Tenancy By The Entirety in Bankruptcy

When a married couple holds title to property in a tenancy by the entirety, the property will pass automatically to the survivor upon the death of one owner. This is the same treatment that applies to property held in joint tenancy. However, a tenancy by the entirety has a special advantage when it comes to protecting assets. If a joint tenant is sued the judgment creditor may have the property severed and apply the debtor’s share of the property to the debt. If a tenant by the entirety is sued though, the judgment creditor must wait until the owners decide to sell the property on their own. What can be put in this type of ownership varies from state to state. Under Illinois law tenancy by the entirety, is limited to a married couple’s principal residence.

The tenancy by the entirety protection can also come into play, when one of the tenants by the entirety files bankruptcy. This is because the bankruptcy code provides for exemptions of property that are exempt from creditors under state law. While the married couple filing a joint bankruptcy would not get the benefit of this exemption it will be available when a spouse files an individual bankruptcy provided only the filing tenant is liable for the debts.