ON APPEAL FROM THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA
Before Gibbons and Hunter, Circuit Judges, and Thompson,*fn* District Judge.
The provisions for granting debtors exemptions under the Bankruptcy Reform Act of 1978, 11 U.S.C. § 101 et seq. (the Code), create potentially complex interrelationships between federal and state law. In this case, we must determine the application of a Code exemption provision to property held in tenancy by the entirety in light of the common law of Pennsylvania. Despite a plausible argument by Gary T. Napotnik (the debtor) seeking to avoid certain judicial liens on allegedly exempt property, we conclude that the language of the Code compels an affirmance of the bankruptcy court's decision denying that relief.
On July 11, 1980, the debtor filed a voluntary petition for relief under Chapter 7 of the Code. 11 U.S.C. § 701 et seq. On his Schedule B, Statement of All Property of the Debtor, he listed three contiguous parcels of real property located in Butler County, Pennsylvania. This property, which according to the debtor has a market value of $180,000, is owned by him as a tenant by the entirety with his spouse, Carol Napotnik, who did not join in his petition for relief. Debtor's Schedule A-2, Creditors Holding Security, reveals that portions of the property are subject to first mortgages totalling $60,000 held by a savings and loan association. These mortgage liens are undisputed and not at issue.
Schedule A-2 also lists two judgment liens on all the real property. One of these liens, held by appellee Equibank, is the subject of this appeal.*fn1 This lien was obtained by Equibank when it filed a judgment by confession against debtor and his wife in Butler County on June 1, 1978, on a note executed a few days earlier by both of them. In Pennsylvania, the entry of such a judgment note results in a lien upon all real property of the debtor or debtors in the county of filing.*fn2 This court has recently ruled that such a lien is a judicial lien, subject to avoidance under Section 522(f) of the Code. In re Ashe, 669 F.2d 105, 108-09 (3d Cir. 1982).
On Schedule B-4, Property Claimed as Exempt, the debtor claimed the entire value of the three parcels of real property as exempt pursuant to Section 522(b)(2)(B) and thereafter sought to avoid Equibank's lien pursuant to Section 522(f). Equibank objected both to the claimed exemption and to any avoiding of its lien. On the basis of stipulations of fact, after briefs and oral argument, the bankruptcy court ruled that Equibank's lien could not be avoided because the debtor could exempt only his ownership equity in the property above the liens of creditors of both debtor and his wife. Upon agreement of the parties, the debtor has appealed directly to this court.*fn3
The debtor's estate includes, with exceptions not here relevant, "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a). This definition is certainly broad enough to include an individual debtor's interest in property held as a tenant by the entirety. Any doubts about congressional intent in this respect are resolved by a reading of the exemption provisions of the Code.*fn4 Section 522(b)(2) provides that,
(notwithstanding) section 541 of this title, an individual debtor may exempt from property of the estate ...
(B) any interest in property in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law.
11 U.S.C. § 522(b)(2). Though there may be, as we shall see, some question as to what Congress meant to be exempted by Section 522(b)(2)(B), it is at least clear that by allowing an individual debtor to exempt certain interests as a tenant by the entirety, Congress intended that such interests be included in the estate in the first place.*fn5
The outcome of this case depends upon the interpretation to be given the final phrase of Section 522(b)(2)(B): "to the extent that such interest as a tenant by the entirety ... is exempt from process under applicable nonbankruptcy law." Since property law in general and the law of co-tenancies in particular are creatures of state law, the ...