Schwab v. Reilly - 560 U.S. 770, 130 S. Ct. 2652 (2010)

Rule:

Where a bankruptcy debtor accurately describes an asset subject to an exempt interest and on Official Bankr. Form 6, Sched. C, declares the value of the claimed exemption as a dollar amount within the range the Bankruptcy Code allows, interested parties are entitled to rely upon that value as evidence of the claim's validity. Accordingly, an interested party is not required to object to the debtor's claimed exemption in order to preserve the estate's right to retain any value in the asset beyond the value of the exempt interest.

Facts:

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).

Issue:

In order to preserve the estate’s right to retain any value in the equipment beyond the value of the exempt interest, was the trustee required to object to the debtor’s claimed exemption? 

Answer:

No.

Conclusion:

The Supreme Court held that the trustee was not required to object in order to preserve the estate's right to retain any value beyond the debtor's exempt interest. Subsections 522(d)(5) and (6) defined the exempt property as an interest, the value of which could not exceed a certain dollar amount, in an asset. The Court noted that where the debtor’s schedule of exempt property accurately described the asset and declared the value of the claimed exemption in that asset to be an amount within the limits that the Code prescribed, Official Bankr. Form 6, Sched. C, 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. In this case, the debtor's claimed exemptions fell within the allowed range, so the trustee was entitled to rely on that value as evidence of the claim's validity.