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Fourth Circuit opinion says tenancy by the entirety not exempt from tax debt

Published May 23, 2024 by Philip Sasser

How does a Fourth Circuit Court of Appeals ruling on tenancy by the entirety impact the Eastern District NC Bankruptcy Court?

High School civics class was long ago, so let’s review how court decisions work their way up the appellate chain of command for bankruptcy cases filed in the Eastern District of North Carolina.

First, our home bankruptcy courts are scattered around eastern North Carolina, from Raleigh to the coast, and in those courthouses, our own home bankruptcy judges (Warren, McAfee, and Callaway). If you lose at the bankruptcy court level, your appeal goes to the Federal District Court for the Eastern District of North Carolina. And if you lose at the District Court, your appeal goes to the Fourth Circuit Court of Appeals in Richmond, Virginia. Decisions emanating from the Fourth Circuit Court of Appeals affect decisions, rulings, and cases in the lower courts in West Virginia, Maryland, Virginia, North Carolina, and South Carolina. If you lose at the Fourth Circuit, your only recourse is to go to the U.S. Supreme Court.

New Bankruptcy Ruling From the Fourth Circuit

Because only two or three bankruptcy cases each year ever reach the United States Supreme Court (and even those are usually highly technical and limited in their application) it is always a consequential event when our circuit court, The Fourth Circuit, issues an opinion dealing with bankruptcy matters.

judge legal gavel and bankruptcy court documents

Fourth Circuit Opinion Impacts NC Bankruptcy Court.

In April, just such an opinion from the Fourth Circuit was published. And this one was even more consequential than usual.

North Carolina makes up for its meager homestead exemption of only $35,000 by granting married couples in North Carolina a status of real estate ownership called “Tenancy by the Entirety.” Holding property as a married couple essentially entitles you to a limitless homestead exemption as long as there exists no joint unsecured debt shared between the couples.

That was the assumption, anyway, until last month when the Fourth Circuit Court of Appeals published its opinion in the case of Bruton v. Price. That opinion carved out an exception to the general rule that only joint unsecured debt imperils real estate owned by a married couple, stating that a tax obligation, even if owed by only one spouse, was also sufficient to imperil property held as tenancy by the entirety.

This isn’t a ruling that will affect every bankruptcy case. But it is one that erodes an important beachhead against encroaching chapter 7 trustees in North Carolina.

Rest assured, the attorneys at Sasser Law Firm are unwavering in their commitment to closely monitor court rulings and changes to the law that could potentially affect their clients. Your legal representation is in capable hands. 

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