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S Ct opinions in Schwab v. Reilly on the web
Forwarded from another list
Trustee prevails, 6-3, Justice Thomas writing for the majority,
with Justice Ginsburg writing in dissent (joined by the Chief Justice
and Justice Breyer).
http://www.supremecourt.gov/opinions/09pdf/08-538.pdf
Mark Scarberry
Pepperdine
P.S.
Some key language (but caveat: I haven't had time to analyze the opinion
carefully):
This case presents an opportunity for us to resolve a disagreement
among the Courts of Appeals about what constitutes a claim of exemption
to which an interested party must object under 522(/l/). The issue is
whether an interested party must object to a claimed exemption where, as
here, the Code defines the property the debtor is authorized to exempt
as an interest, the value of which may not exceed a certain dollar
amount, in a particular type of asset, and the debtor's schedule of
exempt property accurately describes the asset and declares the "value
of [the] claimed exemption" in that asset to be an amount within the
limits that the Code prescribes. Fed. Rule Bkrtcy. Proc. Official Form
6, Schedule C (1991) (hereinafter Schedule C). We hold that, in cases
such as this, an interested party need not object to an exemption
claimed in this manner in order to preserve the estate's ability to
recover value in the asset beyond the dollar value the debtor expressly
declared exempt.
[skip to much later in the opinion:]
[Debtor] Reilly nonetheless contends that our approach creates
perverse incentives for trustees and creditors to sleep on their rights.
See Brief for Respondent 64, n. 10, 67--69. Again, we disagree. Where a
debtor intends to exempt nothing more than an interest worth a specified
dollar amount in an asset that is not subject to an unlimited or in-kind
exemption under the Code, our approach will ensure clear and efficient
resolution of competing claims to the asset's value. If an interested
party does not object to the claimed interest by the time the Rule 4003
period expires, title to the asset will remain with the estate pursuant
to 541, and the debtor will be guaranteed a payment in the dollar
amount of the exemption. If an interested party timely objects, the
court will rule on the objection and, if it is improper, allow the
debtor to make appropriate adjustments.[fn 18].
Where, as here, it is important to the debtor to exempt the full
market value of the asset or the asset itself, our decision will
encourage the debtor to declare the value of her claimed exemption in a
manner that makes the scope of the exemption clear, for example, by
listing the exempt value as "full fair market value (FMV)" or "100% of
FMV." [fn 19 omitted] Such a declaration will encourage the trustee to
object promptly to the exemption if he wishes to challenge it and
preserve for the estate any value in the asset beyond relevant statutory
limits. [fn 20 omitted] If the trustee fails to object, or if the
trustee objects and the objection is overruled, the debtor will be
entitled to exclude the full value of the asset. If the trustee objects
and the objection is sustained, the debtor will be required either to
forfeit the portion of the exemption that exceeds the statutory
allowance, or to revise other exemptions or arrangements with her
creditors to permit the exemption. See Fed. Rule Bkrtcy. Proc. 1009(a).
Either result will facilitate the expeditious and final disposition of
assets, and thus enable the debtor (and the debtor's creditors) to
achieve a fresh start free of the finality and clouded-title concerns
Reilly describes. See Brief for Respondent 57--59 (arguing that "nder
[Schwab's] interpretation of Rule 4003(b), a debtor would never have the
certainty of knowing whether or not he or she may keep her exempted
property until the case had ended"); /id./, at 66. [fn 21 omitted].
For all of these reasons, the policy considerations [trustee]
Reilly cites support our approach. Where, as here, a debtor accurately
describes an asset subject to an exempt interest and on Schedule C
declares the "value of [the] claimed exemption" as a dollar amount
within the range the Code allows, interested parties are entitled to
rely upon that value as evidence of the claim's validity. Accordingly,
we hold that Schwab was not required to object to Reilly's claimed
exemptions in her business equipment in order to preserve the estate's
right to retain any value in the equipment beyond the value of the
exempt interest. In reaching this conclusion, we express no judgment on
the merits of, and do not foreclose the courts from entertaining on
remand, procedural or other measures that may allow Reilly to avoid
auction of her business equipment.
* * *
We reverse the judgment of the Court of Appeals for the Third
Circuit and remand this case for further proceedings consistent with
this opinion.
//
/It is so ordered. /
^^fn 18: We disagree that Reilly's approach to exemptions would more
efficiently dispose of competing claims to the asset. On Reilly's view,
a trustee would be encouraged (if not obliged) to object to claims to
exempt a specific dollar amount of interest in an asset whenever the
value of the exempt interest equaled the debtor's estimate of the
asset's market value. Where the debtor genuinely intended to claim
nothing more than the face value of the exempt interest (which is
rational if a debtor wishes to ensure that his aggregate exemptions
remain within statutory limits), such an approach would engender
needless objections and litigation, particularly if the equation that
would precipitate the objection often results from a default software
entry. See Reply Brief for Petitioner 15; Brief for Nat. Assn. of
Bankruptcy Trustees 13, n. 15.
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