Bankruptcy-Proof and Allowance of Claims-Reopening of Estate to Allow Creditors to Reach Tenancy by the Entirety

Husband (H) and wife (W) executed joint, unsecured promissory notes to each of two creditors, a realty company, and a bank. H, in default on both notes, filed a voluntary petition in bankruptcy. The petition listed both noteholders as creditors; in addition, the schedule of assets noted that an interest in an estate by the entirety held by the bankrupt was not an asset of the bankrupt estate, since under state law it was not subject to the claims of creditors of only one spouse. After the first meeting of creditors, an order of discharge was entered without objection and H‘s estate was closed. The United States subsequently commenced suit against W individually on one of the notes assigned to it by the creditor bank. Nineteen days later, more than six months after the filing of H‘s petition, W initiated bankruptcy proceedings, listing the creditors on the two notes, and scheduling her interest in the same estate held by the entirety. Upon application by the United States the district court issued an ex parte order reopening H‘s estate. The referee ordered consolidation of the estates of H and W and directed the trustee to sell the property held by the entirety for the benefit of the joint creditors. The district court upheld the order. On appeal, held, affirmed. Where property held by the entirety would have been immune from administration by the trustee in successive bankruptcy proceedings by husband and wife, the court did not abuse its discretion by reopening H‘s closed estate, consolidating it with that of W, and ordering sale of the property held by the entirety for the benefit of joint creditors of H and W. Reid v. Richardson, 304 F.2d 351 (4th Cir. 1962).