In the 1947 case of Lillie v. Thompson, Trustee, the United States Supreme Court was asked to determine whether a bankruptcy court had jurisdiction over property that was located outside of its district. The petitioner in this case, Mrs. Lillie, owned real estate in Florida but resided and filed for bankruptcy in Illinois. The trustee appointed by the Illinois court sought to take control of her Florida property as part of her bankruptcy estate. The Supreme Court ruled against Mrs. Lillie and held that a federal bankruptcy court does have jurisdiction over out-of-state properties belonging to bankrupt entities within their districts. They reasoned that if they were to rule otherwise it would create an impractical situation where multiple courts would be involved with one single entity's assets during a bankruptcy proceeding which could lead to conflicting rulings or decisions about those assets. This ruling clarified how federal courts can exercise their power under Article III Section 2 Clause 1 (the Diversity Jurisdiction Clause) of the U.S Constitution when dealing with cases involving interstate commerce or parties from different states.

In the dissenting opinion for Lillie v. Thompson, the justice argued that the majority's decision was inconsistent with previous rulings and interpretations of bankruptcy law. The justice believed that a debtor should not be allowed to claim an exemption for property they had fraudulently concealed during their bankruptcy proceedings. They contended this would undermine public confidence in the integrity of bankruptcy procedures and could potentially encourage fraudulent behavior by other debtors in future cases. Furthermore, it was argued that allowing such exemptions would unfairly disadvantage creditors who were owed money by these individuals, as it may reduce or eliminate any potential repayment they might receive from liquidation of the debtor’s assets.