In Tennessee, if a married person owns property, particularly real property, with their spouse, this means the couple has an undivided one-half interest in the property. Tenants by the entirety ownership, on practical basis, means that if one spouse passes away, the other spouse will automatically own the real property without the need to probate the estate of the deceased spouse. For bankruptcy purposes, when property is owed as tenants by the entirety, and then only one spouse chooses to file bankruptcy individually, the person filing the bankruptcy has a “survivorship interest” in the real property.
A survivorship interest is not exempted or protected in bankruptcy, but it is rare for a creditor or someone else to ask the Chapter 7 Trustee to sell a survivorship interest in the real property. If a third party were to purchase the survivorship interest of the spouse filing bankruptcy, that third party would have an ownership interest in the property. This means that the non-filing spouse could not take out a loan using the land as collateral, transfer or sell the real property without the approval of the third party who purchased the survivorship interest. Further, if a third party purchased the survivorship interest and the spouse who did not file bankruptcy died; that third party would own the real property 100%. But if someone purchased the survivorship interest of the spouse filing bankruptcy, and the person filing bankruptcy died before the spouse who did not file bankruptcy, the spouse who did not file bankruptcy owns the real property 100% and the person who purchased the survivorship has lost the money they used to purchase the survivorship interest. This is the reason is it very rare for a survivorship interest to be sold by a Trustee in bankruptcy.
Be sure you do not transfer any real property or get your name off an ownership interest in property right before you file bankruptcy without consulting an attorney. Also consult with an experienced bankruptcy attorney who understands the federal bankruptcy law and any applicable state laws, like the attorneys at Bond & Botes, PC.
Cynthia T. Lawson is the Managing Partner of the Bond & Botes Law Offices location in Knoxville, Tennessee. She holds a Bachelor of Science from East Tennessee State University, and a Juris Doctorate from University of Memphis, Cecil C. Humphreys School of Law. She currently serves as a Mentor for the Moment in bankruptcy.Read her full bio here.