Schwab v. Reilly

Facts of the Case

Respondent Reilly claimed exemptions in business equipment that equaled the maximum amounts allowed under § 522(d)(5) and (6). The total of the claimed exemptions equaled the estimated market value of the equipment that the respondent listed on her schedules. Petitioner Schwab, the bankruptcy estate’s trustee, did not timely object to the exemptions under Fed. R. Bankr. P. 4003(b). After discovering that the equipment might have been worth more than the claimed amount, petitioner moved the Bankruptcy Court for permission to auction the equipment to recover any excess amount for the estate. The Bankruptcy Court denied petitioner’s motion. The district court also denied petitioner’s request for relief, rejecting petitioner’s argument that neither the Code nor Rule 4003(b) required a trustee to object to a claimed exemption where the amount the debtor declared as the exemption’s value was within the limits the Code prescribed. The United States Court of Appeals for the Third Circuit affirmed, holding that, by equating the value of her exemptions with the equipment’s market value, the respondent indicated her intent to exempt the equipment’s full value, so the petitioner was required to object under § 522(l).

Question

1) When a debtor claims an item exempt from bankruptcy proceedings, must an interested party object to the claimed exemption in order to preserve their right to claim any value in the item exceeding the value listed as exempt?2) Does a creditor who wishes to sell a debtor’s exempted item need to timely object to its exempt status in order to move for its sale, even if its real value exceeds the value claimed by the debtor?

CONCLUSION

No. No. The Supreme Court held that a creditor is not required to object to a debtor’s exemptions in order to preserve his right to claim any value in the item exceeding the value listed as exempt. With Justice Clarence Thomas writing for the majority, the Court reasoned that the bankruptcy code only requires a timely objection to an asset’s categorization as exempt and does not apply to objections about the asset’s value.Justice Ruth Bader Ginsburg, joined by Chief Justice John G. Roberts and Justice Stephen G. Breyer, dissented. She argued that the failure to object to the debtor’s valuation of an exempt asset should prevent the creditor’s later challenge to the valuation because the asset’s valuation is critical in determining whether the debtor will be allowed to keep the property.

Case Information

  • Citation: 560 US 770 (2010)
  • Granted: Apr 27, 2009
  • Argued: Nov 3, 2009
  • Decided Jun 17, 2010