Term: 2009
Docket: 08-538
William G. Schwab v. Nadejda Reilly
- Pro
08-538 SCHWAB V. REILLY DECISION BELOW: 534 F.3d 173 LIMITED TO QUESTIONS 1 AND 2 PRESENTED BY THE PETITION CERT. GRANTED 4/27/2009 QUESTION PRESENTED: The Third Circuit affirmed the United States District Court for the Middle District of Pennsylvania, which held that when the values on a debtor's list of assets and on her claim of exemptions are equal, a Chapter 7 Trustee must object to a debtor's claim of exempt property within 30 days in order to retain his statutory authority to later sell property for the benefit of creditors. Because of the wide and contradictory array of judicial decisions construing this Court's decision in Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S. Ct. 1644, 118 L. Ed. 2d 180 (1992), three questions are 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? 3. Did the Third Circuit unconstitutionally encroach on Congress' exclusive power to legislate in the field of bankruptcy when it created new trustee duties and when it created unlimited "in kind" exemptions where the statute contains specific dollar-value limitations? LOWER COURT CASE NUMBER: 06-4290
In the case of William G. Schwab v. Nadejda Reilly (2009), the US Supreme Court ruled that a debtor in bankruptcy cannot exempt from the estate an asset's appreciated value after filing for bankruptcy if it was not claimed as exempt at the time of filing. The case involved Nadejda Reilly, who filed for Chapter 7 bankruptcy and listed her business as an asset worth $10,718 but did not claim any future appreciation as exempt. When her trustee, William Schwab discovered that its actual value was significantly higher ($17,500), he sought to sell it and distribute the additional proceeds among her creditors. Reilly argued that since she had declared this property "exempt" under Pennsylvania law when she initially filed for bankruptcy protection, all subsequent appreciation should also be considered "exempt". However, by a vote of 9-0 decision written by Justice Clarence Thomas on June 15th ,the court held that because Reilly did not specify on her schedules that she intended to exempt any post-petition increase in value above $10,718,the Trustee could administer those assets for benefit of other creditors.
In the dissenting opinion for William G. Schwab v. Nadejda Reilly, Justice Stevens argued that the majority's interpretation of Section 541 of the Bankruptcy Code was incorrect and unfair to debtors. He contended that when a debtor declares bankruptcy and lists an asset as exempt, it should be fully protected from creditors regardless of its actual value at the time or any future appreciation in value. The majority's ruling allows trustees to sell off assets listed as exempt if their values increase after filing for bankruptcy, which according to Justice Stevens undermines one of the key purposes of exemptions - allowing bankrupt individuals a fresh start by protecting certain essential property from liquidation.
