July 28, 2008
3rd Circuit Rules on Exemptions - The Asset is Exempt, Not Just the Value Claimed
Schwab v. Reilly (In re Reilly) --- F.3d ---, 2008 WL 2789550 (3rd Cir., July, 2008)
Issue: When the debtor lists an asset on Schedule B at a certain amount and then lists the same asset as exempt on Schedule C at the same amount, may the trustee later sell the asset and give the claimed exemption to the debtor or is it too late to sell the asset at all?
Holding: It is too late. The debtor here “signaled” to the trustee that she intended to exempt the entire asset and when the trustee did not object, it became to late.
Appeal from District Court
In her chapter 7 schedules, the debtor listed as “business equipment,” cooking tools she valued at $10,700. On Schedule C, she claimed that amount to be exempt. The trustee did not timely object to the exemption. The trustee later had the equipment appraised at $17,000. The trustee moved for permission to sell the equipment for $17,000 and indicated he would give the debtor the exempt portion of $10,700. The bankruptcy court ruled that the asset was entirely exempt. The district court affirmed.
The 3rd Circuit also affirmed saying “we believe this case to be controlled by [the Supreme Court in] Taylor." It said,
“[I]t is important to us that [the debtor] valued the business equipment at $10,718 and claimed an exemption in the same amount. Such an identical listing put [the trustee] on notice that [the debtor] intended to exempt the property fully. At that point, had [the trustee] doubted [the debtor’s] valuation of her business equipment, he should have had the property appraised and/or sought a hearing pursuant to Rule 4003(c). Alternatively, if he was not able to seek an appraisal within Rule 4003’s 30-day time limit, he could have requested an extension before that deadline passed. But once Rule 4003’s 30-day period elapsed without [the trustee] filing an objection or a request for an extension, the property became fully exempt from the bankruptcy estate regardless of its ultimate market value.”
“[W]e read Taylor to mean that, where the debtor signals her intention to exempt certain property in its entirety by listing an identical entry for the property’s value and the amount of the exemption, the trustee must object pursuant to Rule 4003 lest the property be rendered fully exempt.”
The opinion discussed the 9th Circuit case of In re Hyman saying that there the exemption claimed was $45,000 which was not the entire equity according to the debtor’s schedules and therefore did not show an intent to exempt the entire property but only a portion of it.
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