Birney v. Smith (In Re Birney)

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: BENJAMIN W. BIRNEY,
Debtor.
BENJAMIN W. BIRNEY,
No. 98-2479
Plaintiff-Appellee,
v.
LAWRENCE K. SMITH,
Defendant-Appellant.
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
Frederic N. Smalkin, District Judge.
(CA-98-1445-S, BK-95-53505-JS, AP-96-5182)
Argued: October 27, 1999
Decided: December 29, 1999
Before MURNAGHAN, NIEMEYER, and TRAXLER,
Circuit Judges.
_________________________________________________________________
Affirmed by published opinion. Judge Murnaghan wrote the opinion,
in which Judge Niemeyer and Judge Traxler joined.
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COUNSEL
ARGUED: David Foxwell Albright, Sr., ALBRIGHT, BROWN &
GOERTEMILLER, L.L.C., Baltimore, Maryland, for Appellant.
Andrea Goodwin Green, UAW LEGAL SERVICES PLAN, Newark,
Delaware, for Appellee. ON BRIEF: Edward D.E. Rollins, III, Elk-
ton, Maryland, for Appellant.
_________________________________________________________________
OPINION
MURNAGHAN, Circuit Judge:
This case concerns the bankruptcy proceedings of Benjamin Birney
and the attempt by Lawrence Smith, a judgment creditor, to exercise
a lien on real property owned by Birney originally as tenants by the
entireties with his now deceased wife in Cecil County, Maryland. The
Bankruptcy Court and the District Court found that Smith could not
reach the property either directly through Birney or indirectly through
Birney's bankruptcy estate. For the reasons discussed below, we
affirm.
I.
Birney and his wife owned real property located in Cecil County,
Maryland as tenants by the entireties. In 1984, Smith obtained a judg-
ment solely against Birney in Maryland state court. Although gener-
ally a money judgment arising out of a Circuit Court proceeding will
constitute a lien on the judgment debtor's land located in the county
in which the judgment was rendered, Md. Code Ann. Cts. & Jud.
Proc. § 11-402(b)(1998), property held as tenants by the entireties
cannot be taken by creditors to satisfy the individual debts of either
the husband or the wife. Watterson v. Edgerly , 388 A.2d 934, 938
(Md. App. 1978).
In May of 1995, Birney filed a voluntary Chapter 7 bankruptcy
petition. Mrs. Birney did not file for bankruptcy. Birney listed the
Cecil County property as exempt because it was jointly owned as ten-
ants by the entireties by the debtor and his non-filing spouse. In June
of 1995, the trustee sent notification to creditors that the case was a
no-asset case, and in August of 1995, he filed a report of no distribu-
tion.
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In October of 1995, Mrs. Birney died. The trustee investigated the
possibility that the estate would acquire assets, but in December of
1995 he filed a second report of no distribution. In January of 1996,
Birney received a discharge and the case was closed. No objections
were filed to Birney's claimed exemptions or the trustee's reports.
Smith subsequently attempted to foreclose on the Cecil County
property, claiming that he acquired a lien on the property upon Mrs.
Birney's death. In April of 1996, Birney reopened the bankruptcy
case and sought a declaration from the court that Smith held no lien
on the property and that Smith's claim against Birney had been dis-
charged in the bankruptcy proceedings.
In March of 1998, the Bankruptcy Court granted Birney's motion
for summary judgment, finding that Mrs. Birney's death did not nul-
lify the property exemption. In September of 1998, the District Court
affirmed the Bankruptcy Court's order, finding that the basis for the
exemption did in fact lapse, but also that the property was never cap-
tured by the bankruptcy estate and therefore could not be reached by
Smith. Smith then filed the instant appeal.
II.
Smith cannot reach the Cecil County property directly through
Birney. During the period prior to Birney's bankruptcy petition,
Smith's lien could not attach to the property because Mrs. Birney was
still alive. Because Smith held no claim against Mrs. Birney, and
because Mrs. Birney owned an undivided interest in the property as
tenants by the entireties with her husband, Smith's judgment against
Birney could not ripen into a lien on the property so long as Mrs.
Birney was alive. See Watterson, 388 A.2d at 938.
During the period between Birney's bankruptcy filing and the dis-
charge of his case, no lien could attach because of the automatic stay
imposed by 11 U.S.C. § 362(a)(5), which prohibits
any act to create, perfect, or enforce against property of the
debtor any lien to the extent that such lien secures a claim
that arose before the commencement of the case under this
title.
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Smith contends that his lien on the Cecil County property arose by
operation of law upon Mrs. Birney's death. He concludes, therefore,
that attachment of the lien did not fall under the§ 362(a) prohibition
since it did not involve an "act" to create or perfect the lien. Smith's
contention, however, is incorrect under our recent holding in In re
Avis v. Trustee, 178 F.3d 718 (4th Cir. 1999).
In Avis, we held that the attachment of a tax lien, arising by opera-
tion of law to property acquired post-petition, is an "act" within the
meaning of § 362(a) and is therefore prohibited during the time that
the automatic stay is in effect. Id. at 723-24. We rejected a narrow
interpretation of the term "act" and concluded that the attachment of
a lien is itself an "act" that is prohibited by § 362(a)(5), even when
the attachment occurs automatically by operation of law. Id. at 722-
23.
The automatic stay imposed by § 362(a)(5), therefore, prohibits the
attachment of Smith's post-petition lien in the instant case. Even
though Smith's lien arose by operation of law upon Mrs. Birney's
death, attachment of the lien is still an "act" that is prohibited by the
automatic stay under § 362(a)(5). The automatic stay remained in
effect until January of 1996, when Birney was granted a discharge.
See 11 U.S.C. § 362(c)(2)(C). Therefore, Smith's lien could not attach
from the time Birney filed his bankruptcy petition until the time he
was granted a discharge.
During the period following Birney's discharge in January of 1996,
no lien could attach to the property because the discharge extin-
guished the debt upon which the lien was based. See 11 U.S.C.
§ 524(a)(1). Once Birney was granted a discharge, he was no longer
liable for the judgment debt owed to Smith.
In summary, Smith's judgment debt could not ripen into a lien
prior to Birney's bankruptcy petition because during that time Mrs.
Birney was alive. It could not ripen into a lien between the filing of
the bankruptcy petition and the discharge because 11 U.S.C.
§ 362(a)(5) imposed an automatic stay which prohibits any lien on a
pre-petition debt from attaching. And finally, it could not ripen into
a lien following Birney's discharge because the discharge extin-
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guished his liability for the underlying debt. Smith, therefore, cannot
reach the Cecil County property directly through Birney.
III.
Smith also cannot reach the Cecil County property through the
bankruptcy estate. Smith contends that upon Mrs. Birney's death, the
basis for exempting the Cecil County property from the bankruptcy
estate lapsed, and that therefore the property should become part of
the estate and made available to satisfy Birney's creditors.
The basis for Birney's exemption of the property was extinguished
upon Mrs. Birney's death. In In re Cordova, 73 F.3d 38 (4th Cir.
1996), this court held that an exemption for property held as tenants
by the entireties lapsed when the joint tenancy was extinguished by
operation of law following a divorce which occurred post-petition.
As the district court correctly pointed out, however, a determina-
tion that the basis for the property exemption has lapsed does not end
the inquiry. Termination of the exemption post-petition does not, by
itself, bring the property into the bankruptcy estate. See Cordova, 73
F.3d at 41; In re Alderton, 179 B.R. 63 (Bankr. E.D. Mich. 1995).
There must also be some applicable statutory mechanism by which
the estate "captures" the post-petition property.*
Section 541(a) provides the only potentially applicable statutory
basis for bringing the Cecil County property into the bankruptcy
estate. Section 541(a)(5) defines as part of the estate
Any interest in property that would have been property of
the estate if such interest had been an interest of the debtor
on the date of the filing of the petition, and that the debtor
_________________________________________________________________
*In the aftermath of Mrs. Birney's death, Smith could have filed an
objection to the property Birney claimed as exempt from the bankruptcy
estate, pursuant to 11 U.S.C. § 522(l) and Bankruptcy Rule 4003(b).
Because Smith did not file any such objection, we need not consider
whether it would have been warranted by the circumstances of Birney's
situation.
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acquires or becomes entitled to acquire within 180 days
after such date --
(A) by bequest, devise, or inheritance;
(B) as a result of a property settlement agree-
ment with the debtor's spouse, or of an inter-
locutory or final divorce decree; or
(C) as a beneficiary of a life insurance policy or
of a death benefit plan.
Simply put, in limited circumstances the statute allows the estate
to "capture" property acquired by a debtor within 180 days after filing
the bankruptcy petition. Such property becomes part of the bank-
ruptcy estate if the property was obtained as a result of an inheritance,
a divorce settlement, or insurance proceeds. Only property which falls
into the descriptions contained in subsections (A) through (C) is "cap-
tured" by the bankruptcy estate post-petition.
Less than 180 days after filing his bankruptcy petition, upon Mrs.
Birney's death, Birney obtained a fee simple interest in the Cecil
County property by operation of law. He was a joint owner as tenants
by the entireties with his wife, and thus he held a survivorship interest
in the property. See Cooper v. Bikle, 640 A.2d 1120, 1127 (Md.
1994). Upon Mrs. Birney's death, Birney became the sole owner of
the property. A tenant by the entireties, however, does not "inherit"
his co-tenant's interest in the property. See, e.g., Bonczkowski v.
Kucharski, 150 N.E.2d 144, 149 (Ill. 1958). Rather, he continues his
full ownership of the property alone. Consequently, Birney did not
become entitled to a fee simple interest in the Cecil County property
by "bequest, devise, or inheritance." Nor, obviously, did Birney
obtain the property in a divorce settlement or as an insurance benefi-
ciary. Section 541(a)(5), therefore, is inapplicable and does not pro-
vide a statutory mechanism for bringing the Cecil County property
into Birney's bankruptcy estate. The property, therefore, belongs to
Birney, not to Birney's bankruptcy estate. As a result, Smith could not
reach the property through the estate.
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IV.
For the foregoing reasons, we affirm the order of the district court.
AFFIRMED
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