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August 2, 2010

Exemption Fallout from Schwab

I have filed two chapter 7 cases recently where the debtors have no equity in their home and therefore the California wild card exemption is available to them.  In both cases, the debtors owned an interest in a small business or partnership or business equipment that they and I are satisfied have no value; the businesses because of the existing debt of the business and lack of buyers.  So I am listing the assets on schedule B at a value of zero but the exmeptions on schedule C as the full amount of the wildcard, roughly $23,000.  So schedule C says, "Asset - interest in partnership - value zero.  Amount claimed exempt - $23,000."  I expect to get some guff from the trustee who will say there must be some value if we are exempting it and if no value, the exemption should be zero.  I will point to Schwab and I am sure I am right. 

It does raise three questions, 1.  why not list the exemption at zero and if the trustee goes to sell, amend the exemption?  2.  why not list the exemption as "100% of value," as suggested by Clarence Thomas in Schwab?  3.  why not list the value at $23,000 and the exemption the same?   

Answers:  1.  The trustee can seek to surcharge the exemption if the trustee does yeoman's work (according to him/her) discovering the value is actually higher than that listed on the schedules.  2. There is no exemption for 100% of the asset so you are forcing the trustee to object and that is sanctionable in my book.  3.  This is the toughest question.  Listing any amount, $5,000 - 10,000, 20,000 - gives the appearance that some process was used to value the asset when each of the numbers is a guess - and where "zero" is a firm belief.  Clients ask me if they should get an appraisal ahead of time.  I tell them no.  An appraisal is expensive, a guess by the appraiser, and the trustee does not care about the appraisal - he/she cares only about the amount someone will pay her for it today in cash.     

I practice, of course, in the Central District of California.  We have roughly the same number of filings each month as the entire state of New York and the entire state of Texas combined.  Trustees here do little more than read the schedules (that is not a knock).  The message the schedules send is important.  A business valued by the debtor at $20,000 is worth looking into.  A business valued at zero is usually not.  Given Schwab, the asset should nevertheless be exempted to the maximum.     

August 2, 2010 in Current Affairs | Permalink


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Great review Professor and the intro-spect is just scratching the surface. The Admin of US Courts took a look at your remarks and our comments on such (through your blog and my website URL).

The ruling - as pointed out by the Justices - is problematic at best and a quagmire way beyond the BAPCPA plane of banter/contentions.

The Code is designed as a streamline effort towards finality and the ruling most certainly err'd into the abyss.

It could be amended by a Congress quick fix that says to the US Supreme Ct WHOA; a Trustee cannot seek to go after so little an issue and place their objection nunc pro tunc.

If there is a contention and there are actual cash bids verified on items in question - it still has to be addressed streamlined.

You cannot permit the avarice of a few Trustee's tail wag the whole system into chaos.

Posted by: Laser Haas | Aug 3, 2010 9:16:43 AM

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