A Debtors Rights To Avoid Judgement Lines 

Time to Revisit
In re Levinson?

While a financial ruin discharge discharges most money owed, it does now not mechanically keep away from liens. When a creditor sues,obtains a judgment, and dockets it inside the county in which the Debtor’s homestead is located, the lien created upon the Debtor’s home stays unaffected and keeps as an in rem declare in opposition to that belongings (although the Debtor’s in personam legal responsibility may additionally had been in any other case discharged).

In order to avoid the judgment lien itself, a Debtor have to appearance to positive confined sections of the Bankruptcy Reform Act of 1978, as amended, “Bankruptcy Code”) to determine whether or not there’s a separate unique statutory authorization which could allow the Debtor to keep away from and consequently cast off that judgment lien from the property as Section 522(f) is commonly seemed because the fundamental and most effective automobile to perform this objective.

However, under the N.Y. Eastern District Court selection, in In re Levinson,1 the ability to make use of this phase to facilitate a Debtor’s fresh begin has been meaningfully eroded. It is submitted that each good judgment in addition to a unexpectedly expanding body of case regulation outside of the Eastern District of New York would propose that a re-evaluation of the retaining of Levinson can be well timed.
In Levinson, the Debtor claimed a home exemption (at that point $50,000, now $165,550) within the home he owned with his wife as tenants via the entirety. He claimed, constant with the then-winning perspective,that the value of his hobby inside the home need to be valued at one-half of the overall fee of the belongings.

The District Court affirmed the Bankruptcy Court selection in rejecting his position, reasoning that, because a tenancy by means of everything, as wonderful from a joint tenancy or tenancy in not unusual, exhibited the precise characteristic that each spouses “were deemed seized of the complete,” the fee of the Debtor’s hobby turned into identical to a hundred% of the fairness. The Court said that “a tenancy through the whole thing is defined in Law French as being consistent with tout et non in line with my, by way of the whole and not by the share (motety), meaning every holds the complete or whole hobby and lacks the electricity to alienate an undivided percentage.”3
From this, the Court concluded that the fee of his hobby was two times as excellent as he had posited and, as a result, the judgment lien turned into determined not to impair the Debtor’s dwelling house exemption and the judgment chook couldn’t be avoided. However, such conclusion is facially suspect beneath both ideas of arithmetic and good judgment. If every tenant is deemed to have an interest of 100% of the fairness then it must comply with that we’re valuing the equity at 200% of its real price, accordingly departing from each accuracy-and fact. In reaching Its conclusion the Levinson court docket disregarded lengthy-present New York precedent to the that every tenant by using everything had fairness in a domicile equal to handiest fifty (50%) percent of its general fairness.’

The New York Court of Appeals, has reached the conclusion that the value of an character tenant by the entireties interest is less than the fee of the complete fairness within the dwelling house within the case of Goodrich v. Otego.’ In Goodrich, a husband, but no longer his spouse, began in shape towards the Village of Otego for harm to tenancy through the entirety assets caused by the regrading of a village road. The Court of Appeals determined that insofar as the plaintiffs spouse had now not joined in the intending, the plaintiff could not get better for the price of any diminution to her hobby inside the belongings. Contrary to Levinson, the New York Court of Appeals choice made clean that every tenant by everything holds.A separate and divisible hobby in tenancy by means of the whole thing assets even though each spouse become “seized of the complete.”

Recent financial ruin courtroom selections deciphering New York tenancy through the entirety regulation have held that the Levinson choice evidences a simple illogic insofar because it does not follow from the premise that the spouses together maintain an undivided interest in their home, that the value of each in their hobbies is similarly 100%.6
In Bradigan, Chief Judge Bucki analyzed New York Court choices addressing the results of a tenancy by means of the whole lot ownership interest. In so doing,Judge Bucki articulated the underlying hassle,(in his view) with the Levinson decision. In reviewing, New York law, Judge Bucki stated:

 

“However, “being seized” constitutes most effective a partial description of the debtor’s hobby, that’s itself concern to barriers which include the rights of any co-proprietor through the whole lot. Despite being “seized of the entire,” neither co-tenant by the whole thing has any, potential both to mortgage or to convey that whole. …Rather, each spouse keeps an hobby that amounts to much less than the complete wherein he or she is seized. Thus, on this district, Judge John C. Ninfo, II, concluded that “even if property is held via a husband and spouse as tenants by means of the entirety, each partner has a separate recognizable hobby within the property.” In re Laborde, 231 B.R. 162, 166 (Bankr.W.D.N-Y. 1999).Is seized of the whole assets that she or he may also personal as a tenant by the whole thing.The problem in financial disaster is a way to cost that unique interest. Although seized of the entire, the separate interest af oneer. By cause of this quandary, we need to value the debtor’s interest at some thing less than the hobby of a single owner in a fee simple absolute, In a tenancy via the entirety, each spouse enjoys an same shape of ownership. Because every has equal claim of ownership, both the debtor and his non-debtor spouse may additionally appropriately divide the homestead’s general price for purposes of valuation in financial disaster.

Mathematically, the entire must always same the sum of its components. To the extent that husband and wife every hold a recognizable interest in belongings their respective character pursuits have to necessarily same some thing less than the complete. To preserve otherwise could invite havoc in the ones times where wife and husband record separate and non-joint petitions for financial ruin remedy. Surely, neither of their separate trustees can administer the entire of property held through the entireties, however need to accept an allocation as between the 2 estates. Exemptions,.If claimed, could then observe to the allotted hobby of every partner. Similarly, where best one partner files, he or she may exempt an combination interest in that same allocation.”7
Levinson, at the bankruptcy court docket level, targeted an excessive amount of (in my view) on the primary part of the Klein conserving; i.E., one tenant is “seized of the complete.” Also, it jumped to the conclusion that due to the fact “[the] price of a debtor’s hobby is a feature of state regulation, “being seized of the entire manner valuing the interest of all the equity fee. This courtroom indicates that Levinson skipped a step. It did now not cognizance enough on the freedom that one entireties tenant has to alienate his or her own undivided interest.”9

The Court’s remark in Naples that Levinson may additionally have unduly targeted at the fact that every tenant is “seized of the entire” is worthy of similarly elucidation. Levinson distinguishes among tenancies by way of the whole lot on one hand, and tenancies in commonplace and joint tenancies on the opposite. However, each of those percentage the essential similarity that the co-owners have an undivided ownership and undivided possession of the issue belongings,10 and as a result there’s no foundation for disparate remedy.

As the recent New York financial ruin court choices illustrate, it is able to be appropriate to reconsider Levinson due to the fact it may overread the consequences of the reality that tenants by the entirety have an indivisible interest in their dwelling house, hence ignoring the reality that the cost of each tenant’s interest ought to be discounted via the fact that every co-owns the assets together with his co-tenant.

Finally, it is submitted that the selection is inimical to essential standards of financial ruin and debtor-creditor law. The motive of owning belongings as tenants by way of the entirety is to protect the homestead from a creditor of simplest one spouse with the aid of precluding the creditor from partitioning and forcing the sale of the whole dwelling house. It is therefore particular in that it provides protections to married couples unavailable to either joint tenants or tenants in common. The result of Levinson however is to penalize married co-owners, placing them on a worse footing than if the assets have been owned as joint tenants or tenants in not unusual, in which each tenant’s equity would be valued at handiest fifty (50) percentage of the whole equity in his home.

The Levinson case, far from furthering the salutary aim of presenting greater protections to married couples,as a substitute serves to restriction the scope at lien avoidance underneath the Bankruptcy Code so that it gives less protection to tenants through everything than to be had to joint tenants or tenants in not unusual. Insofar as the finest wide variety of cases filed in financial disaster courts involving a collectively-owned domicile are cases wherein the domicile is owned as tenants by using the whole thing, the poor effect of Levinson within the context of non-business bankruptcies can not be overrated. For this motive, in addition to because of its analytical shortcomings, the selection need to be reconsidered.

Robert L. Pryor is a accomplice and founding father of the Westbury regulation company of Pryor & Mandelup, L.L.P., concentrating in financial ruin, reorganization and insolvency-related litigation. Mr. Pryor is beyond Chairman of the Bankruptcy Committee of the Nassau County Bar Association. He has additionally serve as a member of the panel of Trustees for the
Eastern District of New York considering 1995.

1. 395 B.R. 554 (Bankr. E.D.N-Y. 2008).

2. Id. At 558.

3. Id. (bringing up Citibank N.A. V. Goldberg, 178 Misc.2nd 787 (Sup. Ct., Nassau Co. 1998).

4. See In Re Flinn, ninety five B.R. Thirteen (Bankr. Ct.N.D.N.Y. 1980); In Re Rouge, fifty six B.R. 534 (Bank Ct. S.D.N.Y, 1986).

5. 216 N.Y.112 (1915).

6. See In re Naples, 521 B.R. 715 (Bankr. Ct.W.D.N.Y. 2014); In re Bradigan, 501 B.R. 151(Bankr. Ct. W.D.N.Y. 2013).

7. 501 B.R. 151,at 154.

8. 521 B.R. 716.

9. 521 B.R. 715 at 717.

10. § 1 Cotenancy and Partition, NY Jur 2nd p.317 (2007).