555 B.R. 514
D. Md.2016Background
- Debtor Maria E. Conrad pleaded guilty in federal court to conspiracy in a mortgage-fraud scheme and was ordered to pay $838,004.60 in restitution.
- Debtor filed Chapter 7 bankruptcy and listed as an asset real property in Maryland owned as tenants by the entirety with her non-debtor husband; she claimed the property exempt under 11 U.S.C. § 522(b)(3)(B).
- The United States recorded the restitution judgment as a lien in Charles County, Maryland before the bankruptcy filing.
- Chapter 7 Trustee filed an objection to the claimed entireties exemption, arguing the Government’s restitution lien under 18 U.S.C. § 3613 attached to the debtor’s interest.
- The Bankruptcy Court sustained the Trustee’s objection; Debtor appealed. The district court reviewed legal conclusions de novo and affirmed.
Issues
| Issue | Conrad's Argument | Trustee's Argument | Held |
|---|---|---|---|
| Whether a federal restitution lien under 18 U.S.C. § 3613 can attach to a debtor’s interest in tenancy by the entirety and defeat an exemption under § 522(b)(3)(B) | Maryland law protects entireties property from attachment by a creditor of only one spouse, so the Property is exempt | § 3613 treats restitution liens “as if” they were tax liens; under federal law such liens reach all “property or rights to property,” including entireties interests | The restitution lien attaches to the debtor’s entireties interest; the exemption is not allowed and the Trustee’s objection is sustained |
| Whether federal law (rather than state law) governs the question of attachment of a federal lien to entireties property | Relied on state-law entireties protection and on Barney (trustee cannot use §544 strong-arm to wield federal collection powers) | Federal statute and Supreme Court precedent (Craft) control the scope of federal liens regardless of state exemptions | Federal law governs; Craft’s reasoning applies to § 3613, so the federal lien can reach entireties property |
| Whether Barney controls because it limited a trustee’s ability to invoke IRS rights via § 544 | Barney involved a hypothetical IRS creditor and § 544; debtor argues similar protection applies | Here the Government is an actual creditor with a recorded restitution lien under § 3613, not a hypothetical creditor under § 544 | Barney is inapplicable; actual federal lienholder status distinguishes this case |
| Whether Sumy limits trustee’s ability to administer entireties property | Conrad points to cases recognizing state protections for entireties property | Trustee points to Sumy’s rule that entireties property is reachable to the extent of joint obligations or actual creditors | Sumy supports permitting administration where an actual creditor (here the U.S.) can reach the debtor’s entireties interest |
Key Cases Cited
- United States v. Craft, 535 U.S. 274 (Sup. Ct.) (federal tax lien statute broadly reaches a taxpayer’s interests in entireties property)
- Schlossberg v. Barney, 380 F.3d 174 (4th Cir.) (trustee may not use § 544 strong-arm to assert IRS-like powers over entireties property absent actual federal lien)
- Sumy v. Schlossberg, 111 F.2d 921 (4th Cir.) (where joint obligations exist or actual joint creditors exist, entireties property may be reached)
- In re Conrad, 544 B.R. 568 (Bankr. D. Md.) (bankruptcy court opinion applying Craft to § 3613 and sustaining trustee’s objection)