Tenancy by the Entirety in Bankruptcy

Tenancy by the entirety is one of the most powerful exemptions available to married bankruptcy debtors in Florida. When only one spouse files for Chapter 7 or Chapter 13 bankruptcy, property held as tenants by the entirety is exempt from the bankruptcy estate to the extent it would be protected from individual creditors under Florida common law. The bankruptcy trustee cannot sell the property to pay the filing spouse’s individual creditors, and the property emerges from bankruptcy intact.

This protection operates through Section 522(b)(3)(B) of the Bankruptcy Code, which preserves state-law entireties exemptions for debtors in states that have opted out of the federal exemption scheme. Florida opted out under Section 222.20 of the Florida Statutes, meaning Florida debtors must use state exemptions rather than the federal exemption list. Because Florida common law provides complete creditor immunity for entireties property against individual creditors, the exemption in bankruptcy is equally broad.

How the Exemption Works in Chapter 7

In a Chapter 7 bankruptcy, the trustee’s job is to liquidate the debtor’s non-exempt assets and distribute the proceeds to creditors. When one spouse files individually and claims entireties property as exempt under Section 522(b)(3)(B), the trustee can only reach that property to the extent of joint debts owed by both spouses.

The Eleventh Circuit confirmed this framework in Havoco of America, Ltd. v. Hill, 197 F.3d 1135 (11th Cir. 1999), holding that property held as tenants by the entirety is exempt from the claims of individual creditors in bankruptcy. The court also established an important procedural rule: a creditor who wants to challenge the entireties exemption on fraudulent transfer grounds must bring an adversary proceeding and join the non-filing spouse as a party. A simple objection to the debtor’s exemption claim is not sufficient because the non-filing spouse has due process rights in the entireties property that cannot be adjudicated without the spouse’s participation.

If no creditor or the trustee objects to the claimed exemption within thirty days after the meeting of creditors, the exemption becomes final under Bankruptcy Rule 4003(b). The property passes through the bankruptcy entirely protected, and the debtor and non-filing spouse retain full ownership.

The Joint Debt Exception

The entireties exemption does not protect against joint debts. If both spouses are liable on a debt, the creditor holding that joint claim can reach entireties property in bankruptcy just as it could outside of bankruptcy. This creates a critical distinction between the debtor’s individual creditors and the couple’s joint creditors.

In practice, the Chapter 7 trustee examines all proofs of claim filed in the case to identify any joint debts. To the extent that joint unsecured claims exist, the trustee can administer entireties property and distribute proceeds to those joint creditors. The remaining equity, if any, is returned to the debtor and spouse.

Common joint debts that defeat the exemption include co-signed credit cards, mortgages both spouses signed, personal guarantees both spouses executed, and joint tax liabilities. The Common Mistakes That Destroy Tenancy by the Entirety Protection article discusses why keeping debts in one spouse’s name whenever possible is a fundamental element of asset protection planning.

Chapter 13 and Entireties Property

Chapter 13 operates differently from Chapter 7 because the debtor proposes a repayment plan rather than liquidating assets. The entireties exemption still applies, but its practical effect is measured through the “best interest of creditors” test under Section 1325(a)(4). This test requires the debtor’s plan to pay unsecured creditors at least as much as they would receive in a hypothetical Chapter 7 liquidation.

If entireties property would be exempt in a Chapter 7, then its value is excluded from the liquidation analysis and the debtor does not need to pay its value to unsecured creditors through the plan. The Eleventh Circuit applied this framework in In re Sinnreich, 391 F.3d 1295 (11th Cir. 2004), confirming that the entireties exemption functions identically in the Chapter 13 best-interest analysis as it does in a Chapter 7 liquidation.

For married debtors with significant entireties assets and substantial individual debts, this creates a strong incentive to file Chapter 13 individually rather than jointly. The entireties property is excluded from the plan calculation, potentially reducing the total amount the debtor must pay to unsecured creditors over the three-to-five-year plan period.

No Two-Year Residency Requirement

Most Florida exemptions are subject to the 730-day domicile requirement under Section 522(b)(3)(A) of the Bankruptcy Code. A debtor must have lived in Florida for at least two years before filing bankruptcy to claim Florida’s homestead exemption, personal property exemptions, and other statutory protections. If the debtor moved to Florida within that window, the debtor must use the exemptions of the state where the debtor lived for the majority of the 180 days preceding the two-year period.

Tenancy by the entirety is a notable exception to this rule. Because entireties protection is not a statutory exemption but rather a common-law attribute of how property is titled, courts have held that it is not subject to the same domicile requirements. A married couple who moves to Florida and titles property as tenants by the entirety can claim the entireties exemption in bankruptcy even if they have not lived in Florida for 730 days.

The reasoning is that Section 522(b)(3)(B) exempts property held as tenants by the entirety “to the extent that such interest is exempt from process under applicable nonbankruptcy law.” The applicable nonbankruptcy law for real property is the law of the state where the property is located, not the law of the debtor’s domicile. For personal property and financial accounts, the analysis follows the titling and the law governing the account. The Which States Recognize Tenancy by the Entirety article explains how choice-of-law rules apply to entireties property across state lines.

The Homestead and Entireties Interaction

A married couple’s primary residence in Florida may be protected by both the constitutional homestead exemption and the entireties exemption simultaneously. The two protections are independent, and each has advantages the other lacks.

The homestead exemption under Article X, Section 4 of the Florida Constitution is subject to the 1,215-day rule in bankruptcy under Section 522(p). If the debtor acquired the homestead within 1,215 days before filing, the homestead equity that can be protected is capped at the federal amount (currently $189,050 as adjusted). The entireties exemption has no such cap. A married debtor who recently purchased a home worth millions can protect the full value through the entireties exemption even if the homestead exemption would be capped.

However, claiming the entireties exemption for the home instead of the homestead exemption carries a secondary cost. Under Osborne v. Dumoulin, 55 So. 3d 577 (Fla. 2011), a debtor who does not claim the homestead exemption may qualify for an additional $4,000 personal property wildcard exemption under Section 222.25(4). But protecting the home through the entireties exemption is treated as “receiving the benefits of a homestead exemption,” which eliminates the additional $4,000. This is a narrow issue, but for debtors with limited personal property, the distinction can matter.

Fraudulent Transfer Challenges

The entireties exemption in bankruptcy is not immune from fraudulent transfer challenges. If a debtor converted individually owned assets into entireties property with the intent to hinder, delay, or defraud creditors, the trustee or a creditor can bring an adversary proceeding under Section 548 of the Bankruptcy Code or Chapter 726 of the Florida Statutes to avoid the transfer.

The Eleventh Circuit addressed this directly in Havoco, holding that a fraudulent transfer challenge to entireties property requires an adversary proceeding with the non-filing spouse joined as a party. The court reasoned that avoidance of the transfer would affect the non-filing spouse’s property rights, and the spouse is entitled to due process before those rights can be eliminated.

The In re McCuan case discussed in the Non-Debtor Spouse Liability for Fraudulent Transfers article illustrates how these challenges play out in practice. When a debtor transfers individually owned funds into an entireties account shortly before bankruptcy, the trustee can seek to recover the transferred amount. But the non-debtor spouse may raise equitable defenses, including lack of control over the account and absence of fraudulent intent.

The timing of the transfer matters significantly. The Bankruptcy Code’s Section 548 allows avoidance of transfers made within two years before the filing date. Florida’s fraudulent transfer statute under Chapter 726 provides a four-year look-back period. A debtor who established entireties ownership years before any financial difficulty is in a much stronger position than one who hastily retitled assets after a lawsuit was filed.

Individual Filing Versus Joint Filing

The entireties exemption is available only when one spouse files for bankruptcy individually. If both spouses file a joint petition, the entireties property becomes property of the joint bankruptcy estate under Section 541(a), and the exemption does not apply. The trustee can administer all of the couple’s assets, including entireties property, to pay both individual and joint creditors.

This creates a strategic choice for married couples contemplating bankruptcy. If one spouse has substantial individual debts and the couple holds significant entireties assets, an individual filing by the debtor spouse preserves the entireties exemption for all jointly owned property. If both spouses have significant debts, the entireties exemption offers no benefit and a joint filing may be more appropriate.

The decision is further complicated when one spouse has individual debts and the couple also has joint debts. In that scenario, the entireties exemption protects against the individual debts but not the joint debts, and the trustee can still reach entireties property to the extent of joint claims. An experienced bankruptcy attorney should analyze the full creditor landscape before deciding whether to file individually or jointly.

Tax Refunds and Other Non-Obvious Entireties Property

The entireties exemption in bankruptcy extends beyond real estate and bank accounts to any asset that qualifies as entireties property under Florida law. Courts have applied the exemption to several less obvious asset categories.

Joint federal income tax refunds can be exempt as entireties property. In In re Uttermohlen, the Eleventh Circuit held that a joint tax refund filed by a married couple satisfied the six unities required for entireties ownership and was therefore exempt from the individual debtor’s bankruptcy estate. The debtor claimed the full refund as exempt under Section 522(b)(3)(B), and the court agreed.

Household furnishings acquired during the marriage may qualify as entireties property. In In re Kossow (S.D. Fla. 2007), the court allowed the entireties exemption for furnishings purchased during the marriage, finding that the presumption of entireties ownership applied. The court even extended the exemption to furnishings acquired before the marriage, holding that they had been effectively assigned to the marital unit.

These cases reinforce the breadth of the entireties exemption in bankruptcy. Any asset that satisfies the six unities of entireties ownership can be claimed as exempt, regardless of whether it is real property, personal property, tangible, or intangible. The Tenants by the Entirety page provides an overview of all asset categories that can qualify for entireties protection in Florida.

Pre-Bankruptcy Planning With Entireties Property

Converting non-exempt assets into entireties property before filing bankruptcy is a recognized planning technique, but one that carries risk. Florida law generally permits debtors to convert non-exempt assets into exempt forms before filing for bankruptcy. The Florida Supreme Court held in Havoco of America, Ltd. v. Hill, 790 So. 2d 1018 (Fla. 2001), that even a homestead acquired with the specific intent to place assets beyond creditors’ reach is protected under the Florida Constitution.

The same principle applies with some qualification to entireties conversions. A debtor who transfers individually owned funds into a jointly titled account before bankruptcy may face a fraudulent transfer challenge, but the mere act of converting to an exempt form is not automatically fraudulent. The debtor must have been solvent at the time of the transfer, or the transfer must have been made for reasonably equivalent value, to avoid constructive fraud claims under Section 548(a)(1)(B).

The safest approach is to establish entireties ownership well before any financial difficulty arises. Couples who proactively title their assets as tenants by the entirety as part of routine financial planning are in a far stronger position than those who scramble to retitle assets after receiving a demand letter or lawsuit. The How to Open a Tenancy by the Entirety Account article provides practical guidance on establishing entireties ownership at banks and brokerages.