Schwab v. Reilly

• Decision Date: 17 June 2010
• Docket Number: No. 08–538.,08–538.
• Citation: 130 S.Ct. 2652,177 L.Ed.2d 234,560 U.S. 770
• Parties: William G. SCHWAB, Petitioner, v. Nadejda REILLY.
• Court: U.S. Supreme Court

560 U.S. 770
130 S.Ct. 2652
177 L.Ed.2d 234

William G. SCHWAB, Petitioner,
v.
Nadejda REILLY.

No. 08–538.

Supreme Court of the United States

Argued Nov. 3, 2009.
Decided June 17, 2010.

Craig Goldblatt, for petitioner.

Jeffrey B. Wall, for the United States as amicus curiae, by special leave of the Court, supporting petitioner.

G. Eric Brunstad, Jr., for respondent.

William G. Schwab, Joseph G. Murray, William G. Schwab & Associates, Lehighton, PA, Jason Zac Christman, Newman, Williams, Mishkin, Corvelyn, Wolfe & Fereri, P.C., Stroudsburg, PA, Seth P. Waxman, Craig Goldblatt, Counsel of Record, Danielle Spinelli, Daniel S. Volchok, Leslie S. Garthwaite, Nathan A. Bruggeman, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC, for petitioner.

Gino L. Andreuzzi, Drums, PA, G. Eric Brunstad, Jr., Counsel of Record,

130 S.Ct. 2657

Collin O'Connor Udell, Matthew J. Delude, Alexander R. Bilus, Michael J. Newman, Joshua Richards, Justin C. Danilewitz, Kate O'Keeffe, Francesco P. Trapani, Dechert LLP, Hartford, CT, for Respondent.

Opinion

Justice THOMAS delivered the opinion of the Court.

560 U.S. 774

When a debtor files a Chapter 7 bankruptcy petition, all of the debtor's assets become property of the bankruptcy estate, see 11 U.S.C. § 541, subject to the debtor's right to reclaim certain property as “exempt,” § 522(l ). The Bankruptcy Code specifies the types of property debtors may exempt, § 522(b), as well as the maximum value of the exemptions a debtor may claim in certain assets, § 522(d). Property a debtor claims as exempt will be excluded from the bankruptcy estate “[u]nless a party in interest” objects. § 522(l ).

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.

I

Respondent Nadejda Reilly filed for Chapter 7 bankruptcy when her catering business failed. She supported her petition with various schedules and statements, two of which are relevant here: Schedule B, on which the Bankruptcy Rules require debtors to list their assets (most of which become property of the estate), and Schedule C, on which the Rules

560 U.S. 775

require debtors to list the property they wish to reclaim as exempt. The assets Reilly listed on Schedule B included an itemized list of cooking and other kitchen equipment that she described as “business equipment,” and to which she assigned an estimated market value of $10,718. App. 40a, 49a–55a.

On Schedule C, Reilly claimed two exempt interests in this equipment pursuant to different sections of the Code. Reilly claimed a “tool[s] of the trade” exemption of $1,850 in the equipment under § 522(d)(6), which permits a debtor to exempt his “aggregate interest, not to exceed $1,850 in value, in any implements, professional books, or tools, of [his] trade.” See also 69 Fed.Reg. 8482 (2004) (Table). And she claimed a miscellaneous exemption of $8,868 in the equipment under § 522(d)(5), which, at the time she filed for bankruptcy, permitted a debtor to take a “wildcard” exemption equal to the “debtor's aggregate interest in any property, not to exceed” $10,225 “in value.”¹ See App. 58a.

130 S.Ct. 2658

The total value of these claimed exemptions ($10,718) equaled the value Reilly separately listed on Schedules B and C as the equipment's estimated market value, see id., at 49a, 58a.

Subject to exceptions not relevant here, the Federal Rules of Bankruptcy Procedure require interested parties to object to a debtor's claimed exemptions within 30 days after the conclusion of the creditors' meeting held pursuant to Rule 2003(a). See Fed. Rule Bkrtcy. Proc. 4003(b). If an interested party fails to object within the time allowed, a claimed exemption will exclude the subject property from the estate

560 U.S. 776

even if the exemption's value exceeds what the Code permits. See, e.g., § 522(l ); Taylor v. Freeland & Kronz, 503 U.S. 638, 642–643, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992).

Petitioner William G. Schwab, the trustee of Reilly's bankruptcy estate, did not object to Reilly's claimed exemptions in her business equipment because the dollar value Reilly assigned each exemption fell within the limits that §§ 522(d)(5) and (6) prescribe. App. 163a. But because an appraisal revealed that the total market value of Reilly's business equipment could be as much as $17,200,² Schwab moved the Bankruptcy Court for permission to auction the equipment so Reilly could receive the $10,718 she claimed as exempt, and the estate could distribute the equipment's remaining value (approximately $6,500) to Reilly's creditors. App. 141a–143a.

Reilly opposed Schwab's motion. She argued that by equating on Schedule C the total value of the exemptions she claimed in the equipment with the equipment's estimated market value, she had put Schwab and her creditors on notice that she intended to exempt the equipment's full value, even if that amount turned out to be more than the dollar amount she declared, and more than the Code allowed. Id., at 165a. Citing § 522(l ), Reilly asserted that because her Schedule C notified Schwab of her intent to exempt the full value of her business equipment, he was obliged to object if he wished to preserve the estate's right to retain any value in the equipment in excess of the $10,718 she estimated. Because Schwab did not object within the time prescribed by Rule 4003(b), Reilly asserted that the estate forfeited its claim to such value. Id., at 165a. Reilly further informed the Bankruptcy Court that exempting her business equipment from the estate was so important to her that she would

560 U.S. 777

dismiss her bankruptcy case if doing so was the only way to avoid the equipment's sale at auction.³

130 S.Ct. 2659

The Bankruptcy Court denied both Schwab's motion to auction the equipment and Reilly's conditional motion to dismiss her case. See In re Reilly, 403 B.R. 336 (Bkrtcy.M.D.Pa.2006). Schwab sought relief from the District Court, arguing that neither the Code nor Rule 4003(b) requires a trustee to object to a claimed exemption where the amount the debtor declares as the “value of [the debtor's] claimed exemption” in certain property is an amount within the limits the Code prescribes. The District Court rejected Schwab's argument, and the Court of Appeals affirmed. See In re Reilly, 534 F.3d 173 (C.A.3 2008).

The Court of Appeals agreed with the Bankruptcy Court that by equating on Schedule C the total value of her exemptions in her business equipment with the equipment's market value, Reilly “indicate[d] the intent” to exempt the equipment's full value. Id., at 174. In reaching this conclusion, the Court of Appeals relied on our decision in Taylor:

“[W]e believe this case to be controlled by Taylor. Just as we perceive it was important to the Taylor Court that the debtor meant to exempt the full amount of the property by listing ‘unknown’ as both the value of the property and the value of the exemption, it is important to us that Reilly valued the business equipment at

560 U.S. 778

$10,718 and claimed an exemption in the same amount. Such an identical listing put Schwab on notice that Reilly intended to exempt the property fully.

. . . . .

“ ‘[A]n unstated premise’ of Taylor was ‘that a debtor who exempts the entire reported value of an asset is claiming the “full amount,” whatever it turns out to be.’ ” 534 F.3d, at 178–179.

Relying on this “unstated premise,” the Court of Appeals held that Schwab's failure to object to Reilly's claimed exemptions entitled Reilly to the equivalent of an in-kind interest in her business equipment, even though the value of that exemption exceeded the amount that Reilly declared on Schedule C and the amount that the Code allowed her to withdraw from the bankruptcy estate. Ibid.

As noted, the Court of Appeals' decision adds to disagreement among the Circuits about what constitutes a claim of exemption to which an interested party must object under § 522(l ).⁴ We granted certiorari to resolve this conflict. See 556 U.S. 1207, 129 S.Ct. 2049, 173 L.Ed.2d 1131 (2009). We conclude that...