In a memorandum Opinion dated January 28, 2013, Judge Sontchi considered whether or not a car titled solely in the debtor spouse’s name was considered property held as tenants by the entirety (“marital property”), thus making it exempt from the debtor spouse’s bankruptcy creditors under applicable Delaware state law.
The debtor-spouse in this case filed for Chapter 7 bankruptcy listing his three cars, containing significant equity, as exempt under Delaware state law, citing 11 U.S.C. § 522(b)(3)(B), which permits exemptions for property held as tenancy by the entirety or as joint tenants if provided for by state law. In Delaware, property held as tenants by the entirety is exempt from process of a single spouse’s creditors (In re Kelly, 316 B.R. 629, 632 (D. Del. 2004)). Since only one spouse was filing for bankruptcy, the debtor-spouse argued that the cars were marital property and thus exempt from process by his bankruptcy creditors.
The court cited several District of Delaware bankruptcy decisions on this issue, noting that “household goods and furnishing in the joint possession and use of a husband and wife are presumptively intended to be held as tenants by the entirety.” Although important, this presumption could not apply to the case at hand, as the court concluded that the vehicles could not be considered “household goods and furnishing.”
Next, the court concluded that “personal property titled in the names of both a husband and wife is presumptively intended to be held as tenants by the entirety.” However, the vehicles here were only titled in the debtor-spouses name, thus making this presumption inapplicable.
Finally, the court concluded that “direct derivatives of property held as tenants by the entirety is presumptively intended to remain property held by the entirety, even if taken in the name of one spouse alone.” The thinking behind this presumption is that when two spouses share property, such as a joint bank account, and use this shared property to purchase other property, the purchased property should be considered held by the entirety regardless of whose name is on the title.
In the end, the court found that the debtor-spouse did not come forward with unequivocal evidence to demonstrate that any of the presumptions applied, thus making the exemption of the vehicles improper.
Although this decision did not turn out so well for the debtor, it provides us with sufficient information on what property can presumptively be exempted under Delaware law using this section of the Bankruptcy Code.
Decision in Action: An Example
Delaware law provides a vehicle exemption amount of $15,000.00. This means that a debtor is allowed to protect from creditors up to $15,000.00 of equity in a vehicle they own. Although most debtors are able to adequately protect their vehicles using this exemption, some debtors exceed the exemption amount when they have multiple vehicles with equity, or a single vehicle with high equity. Thus, if a debtor is married, and his or her spouse is not a co-debtor jointly filing for bankruptcy, he or she may seek to use state law to exempt vehicles held by the spouses as tenants by the entirety (“marital property”).
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