District Court Finds that Bankruptcy Court Misapplied Law Regarding Tenancy by the Entireties, Remands Case for Factual Findings

District Court Finds that Bankruptcy Court Misapplied Law Regarding Tenancy by the Entireties, Remands Case for Factual Findings

This action commenced when Debtor filed a petition for Chapter 7 bankruptcy in the U.S. Bankruptcy Court.  In it, Debtor sought to discharge his debts as an honest debtor. As required, he submitted personal financial information about his claimed estate, and the Bankruptcy Court appointed Trustee as administrator.

On review of Debtor’s claimed estate, Trustee uncovered additional items he believed qualified as part of  Debtor’s bankruptcy estate.  Pursuant to 11 U.S.C. §§ 105, 544, 548, 550, and 727 of the U.S. Bankruptcy Code, Trustee commenced an action against Debtor to, among other things, recover the value of these missing items.  To accomplish this, Trustee also included Debtor’s non-debtor wife, Pak, in his action.  Of issue here, Pak and Debtor had a joint bank account (“E-Trade Account”) whose funds were transferred into an individual account (“Transfer”) for Pak (“Pak Account”). Trustee sought to avoid the Transfer as fraudulent to recoup Debtor’s half of the E-Trade Account’s balance-$128,000.

Whether avoidance was possible depended on the type of property the E-Trade Account constituted under Florida law—the Bankruptcy Code exempts certain types of state-defined jointly-held property, so if exempt, subsequent transfers cannot be avoided. (See id. at 21-23 (outlining Florida law of fraudulent transfers).) See also 11 U.S.C. § 522(b)(3)(B) (defining exempt property from bankruptcy estate); Fla. Stat. § 726.102(2)(c) (defining exempt property from which transfers cannot be avoided); Beal Bank, SSB v. Almand & Assocs., 780 So.2d 45, 52-53 (Fla. 2001) (describing types of jointly-held property under Florida law and their exempt status). Pak claimed that the E-Trade Account was exempt from Yerian’s bankruptcy estate under two alternate theories: (1) she owned it individually; or (2) the couple owned it as a tenancy by the entireties (“TBE“). Trustee countered that the E-Trade Account was a joint tenancy with right of survivorship (“JTWROS“).

The Bankruptcy Court issued an oral ruling on February 14, 2017, in favor of Trustee, finding the E-Trade Account was JTWROS and thus not exempt from Debtor’s estate.  To that end, the Bankruptcy Court entered final judgment against Pak for $128,000, avoiding the Transfer as fraudulent. Pak then timely filed a Notice of Appeal to this Court, seeking review of the final judgment. Both parties submitted briefing, so the matter is now ripe for adjudication.

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