The U.S. Supreme Court has agreed to hear a case seeking clarification on the estimated value of assets in bankruptcy filings.
Nadejda Reilly, a cook who owned a one-person catering business, filed a Chapter 7 bankruptcy petition in April 2005. She listed as personal property on her Schedule B an entry of “business equipment” with a value of $10,718. On her Schedule C, where Reilly claimed certain property as exempt from the bankruptcy, she again listed the “business equipment” with a value of $10,718. She claimed an exemption for the full $10,718 value of the property, asserting $1,850 of it under 11 U.S.C. § 522(d)(6) and $8,868 under 11 U.S.C. § 522(d)(5).
William Schwab, the bankruptcy trustee, did not object to the exemption within the 30-day period prescribed by Federal Rule of Bankruptcy Procedure 4003(b).
On Aug. 10, 2005, Schwab filed an application seeking approval to employ an auctioneer and a motion seeking to sell the business equipment. Reilly filed an answer objecting to the motion to sell on the grounds that, because the business equipment was supposedly “fully exempt,” it could not be administered by the bankruptcy trustee.
Schwab’s motion, however, did not attempt to deny or limit the claimed exemption in the business equipment of $10,718; rather the motion sought only to sell the equipment, so the amounts received above and beyond Reilly’s exemption, the costs of sale and the trustee’s commission could be distributed to creditors pursuant to the distribution scheme laid out in Section 726 of the Bankruptcy Code.
On the grounds that the business equipment was fully exempt, the Bankruptcy Court denied Schwab’s motion to sell. According to the Bankruptcy Court, the fact that Schwab did not file an objection to exemptions within the 30-day time period of Bankruptcy Rule 4003 precluded Schwab from selling the business equipment.
Schwab appealed to the U.S. District Court for the Middle District of Pennsylvania, which upheld the Bankruptcy Court’s ruling.
In July 2008, a three-judge panel on the U.S. Court of Appeals for the Third Circuit affirmed the district court decision.
On April 27, the Supreme Court granted review. The justices will hear oral arguments when the court begins its fall term on Oct. 5.
Question presented:
1. When a debtor claims an exemption using a specific dollar amount that is equal to the value placed on the asset by the debtor, is the exemption limited to the specific amount claimed, or do the numbers being equal operate to “fully exempt” the asset, regardless of its true value?
2. When a debtor claims an exemption using a specific dollar amount that is equal to the value placed on the asset by the debtor, must a trustee who wishes to sell the asset object to the exemptions within the thirty day period of Rule 4003, even though the amount claimed as exempt and the type of property are within the exemption statute?
