&S for an original principal amount of $1,173,000.00. Claims Register , Proof of Claim No. 2-2. On the same day, the Debtor also granted M&S a security interest in certain accounts receivable. Id . The Debtor's petition indicates that M&S has a claim of $1,902,150.85, secured by $2,000,000.00 of accounts receivable listed on the Debtor's petition as owed to the Debtor for performing legal services. ECF No. 7 at 13.

On May 17, 2021, M&S filed a Proof of Claim for an unknown amount.³ Claims Register , Proof of Claim No. 2-1. The next day, M&S amended its claim from an unknown amount to $1,913,195.01. Claims Register , Proof of Claim No. 2-2. Then, on the same day, M&S filed a second claim, which appears to modify the amended claim, by stating that $1.00 of the $1,913,195.01 is a secured claim. Claims Register , Proof of Claim No. 3-1. Before the Debtor's bankruptcy, M&S tried to collect on the Note when the Debtor failed to repay the Note. Claims Register , Proof of Claim Nos. 2-2. Because the Debtor failed to pay the Note, M&S filed a Motion for Summary Judgment in Lieu of Complaint against the Debtor in New York Supreme Court. Id . The New York Supreme Court entered an order granting M&S summary judgment on January 21, 2021. Id . The next day, the Debtor filed this bankruptcy case. ECF No. 1.

THE OBJECTIONS TO THE PROPERTY EXEMPTION

The Trustee and M&S (together the "Objectors ") each objected to the Debtor's real property exemption. ECF Nos. 19 and 27. On March 8, 2021, Donald V. Biase, the Chapter 7 Trustee (the "Trustee "), filed the Trustee's Objection to Debtor's Claimed Exemptions and Request for Extension of Time to Determine if Personal Property Subject to Lien is of Consequential Value to the Bankruptcy Estate (the "Trustee's Objection "). ECF No. 19. The Trustee asserts that even though the Property is held in a tenancy by the entirety, it cannot be exempt from the bankruptcy estate under section 522(b)(3)(B) because it is not exempt from process under New Jersey law. ECF No. 19 at 2; A/P ECF No. 11-3. Shortly thereafter, on March 18, 2021, M&S also filed an objection to the Debtor's claimed exemptions titled Moses & Singer LLP's Objection to Debtor's Claimed Exemptions ("M&S's Objection "), which incorporated the Trustee's Objection and expanded the arguments. ECF No. 27.

The Debtor filed an opposition to both objections. ECF No. 45. The Debtor argues, contrary to the Objectors, it is precisely because the Property is held in a tenancy by the entirety, that it is exempt from the bankruptcy estate under New Jersey law. Id . at 1-2. First, the Debtor contends that N.J.S.A. 46:3-17.4 insulates the Property from process because it requires both spouses to consent to "affect their interest". ECF No. 45 at 2. Second, the Debtor asserts that the New Jersey Legislature, by enacting N.J.S.A. 46:3-17.4, brought New Jersey into the "majority view" of various states’ treatment of tenancies by the entirety property, thereby shielding the Property from process. ECF No. 45 at 2. Finally, the Debtor alleges that a tenancy by the entirety is made up of only one property interest, which cannot be divided and is not subject to creditors’ collection efforts. Id . at 5; A/P ECF No. 7 at 4.

The Trustee filed a response (the "Trustee's Response ") explaining the history of the law in New Jersey regarding tenancies by the entirety and asserting that N.J.S.A. 46:3-17.4, while changing New Jersey law, does not affect a creditor's ability to reach a debtor's individual interest in entireties property. ECF No. 50; A/P ECF No. 11-3 at 6. The Trustee takes the opposite view of the Debtor. The Trustee asserts that in New Jersey, a tenancy by the entirety is comprised of both a joint and an individual right in property. A/P ECF No. 11-3 at 5-7. M&S also filed a response, which fully incorporates the Trustee's Response. ECF No. 54. The Trustee then filed a letter brief supplementing his objection. ECF No. 102. The Debtor responded with a letter brief. ECF No. 104. Both letter briefs included many of the same arguments articulated in the prior pleadings, but also introduced additional case law. See ECF Nos. 102 and 104.

The Court held a hearing and heard oral argument. The Court closed the record and reserved.⁴ ECF No. 112 at 88.

DISCUSSION

The primary issue before the Court is whether the Debtor's interest in the Property is exempt from process under N.J.S.A. 46:3-17.2 –17.5 (the "Act "). If the Property is exempt from process under the Act, then the Property is exempt from the bankruptcy estate pursuant to 11 U.S.C. § 522(b)(3)(B), and the Debtor keeps his interest in the Property. If the Property is not exempt from process, then it remains property of the estate and may be subject to administration by the Trustee for the benefit of the Debtor's creditors.

THE DEBTOR'S CLAIMED EXEMPTIONS

Section 522 of the Bankruptcy Code provides that a debtor may exempt certain property from the bankruptcy estate. See 11 U.S.C. § 522. A debtor may elect to use federal or state exemptions. 11 U.S.C. § 522(b)(1). A debtor's claimed exemptions are presumed valid. In re Scioli , 586 Fed. App'x. 615, 617 (3d Cir. 2014). A party in interest has thirty days after the conclusion of the section 341(a) meeting of creditors to object to a debtor's exemptions unless the period is extended. See Schwab v. Reilly , 560 U.S. 770, 775, 130 S.Ct. 2652, 177 L.Ed.2d 234 (2010) ; Fed. R. Bankr. P. 4003(b) and 9006. The objecting party bears the initial burden of production and persuasion. In re Scioli , 586 Fed. App'x. at 617. If the objecting party produces...