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Recent Seventh Circuit Decision Gives More Teeth to Judgment Liens - Commercial & Bankruptcy Law News

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Commercial & Bankruptcy Law News

Posted on: Oct 18, 2019

By Dustin DeNeal, Faegre Baker Daniels LLP

The Seventh Circuit’s recent decision in Williams v. Jaffe is an interesting read for creditor/debtor’s rights attorneys, as it gives more teeth to judgment liens, at least in Illinois. In the case, LaVerne Williams obtained a judgment against Scott Jaffe and recorded a judgment lien against property that Jaffe and his wife owned as tenants by the entireties. Jaffe sought to avoid the lien in his bankruptcy, arguing that the property was exempt under 11 U.S.C. § 522(b)(3)(B).

However, the bankruptcy court held that Illinois law does not exempt Jaffe’s contingent future interest in tenancy by the entireties property (i.e., Jaffe’s right to fee simple title upon his wife’s death). As a result, he could not avoid the creditor’s judgment lien. That was a big blow to Jaffe, as his wife had died during the case, meaning that the judgment creditor could foreclose on Jaffe’s residence, which his schedules valued at $489,000 and which had only $8,000 remaining on the first position mortgage. The district court reversed, believing that all interests in tenancy by the entirety property, even contingent future interests, were exempt under Illinois law.

The Seventh Circuit disagreed, differentiating Illinois and Indiana law on this issue:  “Illinois law does not make all interests held by tenants by the entirety immune from process and we need not look hard for a state that does – Indiana law exempts ‘any interest the judgment has in real estate as a tenant by the entireties.’ Ind. Code § 34-2-28-1(a)(5); In re Paeplow, 972 F.2d 730, 737 (7th Cir. 1992).” So, creditor attorneys should make sure to check applicable state law before giving up remedies against tenancy by the entireties property.

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