107 F.3d -1502 - Edmonston v. Murphy

¶5CYR, Circuit Judge.

¶6Chapter 7 debtor David Edmonston challenges a bankruptcy court ruling disallowing his exemption claim to entireties property— the primary residence owned by him and his nondebtor spouse since 1980. Edmonston duly claimed the residence exempt, see Bankruptcy Code § 522(b)(2)(B); Mass.Gen.Laws eh. 209, § 1, estimated its value at $200,000, and indicated that he and his nondebtor spouse were jointly obligated under the $59,-000 real estate mortgage and for unsecured indebtedness totaling at least $10,000. In due course the chapter 7 trustee objected to the exemption claim and Edmonston responded by contesting both the merits of the objection and the trustee’s “standing” to assert it. Ultimately, the bankruptcy court disallowed the exemption claim, the district court affirmed, and Edmonston appealed.

¶7I.

¶8As the facts are not in dispute, we conduct de novo review of the conclusions of law challenged on appeal. See In re Caron, 82 F.3d 7, 9 (1st Cir.1996). First, however, we chart the legal terrain underlying the contested conclusions of law.

¶9An interest in property held in tenancy by the entirety is exempt in bankruptcy “to the extent ... exempt from process under applicable nonbankruptcy law,” 11 U.S.C. § 522(b)(2)(B), in this instance Massachusetts law. See Napotnik v. Equibank & Parkvale Sav. Assoc., 679 F.2d 316, 318 (3d Cir.1982) (“Since property law in general and the law of co-tenancies in particular are creatures of state law, the ‘applicable nonbankruptcy law’ is the applicable [state] law of tenancy by the entirety.”). Commonwealth law provides that “[t]he interest of a debtor spouse in property held as tenants by the entirety shall not be subject to seizure by a creditor of such debtor spouse so long as such property is the principal residence of the nondebtor spouse.” Mass.Gen.Laws eh. 209, § 1 (1987) (emphasis added).1 Thus, a creditor with a claim against both tenants by the entirety (“joint creditor”) may reach and apply the entireties property. See Coraccio v. Lowell Five Cents Sav. Bank, 415 Mass. 145, 612 N.E.2d 650, 654 (1993) (“Nor, by *-1500virtue of G.L. c. 209, § 1, may a creditor of either seize the principal residence absent the joint signature of the spouses.”); In re McConchie, 94 B.R. 245, 247 (Bankr.D.Mass. 1988) (“[T]he property is free from levy and execution from [sic] the creditor of one spouse if the debts are not joint or for necessaries.”). Accordingly, the present exemption claim is unsupported by Commonwealth law to the extent Edmonston and his non-debtor spouse were jointly indebted. See, e.g., Sumy v. Schlossberg, 777 F.2d 921, 928 (4th Cir.1985) (“A debtor does not lose all benefit of § 522(b)(2)(B) when joint creditors are present, but he does not benefit from it to the extent of joint claims”).

¶10Nevertheless, an exemption claim becomes effective by operation of law absent a cognizable objection. See 11 U.S.C. § 522(0 (“Unless a party in interest objects, the property claimed as exempt on such list is exempt.”); Fed.R.Bankr.P. 4003(b); see also Taylor v. Freeland & Kronz, 503 U.S. 638, 643, 112 S.Ct. 1644, 1648, 118 L.Ed.2d 280 (1992) (property listed as exempt by debtor is exempt unless party in interest objects within 30 days); Mercer v. Monzack, 53 F.3d 1, 3 (1st Cir.1995) (property listed as exempt becomes exempt by operation of law absent timely objection), cert. denied, — U.S.—, 116 S.Ct. 1317, 134 L.Ed.2d 471 (1996). Since no joint creditor objected to Edmonston’s exemption claim within the allotted time, the present appeal cannot succeed unless the chapter 7 trustee qualifies as a “party in interest” within the meaning of Bankruptcy Code § 522®.

¶11We think it clear that Bankruptcy Rule 4003(b) — itself “derived from § 522(1) of the Code,” Fed.R.Bankr.P. 4003, Advisory Committee Note — authoritatively defines the section 522(1) term “party in interest,” by explicitly stating that the “trustee or any creditor may file objections to the list of property claimed as exempt.” Fed. R.Bankr.P. 4003(b) (emphasis added).2 Moreover, the position we make explicit today simply gives voice to the longstanding, implicit acknowledgement that a chapter 7 trustee is a “party in interest” within the meaning of section 522®. See, e.g., Taylor, 503 U.S. at 642-43, 112 S.Ct. at 1647-48 (as trustee waived right to oppose exemption claim by not objecting within 30-day period prescribed by Rule 4003(b), property became exempt by operation of § 522(1)); Petit v. Fessenden, 80 F.3d 29, 32-33 (1st Cir.1996) (failure to file timely schedules relieved trustee of duty to object, as there was no “list of property claimed as exempt” to be opposed under § 522® and Rule 4003(b)).

¶12As “the representative of the estate,” 11 U.S.C. § 323(a) (emphasis added), the chapter 7 trustee is under a duty to “collect and reduce to money the property of the estate.” Id.§ 704(1).3See First Nat’l Bank of Mobile v. Norris, 701 F.2d 902, 904 (11th Cir. 1983); In re Brooks, 12 B.R. 22, 24 (Bankr. S.D.Ohio 1981). Thus, the statutory duty to *-1499administer nonexempt property of the chapter 7 estate implicitly empowers the trustee to screen and oppose exemption claims which may not be allowable. See Fed.R.Bankr.P. 4003(b); see also In re Atlas, 183 B.R. 978, 980 (Bankr.S.D.Fla.1995) (citing 11 U.S.C. § 704; Fed.R.Bankr.P. 4003(b)).

¶13We accordingly hold that the trustee, as the designated representative of the chapter 7 estate, 11 U.S.C. § 323(a), whose duties include the collection and liquidation of the nonexempt property of the estate, see id.§ 704(1), is a “party in interest” entitled to oppose exemption claims under Bankruptcy Code § 522(Z). See also In re Van Rye, 179 B.R. 375, 378 (Bankr.D.Mass.1995) (holding that “the Trustee, in his capacity as representative of the estate, has standing to object” to exemption claims), aff'd, 96 F.3d 1430 (1st Cir.1996) (Table),

¶14II.

¶15Edmonston further contends that since a chapter 7 discharge can only relieve indebtedness of the chapter 7 debtor, joint creditors may still proceed directly against the entireties property itself because their claims against the nondebtor spouse would be unaffected by Edmonston’s chapter 7 proceeding.4 This claim impermissibly assumes that the chapter 7 debtor is entitled to have the entireties property set apart as exempt, on the theory that joint creditors would retain their respective rights to proceed against the entireties property under Commonwealth law in any event. As all relevant reported cases make clear,5 assuming a proper objection by a party in interest an entire-ties exemption claim is invalid ab initio to the extent there are joint creditors. Thereupon, as nonexempt property of the chapter 7 estate the entireties property becomes subject to administration.

¶16III.

¶17For the foregoing reasons, the district court order is affirmed, with costs to appel-lee, and the case is remanded to the bankruptcy court for further proceedings consistent with this opinion.

¶18SO ORDERED.