A bankrupt wife does not lose the ability to exempt her interest in the family’s home even if title is held by her nonbankrupt husband’s living trust, so long as the conveyance to the trust complies with Illinois law.
A married couple purchased a home as tenants by the entireties and transferred the home 13 years later to the husband’s living trust. The deed conveying the home said that the husband and wife held the beneficial interest in trust property as tenants by the entireties.
The wife alone filed a chapter 13 petition six months later. A creditor objected to her claimed exemption in the home, contending that the transfer ended her rights as a tenant by the entireties.
District Judge Elaine E. Bucklo of Chicago affirmed the decision by the bankruptcy court upholding the exemption.
Section 522(b)(3)(D) of the Bankruptcy Code exempts “any interest in property” as a tenant by the entirety, to the extent the property is exempt from process under nonbankruptcy law.
In turn, Illinois’ Joint Tenancy Act provides that a homestead owned in the name of a revocable inter vivos trust is considered entireties property if: the settlors were husband and wife; they are the primary beneficiaries; and the deed specifically states that the couple’s interests in the property are to be held by the entirety.
Judge Bucklo agreed that ownership by the trust complied with Illinois law. Thus, the transfer did not expose the property to the claims of either the husband’s or the wife’s creditors, she held.