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Thompson Hine LLP, a full-service business law firm with approximately 400 lawyers in 11 offices, was ranked number 1 in the category “Most innovative North American law firms: New working models” by The Financial Times and was 1 of 7 firms shortlisted for The American Lawyer’s inaugural Legal Services Innovation Award. The firm has been recognized by the National Law Journal as a Legal Technology Trailblazer and featured by Bloomberg for its innovative service delivery models, which drive accuracy and predictability. The firm’s commitment to innovation is embodied in Thompson Hine SmartPaTHTM – a smarter way to work – predictable, efficient and aligned with client goals. For more information, please visit ThompsonHine.com and ThompsonHine.com/SmartPaTH.

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<img style="max-width: 100%;height: auto;max-width: 100%;height: auto" loading="lazy" class="alignright size-medium wp-image-4561" src="https://www.thelawforlawyerstoday.com/wp-content/uploads/sites/754/2019/08/Losing-a-house-300x225.jpg" alt="" width="300" height="225">Being in the cross-hairs of a client&rsquo;s legal malpractice claim is a horrible-enough experience for any lawyer.&nbsp; Even worse would be if your house had to be sold in order&nbsp;to satisfy the former client&rsquo;s default judgment against you, as the Seventh Circuit ordered in a case earlier this month.&nbsp; The <a href="http://filehost.thompsonhine.com/uploads/In_re_Jaffe_c07d.pdf">opinion</a> spotlights how state law impacts the bankruptcy code when it comes to protecting a residence from bankruptcy creditors &mdash; including those who might have a judgment against you.
Tenants in the entirety
According to the Seventh Circuit&rsquo;s opinion, a client hired an Illinois lawyer to file a medical malpractice claim on her behalf, but the statute of limitations expired before the lawyer filed suit.&nbsp; The client sued for legal malpractice, obtained a default judgment, and recorded it against property that the lawyer and his wife owned as tenants by the entirety.&nbsp; The client claimed that with post-judgment interest, her claim against the lawyer totaled more than $1 million.
In 2015, the lawyer sought bankruptcy protection as a result of his own financial issues and filed a chapter 7 voluntary&nbsp;petition for relief.&nbsp; In his bankruptcy schedules filed with the court, the lawyer identified&nbsp;his debt to the former client and&nbsp;acknowledged that it was secured with a judgment lien on his residence.&nbsp; At the petition date, the lawyer and his wife owned the&nbsp; property&nbsp;as tenants in the entirety; but prior to receiving a discharge order in the&nbsp;bankruptcy, the wife died.
Under Illinois law, the tenancy by the entirety ended when the wife died, and the lawyer&rsquo;s interest became an individual one, in fee simple.
In the bankruptcy court, the lawyer argued that his residential property was exempt from the client&rsquo;s lien under <a href="https://www.law.cornell.edu/uscode/text/11/522">11 U.S.C. &sect; 522(b)(3)(B).</a>&nbsp; The Bankruptcy Code section exempts from the bankruptcy estate property in which the debtor has an interest as a tenant by the entirety&nbsp;&ldquo;to the extent that such interest ... is exempt from process under applicable non-bankruptcy law.&rdquo;
The lawyer argued in the bankruptcy court that&nbsp;his contingent future interest in the home while his wife was alive&nbsp;was sufficient to keep it out of his Chapter 7 estate.&nbsp; Tracing the tenancy-by-the-entirety doctrine back to the English feudal system, and reversing the bankruptcy court, the Seventh Circuit rejected the argument.
State-by-state approach
The court noted that tenancy in the entirety is&nbsp;a form of ownership originating&nbsp;before married women had legal identities and property interests of their own.&nbsp; The doctrine enabled&nbsp;spouses to&nbsp;own property jointly, which would belong to the survivor when one spouse died.&nbsp;&nbsp;But once women could hold property in their own right, states &ldquo;splintered in their approach to tenancy the entirety,&rdquo; the court said.
The Bankruptcy Code requires a state-by-state analysis, the court pointed out &mdash; and Illinois law, unlike&nbsp;that of some states, mainly provides protection against a forced sale of the property to collect a debt against only one of the tenants.&nbsp; &ldquo;Illinois law does not make all interests held by tenants in the entirety immune from process,&rdquo; the court said, citing section (1)(c) of the Illinois <a href="https://law.justia.com/codes/illinois/2012/chapter-765/act-765-ilcs-1005/">joint tenancy statute</a>,&nbsp;and&nbsp;fails to provide an exemption for contingent future interests such as the lawyer claimed.
In contrast to the law of Illinois, the court pointed to neighboring Indiana.&nbsp;&nbsp;Under the Hoosier State&rsquo;s statutes, &ldquo;any interest the judgement has in real estate as a tenant by the entireties&rdquo; is immune from bankruptcy process, noted the court.
Legal S.O.S.
We hope that you&rsquo;ll never be in a legal-malpractice mess or a bankruptcy situation, let alone both.&nbsp; But if you are, get expert help on&nbsp;the nuances of state law and how it affects your exemptions and interests in property &mdash; the home you save could be your own.

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Ethics

Legal Ethics, Professional Responsibility and the Business of Law

Lawyer loses home to $1 million legal mal judgment after appeals court finds no exemption