Holley v. Corcoran (In re Holley)

File No. 16a0580n.06; Case No. 16-1081 (Sixth Cir., October 25, 2016)
Sixth Circuit Court of Appeals reversed bankruptcy court's decision which allowed Chapter 7 trustee payment of administrative expenses from the proceeds of sale of real property owned by debtors as tenants by the entireties which had been claimed as exempt under state law. The Sixth Circuit affirmed the bankruptcy court's denial of the debtors' motion for reconsideration of court's decision to allow the sale of the real property..
Procedural context:
Husband and wife filed separate bankruptcies which were consolidated. Chapter 7 trustee filed a Section 363 sale motion to sell real estate jointly owned by debtors in Michigan which was owned as tenants by the entireties. Debtors did not object. After payment of joint debt from sale proceeds, trustee sought the payment of the trustee's administrative expenses from those sale proceeds. Bankruptcy court granted trustee's motion over debtors' objection. Bankruptcy court denied debtors' motion to reconsider the order approving the sale. District court affirmed both decisions of the bankruptcy court..
Debtors' owned Michigan real estate as tenants by the entireties. Michigan law allows the exemption of the real property owned as tenants by the entireties from sale except to pay joint debts. Debtors claimed exemptions under state law, albeit somewhat confusingly due to a change in Michigan law during the case. Debtors had filed separately in different states but cases were consolidated. Debtors did not object to a sale of the real property by the trustee but wanted the trustee to sell the real estate to a buyer favored by the debtors. The trustee agreed to do so. The trustee then wanted to pay joint debts as well as the administrative expenses from the sale proceeds. Bankruptcy court felt the debtors had contributed to problems in the case and thought it was fair to allow this. The debtors did not like how the trustee was handling the sale so late in the game tried to get the court to undo the order approving the sale. The bankruptcy court said the request to reconsider was too late. The Sixth Circuit opined that the state law exemption for real estate owned as tenants by the entireties was clear and there was no way to pay administrative expenses from those proceeds.
Circuit judges Daughtery, Gibbons,and Cook

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