UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT 0F KENTUCKY
GEORGIA GAIL ROBINSON CASE NO. 92-60900
This matter is before the Court upon the Debtor's Motion for Order Avoiding Lien on Exempt Property filed on March 27, 1992 and Debtor's Amended Motion for Order Avoiding Lien on Exempt Property filed April 27, 1992, both of which motions seek to avoid the lien of MGM Collection Agency ("MGM") on the home occupied by the debtor. The motions seek to avoid the lien as a judicial lien that impairs the interest of the debtor in exempt property pursuant to 11 USC 522(f)(1).
Debtor and her then husband, Monte Robinson ("Monte"), acquired the property in question by deed dated August 28, 1984 for use as a residence. The deed provides that the estate taken by the debtor and Monte was "...for their joint lives with remainder in fee simple absolute to the survivor...."
On October 16, 1990, MGM obtained a judgment against Monte in the amount of $3,132.40 plus costs, interest and attorney's fees. On October 31, 1992 MGM filed a Notice of Judgment Lien in the proper office and, thus, pursuant to Kentucky law obtained a lien against the property to the extent of Monte's interest in the property.
On September 11, 1991 debtor filed an action for divorce. The parties to the divorce action entered into a Separation Agreement dated September 10, 1991 which provided that the residence would be the property of Monte and that he was to pay to the debtor the sum of $10,000 for her interest in the property. Subsequently, the parties were divorced on November 7, 1991. An Amendment to Separation Agreement dated December 9, 1991 reversed the previous arrangement and under the amendment, debtor would receive the house and Monte would receive other specific property from the marriage. The contemplated transfer of Monte's interest to debtor, by way of a quitclaim deed, has not yet been made.
On December 13, 1991 debtor filed her petition herein listing the house as an asset with a value of $18,000 and a mortgage against the property to First National Bank of London, Kentucky securing a debt in the remaining amount of $4,579.74.
The debtor now seeks to avoid the lien of MGM (despite the fact that MGM claims no lien against the interest of debtor in the property-only against Monte's interest) as a judicial lien on an interest of the debtor in property which impairs a lien to which the debtor would have been entitled under the homestead exemption of the laws of Kentucky, that state having opted out of the Federal exemptions. It is not contested that MGM's lien is a judicial lien or that the debtor is entitled to a homestead exemption and, thus, that the exemption claimed is one that, if the other conditions are met, is described in 11 USC 522(f). What is contested is whether the lien impairs an interest of the debtor in the property or whether it impairs only the interest of Monte who is not a debtor before this Court. Debtor contends that the estate she owns in the property is a tenancy by the entireties and that as such, the lien against the property, although purporting to be against the interest of Monte only actually impairs the homestead exemption claimed by the debtor in the property. MGM responds that their lien impairs only the interest of Monte in the property.
The Court notes that the Trustee has not abandoned this property or otherwise addressed any interest of the estate in the property. This fact is not germane here because of the result reached herein.
Kentucky law recognizes the estate of tenancy by the entirety. Kentucky Revised Statutes ("KRS") 381.050, et seq. Under these statutes a conveyance to husband and wife with right of survivorship creates such an estate. It is clear that the conveyance to debtor and Monte created such an estate.
Kentucky case decisions clearly establish that a creditor of one spouse may levy execution and compel the sale of the interest of that spouse in property held with the other spouse by the entireties. Hoffmann v. Newell, 60 S.W.2d 607 (Ky. 1933), In re Brown, 60 F.2d 269 (D. Ct. 1932), In re Osbourne, 124 B.R. 726 (Bktcy 1989).
In the Hoffmann case, supra, the Court recognized that the Legislature of Kentucky had chosen to alter the true theory of the indivisibility of the estate by the entirety through legislative enactment which resulted in the exposure of the contingent interest or expectancy of the judgment debtor being subject to the claims of his creditors. At page 613. This Court concludes that this language recognizes a separate interest which each such spouse has in such property. It is this interest to which the lien of MGM attached. Monte's contingent interest or expectancy is his separate property and not the property of the debtor in these proceedings.
Debtor cites Owen v. Owen, ___ U.S. ___, 111 S.Ct. 1833 (1991) and Farrey v. Sanderfoot, ___ U.S. ___, 111 S.Ct. 1825 (1991) as guiding the Court's decision in this matter. While the requirement of the preexistence of the debtor's interest from the Farrey case is certainly applicable, the Owen holding requiring equal treatment of state and Federal exemptions under Section 522(f) does not appear to bear upon this matter. Counsel for the Debtor points out the concurring opinion of Justices Kennedy and Souter in the Farrey matter and its citation of Wisconsin's statute providing that a conveyance as here would result in each spouse owning an undivided one-half interest in the property and properly points out that Kentucky law differs on this point. However, despite this difference, as the Hoffmann case, supra, makes clear, Kentucky law recognizes an estate of each spouse in property held by the entireties which may be reached by the creditors of that spouse who hold no claim against the other spouse. The Court therefore concludes that, while the law of Wisconsin and Kentucky differ as to the estate taken under such a conveyance, there is in each case some separate property interest that creditors of one spouse only may reach.
The conclusion that the Court reaches does not necessarily mean that the creditors of Monte may necessarily dispossess Debtor from the house since it seems clear that what such creditors may sell after levy of execution is the "...contingent interest or expectancy..." described in the Hoffmann case. See U.S. v. Real Property Located at 5205 Mt. Howard Court, Louisville, Ky. 755 F. Supp. 169 (W.D.Ky. 1990).
The Court concludes that the lien of MGM is not a lien upon an interest of the Debtor in property which is avoidable pursuant to 11 U.S.C. 522(f) and a separate order will be entered overruling the Debtor's motion to avoid such lien.
Dated this ________day of July, 1992.
BY THE COURT:
Marcia Smith, Esq.
Wesley R. Tipton, Esq.
United States Trustee