Bankruptcy – Creditor’s Right Against Entirety Property – Applicablity of State Law When United States is Plaintiff

The United States as assignee sought a joint judgment on four unsecured promissory notes signed by the defendants, who are husband and wife. The proceeds of the notes were used to improve real property held by the entireties by the defendants. The husband had filed in bankruptcy before the assignment of the notes to plaintiff and was discharged from his joint and several liability on the promissory notes prior to the commencement of any action on them. His estate by the entireties, however, was not used to satisfy any listed debts because under state law he had no divisible title which could pass to the trustee in bankruptcy. The federal district court entered judgment for the plaintiff. On appeal to the Court of Appeals for the Sixth Circuit, held, judgment set aside and case remanded with instructions to dismiss. Since federal courts are not bound to apply state law when the United States is plaintiff, the husband’s liability on the notes was discharged in bankruptcy and his release likewise precluded recovery from his wife. Fetter v. United States, (6th Cir. 1959) 269 F. (2d) 467.