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Evans v. Wolinsky
Citations: 347 B.R. 9; 2006 U.S. Dist. LEXIS 55533; 2006 WL 2147711Docket: No. 1:06 CV 51
Court: District Court, D. Vermont; July 20, 2006; Federal District Court
Douglas Wolinsky, as Chapter 7 trustee for Phillip J. Sentner II's bankruptcy estate, initiated an adversary proceeding to challenge the Debtor’s pre-petition transfer of his interest in a property owned jointly with Alexandra Evans as tenants by the entirety. The parties agree on undisputed material facts: the Debtor and Defendant, married since December 1988, acquired the Peacham, Vermont home in 1996. Amid marital issues in August 2003, the Defendant requested a quit claim deed for the Debtor’s interest, which was not recorded until July 9, 2004. The Debtor filed for Chapter 7 bankruptcy on November 5, 2004, and they had no joint debts at that time other than a satisfied home equity line of credit. The couple divorced by March 14, 2005. The Bankruptcy Court ruled that while an individual creditor could not levy a lien against the Property as of the Petition Date, they could have perfected a judgment lien, thereby allowing the trustee to pursue a fraudulent conveyance claim based on the quit claim deed. An interlocutory appeal was granted due to the absence of disputed facts and the presence of a significant legal question regarding whether the Debtor’s pre-petition interest in the property is part of his bankruptcy estate and reachable by creditors. It is established that a bankruptcy estate includes all property interests at the time of the petition, defined by state law unless a federal interest suggests otherwise. In Vermont, tenants by the entirety each hold the entire estate indivisibly, meaning one spouse cannot unilaterally dispose of or encumber the property. Additionally, under Vermont law, fraudulent conveyances cannot involve homestead property, as such property is exempt from creditor claims. Vermont law defines an “asset” relevant to fraudulent transfers as the “property of a debtor,” excluding interests in property held in tenancy by the entirety that are not subject to creditor claims against one tenant. In this case, the Property was jointly held by the Debtor and another party as tenants by the entirety at the time of the transfer, meaning it could not be encumbered by naming only one tenant. Consequently, the Property did not qualify as an “asset” under Vermont’s fraudulent conveyance law, and Debtor’s creditors could not reach it before or during the transfer. The bankruptcy estate cannot assert rights to property that is not considered an asset, as supported by Vermont case law, which indicates that property held by tenants by the entirety is immune from execution by a creditor of one spouse alone. Without a joint creditor or a perfected lien, no property interest of the Debtor was accessible to creditors when the transfer occurred. The estate includes only interests existing at the case's commencement, and in the absence of a perfected judgment lien at that time, the transfer did not diminish the Debtor's estate. The Bankruptcy Court's decision denying the Defendant’s motion for summary judgment is reversed, and the matter is remanded for entry of summary judgment favoring Appellant-Defendant Alexandra Evans.