SCHWAB v. REILLY
In April 2005, Nadejda Reilly filed Chapter 7 bankruptcy. Pursuant to standard practice, she listed equipment related to her catering business as "exempt" from the bankruptcy proceedings and valued the equipment at over $10,000. Creditor William Schwab independently had Ms. Reilly's business equipment appraised at over $17,000. He then sought a motion for the Bankruptcy Court to sell Ms. Reilly's equipment and turn over the proceeds, less the value of her exemption. Ms. Reilly countered that the business equipment had become fully exempt when Mr. Schwab failed to timely object when she listed the equipment as exempt. The Bankruptcy Court agreed and denied Mr. Schwab's motion to sell off Ms. Schwab's equipment. A federal district court in Pennsylvania affirmed the Bankruptcy Court. On appeal to the U.S. Court of Appeals for the Third Circuit, the court affirmed, holding that Mr. Schwab's failure to file a timely objection to Ms. Reilly's exemption barred him from moving to sell the property.
1) When a debtor claims an item "exempt" from bankruptcy proceedings, is the exemption limited to the value claimed by the debtor, or regardless of the value claimed, does the exempted item become "fully exempt" after the creditor fails to make a timely objection to the exemption?
2) Does a creditor who wishes to sell a debtor's "exempted" item need to timely object to its exempt status in order to move for its sale, even if its real value exceeds the value claimed by the debtor?
Legal provision: Fed. Rule Bkrtcy. Proc. 4003(b)
No. No. The Supreme Court held that a creditor is not required to object to a debtor's exemptions in order to preserve his right to claim any value in the item exceeding the value listed as exempt. With Justice Clarence Thomas writing for the majority, the Court reasoned that the bankruptcy code only requires a timely objection to an asset's categorization as exempt and does not apply to objections about the asset's value.
Justice Ruth Bader Ginsburg, joined by Chief Justice John G. Roberts and Justice Stephen G. Breyer, dissented. She argued that the failure to object to the debtor's valuation of an exempt asset should prevent the creditor's later challenge to the valuation because the asset's valuation is critical in determining whether the debtor will be allowed to keep the property.
ORAL ARGUMENT OF CRAIG G. GOLDBLATT ON BEHALF OF THE PETITIONER
Chief Justice John G. Roberts: We'll hear argument next in Case 08-538, Schwab v. Reilly.
Craig G Goldblatt: Thank you.
Mr. Chief Justice, and may it please the Court: The debtor in this case claimed, in the third column of Schedule C, a $10,718 exempt interest in her kitchen equipment.
That claim of exemption was fully proper.
The trustee did not object to it because it was unobjectionable.
The debtor's position here is that because of what she wrote in the fourth column, where she estimated the value of the equipment as the same amount of the exemption, that her claim of exemption itself should be read to say something different from and greater than what it actually says.
Justice Ruth Bader Ginsburg: Mr. Goldblatt, I thought that what she said -- I'm looking at Schedule C, property claimed as exempt.
She lists, as property claimed as exempt,
"See attached list of business equipment. "
And then we have an inventory going for several handwritten pages of all these items of kitchen equipment.
And that's what she says is the property claimed as exempt.
Craig G Goldblatt: With respect, Justice Ginsburg, that's incorrect.
If you turn to her Schedule C, which is in the joint appendix at pages 57 and 58a, the first column is a description of the property, and the third column contains the value of the claimed exemption.
The property claimed as exempt here is the $10,718 interest in the asset listed in column A.
And the reason that's clear, Your Honor, it's clear from the language of the statute itself because the statutory language of 522(l) provides that the debtor files a list of property that the debtor claims as exempt and that, unless a party in interest objects, the property claimed as exempt is exempt.
522(l) refers to the property claimed as exempt under subsection (b), and subsection (b) in turn references subsection (d), which is the basis for the claim of exemption here.
And 522(d), when it describes the exemption, says the following:
"The following property may be exempted: One, the debtor's aggregate interest, not to exceed $18,450 in property. "
--it goes -- and it enumerates a series of exemptions.
Justice Ruth Bader Ginsburg: But she -- in her inventory, she gives figures, and they add up to the amount that she's claiming, so she evidently thinks that those numbers will cover all of her business equipment.
Craig G Goldblatt: Justice Ginsburg, it may -- that may well be true.
She may -- the debtor here may well have believed that the value of the equipment here was equal to the amount of the exemption.
But no one contends in any serious way that the trustee is required to object to the debtor's valuation of the equipment.
Justice Ruth Bader Ginsburg: Mr. -- Mr. Goldblatt, this is -- this is really my concern.
It seems what she wants is her cooking equipment, not the money equivalent.
And if the trustee had objected, she could have said: Well, if they think that this cooking equipment is worth more than the value that I put down, I'll cut out the coffee maker, I'll cut out the microwave; but what I want is the equipment, not the dollar -- dollars for it.
Craig G Goldblatt: --Your Honor, the debtor here may well have wanted the equipment.
The question here is, did she make a claim on her schedule that the equipment was itself exempt in kind?
There are a number of ways that debtors can do that.
They can write,
"I claim an exemption in the full amount. "
Here, take -- take a debtor who is saying: Look, all I want is the exemption that Congress gives me.
I understand that all I'm entitled to here is a $10,718 interest in my equipment.
I think my equipment is worth that.
If it turns out that I'm wrong and it's worth more, I don't want any more than the Bankruptcy Code gives me.
Chief Justice John G. Roberts: Well, that would be a remarkable coincidence if her equipment happened to be worth exactly what Congress said she could exempt, which is a very odd way of reading what she's put in the schedule.
Craig G Goldblatt: We -- Mr. Chief Justice, we think the most natural way to read what she has said in the schedule is that she's claiming exactly what she says, which is that she is claiming a $10,718 interest in the property.
To get to--
Chief Justice John G. Roberts: I would have thought the most natural way of reading it is that she's claiming the equipment because she thinks that's the value of the equipment.
Craig G Goldblatt: --If she wanted to claim the equipment itself as exempt, there were a number of ways that one could do that.
She could say: I claim 100 percent interest in the equipment; I claim an in-kind interest.
Here it would be odd to read that, because there is no suggestion that has been made by anyone that she has any entitlement to an in-kind exemption in the equipment.
Justice Antonin Scalia: Where would she say that, 100 percent interest in the equipment?
Would she say that in -- in column 3?
Craig G Goldblatt: In either column -- yes, in column 3.
Justice Antonin Scalia: Column 3 says "Value of claimed exemption".
Craig G Goldblatt: Debtors can certainly list in the schedule.
They can list an asterisk and say: I claim an interest in the property itself.
Here the -- because--
Justice Antonin Scalia: Well, I mean, you say that.
But, boy, I wouldn't read -- I wouldn't read the -- I wouldn't read the -- the chart that way.
Craig G Goldblatt: --There's a--
Justice Antonin Scalia: It has a column that says "Value of claimed exemption".
Craig G Goldblatt: --Correct, and the value of the claimed exemption here was $10,718--
Justice Antonin Scalia: Right.
Craig G Goldblatt: --which is exactly what the trustee proposes to give her.
Justice Antonin Scalia: Right.
Craig G Goldblatt: That claim of exemption was proper.
In response to Justice Ginsburg's fair question, which is what -- what is a debtor to do here if she wants equipment itself, the debtor is surely entitled, Justice Ginsburg, to -- if the trustee seeks to sell the equipment at auction, to participate in that auction and to credit-bid her exemption.
And no -- no one disputes that.
So if the -- if the debtor wants to come to the auction and say, look, I'm bidding my exemption, and that will buy me as much of my equipment as it will buy me, the debtor is fully entitled to do that.
And in that--
Justice Ruth Bader Ginsburg: Then you're going through all the administrative expenses of having an auction where if the trustee had tipped her off, it would be like amending your pleading.
Craig G Goldblatt: --Well, in fairness, in this case itself, the trustee happened to come to the section 341 meeting and say: I believe that there's value here for the estate.
I think there's value in excess of--
Justice Ruth Bader Ginsburg: And she was so -- so upset, she said: I'll get out of the bankruptcy; I want my cooking equipment.
Craig G Goldblatt: --That's right, but--
Justice Ruth Bader Ginsburg: It was very clear that that's what the debtor wanted.
Craig G Goldblatt: --And it was equally clear that the trustee took the position that she was entitled to the exemption that Congress permits and no more than that.
And the debtor didn't say--
Justice Ruth Bader Ginsburg: The question is whether -- the question is whether the trustee had to make an objection, when it seemed really as clear as could be that what she was seeking was to keep her equipment, not to get the -- some monetary equivalent for it.
Craig G Goldblatt: --With respect, Justice Ginsburg, imagine you had a debtor who -- who came into court and said: Look, I believe my equipment is worth something equal to the amount that is permissible, that I may permissibly claim as exempt, but I don't mean to make an improper in-kind exemption.
I don't -- I don't want more value than Congress intends me to keep.
If it turns out to be worth more, that belongs to my creditors.
All I want is what I'm entitled to by statute.
That debtor would have no alternative way to express that but to do exactly what this debtor did here.
And we think the most plausible way to read it is -- is to read it to have this debtor be expressing an intention that is consistent with law and not one that is improper.
There is -- there is no basis under which this debtor is entitled to keep more than a $10,718 interest, and under the ordinary presumption that you presume parties--
Justice Ruth Bader Ginsburg: Well, then she has -- on your reading, her claim is improper because she's claiming more than she's entitled to.
If her claim is improper, then the trustee has an obligation to object to it.
Craig G Goldblatt: --Justice Ginsburg, it's only improper if it's read to mean something different from what it says.
What she said here in the schedule is: I claim an exempt interest of $10,718 in the equipment, and I believe the equipment is worth that amount.
The question is, should that be read to be making an improper claim that the equipment itself is exempt in kind, a claim that would be -- would be clearly improper, or--
Justice Samuel Alito: When I look at that number, I -- and maybe I don't understand this, so maybe you or your adversary can clarify it for me.
But when I look at that number, it seems to me there are two ways to interpret it.
One is that she is saying: I want the full amount that I'm allowed by law.
And the other is: That I want the value of my equipment, and it just so happens to total exactly to the dollar the amount that I'm entitled to by law.
Am I correct that those are the two possible readings of that?
Craig G Goldblatt: --That's -- that's certainly -- we think that that's right.
Justice Samuel Alito: And the question is which of those is the more plausible reading?
Craig G Goldblatt: Right, and we -- we think that -- that for a number of reasons, the more plausible reading is to say: All I want is what the law permits me.
The -- the principal reason is that as a general proposition you wouldn't presume someone to be making a claim for which there would be no legal basis.
And in any--
Justice Antonin Scalia: Except that the -- that the last column does -- it's very clearly entitled "Current market value of property" without deducting exemptions.
There's no way to read that last figure of 10,718 except as her assessment of the market value of her cooking equipment.
Craig G Goldblatt: --That's exactly right, Justice Scalia, but the critical point is that there is no requirement that any trustee come in and object to a valuation if the valuation is improper.
Imagine she had--
Justice Ruth Bader Ginsburg: Can you -- can you -- that was -- what you've just said, no requirement that the trustee object to valuation, one of the briefs -- it may have been wrong, but it's the NACBA brief at page 27 -- said
"Challenges to valuation are the most common types of objections to exemptions. "
Craig G Goldblatt: --Let me -- let me explain this for a moment, if I may.
Imagine the debtor here had listed the value at $15,000 and her exempt interest as 10,718.
In that case, the debtor -- the trustee would surely be entitled to sell the asset.
The debtor themselves acknowledges that on page 30 of the Respondent's brief.
In that case, what the value that the equipment would obtain would be whatever a willing buyer and willing seller would pay.
It could be $15,000, it could be $30,000, it could be $130,000.
And the fact that the actual value of what -- what a buyer would pay for it was different from the debtor's valuation would be of no moment.
Whatever value the trustee was able to obtain for the asset--
Justice Stephen G. Breyer: In that case -- in that case, I guess there wouldn't be a -- a lawsuit.
Craig G Goldblatt: --No.
That's exactly right, Justice Breyer.
Justice Stephen G. Breyer: I mean, in that case, the debtor is never going to object.
So we're never going to have that one.
Craig G Goldblatt: That's exactly right.
But -- but the point here is that there is no requirement that the -- when a debtor files an individual bankruptcy case, on Schedule B the debtor lists the valuation, their estimated valuation of all of their assets.
There is absolutely no requirement in the Bankruptcy Code, the Bankruptcy Rules, or anywhere else that a trustee go through and say whether they agree or disagree with the debtor's positive valuation.
Instead, what a trustee does is they liquidate the asset, they generate the value that is there, and they distribute that value to creditors.
Justice Anthony Kennedy: Well, they don't always liquidate the asset, if they -- if they elect -- if everybody agrees that they get the asset itself, they don't have to sell it.
Craig G Goldblatt: That's exactly right.
The trustee may determine to abandon an asset to the debtor if there's no--
Justice Anthony Kennedy: What -- what -- what you are doing there, you -- you argue that ambiguities are construed against the person that made the form.
I think that's a little harsh when the trustee is a repeat player and knows -- and knows the rules.
Craig G Goldblatt: --Well--
Justice Anthony Kennedy: On the other hand, I think what you have going for you is that the trustee is going to always be at risk that the asset is worth more than what's listed and is going to have to take steps to value it in every -- every case.
In this case, it's -- it's clear that she -- she knew that the Honda was worth more.
She was only claiming $2,900, $2,950 on a Honda.
Craig G Goldblatt: --That's right, and that was subject to a security interest here.
Justice Anthony Kennedy: And -- and if you take that together with -- and -- and the kitchen equipment comes next, and she -- and the value is the same in each column.
So that indicates that she was claiming the full value.
Craig G Goldblatt: With -- with respect to the -- the automobile, there's -- there's a claim of exemption and the rest is subject to a security interest.
Here -- I mean, the critical point is if a debtor wants to -- to put to -- to the issue and say, listen, I really want to keep the equipment itself, I don't think there's any value here for the estate, there is a statutory mechanism to address that.
Section 554(b) says quite clearly that if -- if a party in interest believes that there is an asset as to which there is inconsequential value, they can seek an order compelling the bankruptcy -- compelling the trustee to abandon that asset to the debtor.
So there is -- I mean, Justice Ginsburg's question -- there is a mechanism for addressing the concern that Your Honor has with a debtor who wants a determination that they keep a particular asset, but--
Justice Ruth Bader Ginsburg: My concern is keeping it simple, giving fair notice to people.
She's got the same amount under exempt -- the last two columns.
A rule is proposed.
It says when the two columns have the same amount, that's a clue to the trustee that the debtor is claiming all of the -- that particular property.
That's a nice, simple rule.
It tells the trustee when he has to object, and the end of the matter.
Craig G Goldblatt: --With respect, Justice Ginsburg, a -- a simpler rule would be that if a debtor wants to say, I have an in-kind exemption in an asset, the debtor should say that.
They should use a term that is understood to mean that.
Justice Ruth Bader Ginsburg: But it's not in kind in the sense that she keeps the asset no matter what.
Craig G Goldblatt: Well, that's exactly what the debtor is contending here.
She -- the debtor here is saying that this -- this said even if I'm wrong about the value--
Justice Ruth Bader Ginsburg: She is contending that she would like to keep her cooking equipment and she was entitled to notice before it's going to be sold at an auction.
Craig G Goldblatt: --With respect, Justice Ginsburg, that's not right.
Here the debtor was told at the 341 meeting that the trustee intended to sell it.
Her claim is that even -- even if he can get more value than she said it was worth, she keeps all of that value, regardless of what it's worth, because -- because her schedule told us unequivocally that she got to keep it regardless of its actual value.
Justice Ruth Bader Ginsburg: Then -- then her claim is wrong, her claim is objectionable, and the trustee should have made an objection.
Craig G Goldblatt: But the best reading of her schedule is not to make such a claim, but rather to read her schedule to -- to mean what it says, which is that she claimed to have a $10,718 exemption in the property, and insofar as the property is worth more than that, that that's -- that -- that is a question of valuation, which isn't the subject of an obligation to raise an objection.
Also, to the point of simplicity, Justice Ginsburg, if I may, the -- the virtue of the rule that we urge here is that -- that it does provide for simplicity.
A debtor can clearly put the trustee on notice.
The consequence of the debtor's rule would be to require trustees, whenever schedules happen to use the same number, to come in and file pro forma objections.
And it doesn't seem that there is any reason as a matter of bankruptcy policy or statutory construction to simply require more paperwork to get to the same result.
Justice Sonia Sotomayor: Has that happened in the two circuits that apply a rule similar to this, the Sixth and the Third?
Craig G Goldblatt: What I understand, Justice Sotomayor, is that that -- the answer to that is yes and that in the Third Circuit following this decision that trustees are filing those kinds of pro forma objections.
Justice Stephen G. Breyer: Why?
I mean, you sit down with the creditors, and you look at the list and you try to work things out.
That meeting goes on as long as you want.
And if it appears there's an argument about valuation, you file an objection.
Craig G Goldblatt: And--
Justice Stephen G. Breyer: If it appears everybody can work everything out, fine.
What's the problem?
Craig G Goldblatt: --The -- the question is what is the rule where -- where there remains disagreement?
Justice Stephen G. Breyer: The rule is -- and that's what it's about -- the rule is about where you object, the trustee objects to the list.
Craig G Goldblatt: --And -- and--
Justice Stephen G. Breyer: That's called Schedule C.
If you have an objection to the list, then it says: Here's what you do, trustee.
Meet with the creditors, try to work it out.
And if in fact 30 days thereafter and you don't need any more time, so you don't ask the judge for more time, file an objection.
Craig G Goldblatt: --No, Justice Breyer.
Justice Stephen G. Breyer: What's the problem?
Craig G Goldblatt: It's just different from what the -- what the statute says.
What the statute says is that in the absence of an objection, the property claimed as exempt becomes exempt.
And if you look at 522(d) and see its description of the property that becomes exempt, that language is clear that it is the debtor's interest up to a dollar amount in an asset.
The term "property" here is subject to monetary caps.
It's not the asset itself.
And the statutory language in that regard couldn't be clearer.
Justice Ruth Bader Ginsburg: If it's not the asset itself and it's just about money, here I have a piece of property and it wouldn't matter whether it was a case of widgets or my grandmother's diamond ring.
But Congress -- this is a peculiar list it has.
It has personal jewelry, tools of trade.
It sounds like -- even though those have a dollar cap, it sounds like Congress said these are the kinds of things a debtor would want to keep in kind.
Craig G Goldblatt: Well, but those have always been subject -- as this Court explained in Owens v. Owens, those types of -- of -- of assets have always been subject to monetary caps, and the same is true here, and 522(d) makes that clear.
Insofar as the debtor would like to keep it, the debtor is entitled to credit-bid at an auction.
I see my time has expired.
Chief Justice John G. Roberts: Well, thank you, Mr. Goldblatt.
I'll afford you rebuttal time.
Craig G Goldblatt: I appreciate that, Your Honor.
Chief Justice John G. Roberts: Mr. Wall.
ORAL ARGUMENT OF JEFFREY B. WALL ON BEHALF OF THE UNITED STATES, AS AMICUS CURIAE, SUPPORTING THE PETITIONER
Mr. Wall: Mr. Chief Justice, and may it please the Court: The government is not saying that it's a coincidence that these numbers in the third and fourth columns are the same.
It is a common practice.
A debtor will often estimate what she believes to be the market value of her property and then divvy up a wild card across items in hope -- hopes of keeping them.
The government's and Petitioner's only point is that where a debtor does that, as Respondent did here, she's still claiming the fixed exemption of what she believes to be the market value.
Now, I take your concern, Justice Ginsburg, this might be unfair to debtors who wouldn't be tipped off.
That is not true here, where the trustee came to the creditors' meeting and said: I construe your exemption as limited, and I think the property is worth about $7,000 more, and I intend to sell it.
And at that point, a debtor who really believed that her schedule claimed full value would, it seems to me, have said: You're misreading my schedule.
She didn't do that.
She didn't do that until after the 30-day period had run when the trustee moved to sell the property.
Justice Ruth Bader Ginsburg: What she did do, she said: That unsettles me so much that I'm going to withdraw from this bankruptcy proceeding; beyond anything, I want to keep that -- that property.
Mr. Wall: --That's right.
But she -- but she -- she did walk in.
She didn't say: You're misreading my schedule.
She said: I don't want you to sell the property if indeed it's worth more than the exemption I've claimed, and so I want to dismiss my bankruptcy.
Which she doesn't have a right to do under Chapter 7.
She has to show cause under section 707(a).
The Bankruptcy Court found that she had not shown cause, and the debtor didn't appeal that determination, which is not before this Court.
Justice Ruth Bader Ginsburg: But the -- but the Bankruptcy Court did that simultaneously with saying: And I'm going to deny the trustee's motion to have an auction.
Mr. Wall: That's right.
And on remand, it would certainly be open to her to attempt to convince the Bankruptcy Court again that she had shown cause under 707 to dismiss.
I think the government's point is that there is a process for sale.
So even beyond the facts of this case, when the trustee wants to sell property, he has to give 20 days' notice to the debtors and the creditors under section 363 of the code and Rule 2002.
So if the trustee here had not even said anything at the creditors' meeting but had moved to sell, he would have had to give notice to the debtor, who at that point could always amend her schedules under Rule 1009.
If she had any exemption left to claim, she could walk in and say: I'm going to amend my schedule, and I'm going to increase my exemption, because I underestimated the property value.
The reason she didn't and couldn't do that here is because she had maxed out her wild card.
But it's -- indeed, even on remand--
Justice Ruth Bader Ginsburg: What she could have done is trimmed some items from the list.
Mr. Wall: --And she still could on remand.
Even on remand, she could walk in and amend her schedule and say: I'm going to itemize exactly the equipment that I want to keep with my wild card.
And I'm going to say which of my kitchen equipment I want to keep with my $10,225, and which I don't.
So, it's not that -- there's nothing about Petitioner's approach that denies the debtor the fresh start to which she is entitled under the code.
She -- she can always claim right up to the legal limits.
Justice Stephen G. Breyer: That sounds very complicated.
I -- I mean, the thing that sort of persuaded me so far on this is this is what Collier says, the other side -- it's what all the bankruptcy judges.
Ambro is a bankruptcy judge.
This is a simpler thing.
Craig G Goldblatt: Well--
Justice Stephen G. Breyer: Look at the procedural rule.
It's just what I've said.
It says: If you have an objection to the list of property -- the list of property is C, okay?
So here's what you do, trustee: Sit down with the creditors.
See if there's really an argument.
Now, if there's no argument, fine; they'll let you do what you want.
If there is an argument and it has to do with that list, C, particularly valuation, which is what these things are all about, then file your objection.
That's so simple.
And it seems in most places they do it.
So why do we want to run around Robin's barn or something to get somewhere we can get to much simpler?
Mr. Wall: --Well, there are a number of questions there, Justice Breyer.
But with all respect, that is not what the statute and the rules say.
What the statute and the rules say is if you have an objection to the property claimed as exempt on the list -- and as a historical matter over time, Schedule C has required debtors to put additional information besides their exemptions.
Justice Stephen G. Breyer: But Rule 403 doesn't say that.
My Rule 403 says:
"A party in interest may file an objection to the list of property claimed as -- as exempt within 30 days after the meeting. "
Mr. Wall: That's right.
Justice Stephen G. Breyer: It says "the list".
So that's where I think you're becoming awfully legalistic, to try to distinguish between the list and the property in A and B.
I mean, what do you -- these are about valuation, says Collier.
That's all we're interested in.
Mr. Wall: Well, it says the list of property claimed as exempt.
So, for instance, for nearly the first 100 years after they set up the system in 1898, on Schedule C and its predecessors the debtor put down the location and present use of property.
But no one thought that the location was part of the claim of exemption, such that if the trustee believed the property was in one place than another, he had to object.
The idea was we'll provide some useful information to the trustee beyond the claim of exemption, so that if he wants to file a turnover complaint to get the property into the estate, he knows where it's located.
But it just isn't true, as a historical or logical matter, that everything that shows up on Schedule C is part of the claimed exemption.
Justice Anthony Kennedy: Is it also true -- tell me about this: One of my concerns is that the trustees simply don't have time in every case to have a creditors' meeting and go through every asset.
If they did, then Justice Breyer's suggestion, where they'd sit down and talk about all this stuff, would be -- would be fine.
Am I right or wrong in making that empirical assumption?
I mean, I just don't know.
Mr. Wall: I think that's entirely fair.
They do have to have a creditors' meeting, so they do have to -- you know, within 20 to 40 days of the filing of the petition.
But I think what will happen on Respondent's approach as a practical matter is the world will look no different; it will just have a lot more litigation.
Whenever the numbers in columns 3 and 4 match up, the trustee will file a pro forma objection or extension request.
Cases will proceed exactly as they do now.
Property can be sold.
Some will be returned to the debtor and some will not.
Justice Anthony Kennedy: He has to.
Otherwise, he is at risk that it might be worth $400,000 or whatever.
Mr. Wall: Exactly.
And I think the reason that it's odd to set up that kind of presumption is because you're basically presuming that the debtor is acting to claim an exemption in kind to which he is not entitled under the code.
Chief Justice John G. Roberts: So what does she put down if she thinks this is what the property is worth, but she doesn't know for sure?
I mean, I don't know how you would accurately value a bunch of kitchen equipment.
What is she supposed to do?
Mr. Wall: Well, the debtor would do exactly what she did here, and if the trustee went to sell and she had remaining exemption left, she could come in and amend her schedules and say--
Chief Justice John G. Roberts: But that goes through -- I think as Justice Ginsburg pointed out, you have to go through a long process if you're going to have an auction, and for this sole proprietorship, it seems like a waste of money and time.
Mr. Wall: --Well, if the debtor actually wanted to claim, say, full value or 100 percent of value -- there are debtors that commonly do that.
Since at least Taylor 20 years ago, debtors on the form have been writing down, in the third column--
Chief Justice John G. Roberts: Well, that's right.
I mean, this is a government form, and you say, even though it says "Value of the claimed exemption" and "Current market value", that these debtors should know, oh, you should put in, as your friend said, put in an asterisk and write something else in there.
Mr. Wall: --I don't even think it has to be an asterisk.
It's -- debtors commonly will put in on these forms where they want to claim full value, even if they're not entitled to it under the code, full value, 100 percent of value.
The debtor in Taylor wrote down "Unknown".
Some contingent term that places the trustee on notice that says: Hey, whatever the value of the property is--
Justice Ruth Bader Ginsburg: That's much less informative than if she said -- I mean, here she -- she has one list that's showing what she paid for it.
She makes her best guess.
It's -- you're suggesting that she would be entitled to the notice if she put down 100 percent> ["].
So your -- on your theory, in order to do what she obviously wants to do, preserve her kitchen equipment, she has to give no information or inaccurate information.
If she said -- I think what you're saying is if she said a 100 percent, instead of saying what she thought was the -- the value, or if she said unknown, she would be entitled to notice from -- to an objection from the trustee.
But because she has tried her best to put down what the form calls for, she doesn't get any objection from the trustee.
Mr. Wall: --Well, I think, Justice Ginsburg, the debtor does have a duty to report the market value in the fourth column, what she believes it to be, but the third column supports her claim and--
Justice Antonin Scalia: That -- is that where she would write 100 percent -- in the third column, rather than the fourth?
Mr. Wall: --Well, no.
She'd write it in the third column because what she'd be saying is -- the third column is just subjective.
It's just what you want to claim, and, under 100 percent of value.
And then, in the fourth column, she would make an estimate as to what she believed that value to be.
And, in the event that she underestimated, she could always come in and amend her exemptions.
I think it would be odd to read a form where she cited statutory provisions that allow her to claim interest up to a dollar cap and then she had put down definite and fixed numbers to say to the trustee, you should assume, despite the statutory text she is citing and the numbers she is giving you, that she is claiming an unauthorized, in-kind exemption, despite the very statutory provisions on which she's relying as the bases for her exemption.
Justice Ruth Bader Ginsburg: Would she--
Justice Antonin Scalia: Well, now, wait.
Why would the trustee object?
I mean, he would still be objecting to the valuation.
You say that he has no -- no obligation to object to the valuation.
But if she writes 100 percent of value in the third column, that's what she's claimed, and then values it at something above the exemption, right?
Above the permissible objection, he's still objecting to the valuation, isn't he?
Mr. Wall: Justice Scalia, wherever the debtor lists a contingent term in the third column, whether it's unknown or 100 percent of value, the trustee absolutely has to object.
It -- but -- but where the trustee doesn't object is where the debtor does what she did here and lists a fixed sum.
Justice Antonin Scalia: I see.
Chief Justice John G. Roberts: Thank you, Mr. Wall.
ORAL ARGUMENT OF G. ERIC BRUNSTAD, JR. ON BEHALF OF THE RESPONDENT
Mr. Brunstad: Mr. Chief Justice, and may it please the Court: Justice Ginsburg, your reading of the schedules is completely accurate.
There was nothing more that Ms. Reilly could have done to indicate her intent to exempt the property in full.
The bankruptcy court looked at this.
The bankruptcy judge sees thousands of these kinds of schedules and made that determination.
Justice Anthony Kennedy: But she could have said "in full".
You can't say she couldn't have done nothing more.
She'd put "in full".
Mr. Brunstad: Well, Justice Kennedy, the form--
Justice Anthony Kennedy: Or 100 percent of value> ["].
Mr. Brunstad: --Justice Kennedy, the form doesn't call for that.
The form calls for a list--
Justice Anthony Kennedy: Now, you've said that there's nothing else she could do, and I said, of course, there's something else she could do.
In Taylor, the case you cite, they put "unknown".
Mr. Brunstad: --That's--
Justice Anthony Kennedy: I mean, I understand your position, but you can't say there's nothing else she could have done.
That's -- that's the issue in the case.
Mr. Brunstad: --Yes, Justice Kennedy, but consistent with the form and the information the form requests, she completely and accurately provided the information the form requests.
And she -- as the bankruptcy court looked at this and said, this is -- she's claiming the property in full.
The district court looked at this, the court of appeals looked at this, all to the same conclusion.
Now, I think it's important to underscore the purpose of the statute and the rules.
They address a very practical problem.
We need to know, right away, at the beginning of the case, is this property the debtor gets to keep, or is this property of the estate, which the trustee can sell?
We need to know this because, under section 363(b), a trustee cannot sell property if it is not property of the estate.
And if the property is claimed as exempt and nobody files an objection, it is exempt under 522(l).
The trustee cannot sell it.
Chief Justice John G. Roberts: So if it turns out that this business equipment was worth $100,000 and the trustee looks at it and says, oh, she's only claiming -- you know, less than she's entitled, $10,000, and doesn't object, she gets that dramatic windfall.
Mr. Brunstad: --Just so I'm clear, Chief Justice Roberts, if she claims that she -- $15,000, but she puts a value of $100,000?
Chief Justice John G. Roberts: Oh, no, no.
She -- she -- and it may be even in good faith or -- or bad faith, depending on the rule we -- we adopt, but she gets that incredible bonus because it turns out her business equipment is worth a lot more than she put down.
Mr. Brunstad: --Well, if she undervalues her equipment, for a hundred years, Chief Justice Roberts, that has been grounds for objection.
For a hundred years, the practice has been--
Chief Justice John G. Roberts: Well, this -- the trustee doesn't know.
He doesn't know.
He looks at it and says, oh, that sounds like kitchen equipment might be worth that, and so he doesn't object.
What you're doing is, I think Justice Kennedy pointed out, you're requiring the trustee to object to everything, lest he lose the $100,000 that it turns out this is worth.
Mr. Brunstad: --Not quite, Chief Justice Roberts, and here's why: The trustee gets the form, and then there is the meeting of creditors, and the trustee gets to ask questions before the deadline actually occurs.
Here, the trustee went and asked somebody else, do you think this is worth more than she's claiming?
And, apparently, somebody said, perhaps it is.
Then the trustee could ask the questions of the debtor directly, and if the debtor -- if the trustee needs more time, the trustee can do one of two things: move for an extension of time to object or simply adjourn the meeting of creditors.
The timing is completely in the trustee's control.
They have plenty of time.
Chief Justice John G. Roberts: No, but the point is, that drags out the whole process.
You're imposing a burden on the trustee.
He loses everything if he doesn't object, and I think the idea is that these things move as quickly as you can, and you don't want the trustees -- you know, I may be severely prejudiced; the creditors might if I don't object, so I'm going to object to everything; we'll sort it out later.
Mr. Brunstad: Yes, Your Honor, but that's what the statute does.
It poses the burden on the trustee.
The rule, Rule 4003, imposes the burden on the trustee to object if the trustee has any grounds for thinking what the debtor has done is improper.
Now, these schedules are signed under penalty of perjury.
There are criminal sanctions under 18 U.S.C. sections 152 and 157 if the debtor is engaged in fraud.
There are penalties under section 727 or 707.
The case can be dismissed.
The debtor can lose her discharge.
This is very serious affair, stating this information.
The debtor here very thoughtfully itemized all of the property, she filled out all the information on the form, and she did something else, Chief Justice Roberts.
On page 28a of her schedules, she checked a box that's required, and that box that the debtor requires -- is supposed to check basically tells the trustee: This is a no-asset case; there's not any value left over for anybody else after you account for my exemptions.
It's very clear from the box she checked off, from the information that she provided, she was claiming the property in full, the very property that she wanted, her tools of trade to engage in her business.
Again, thousands of these forms are done.
Here, the bankruptcy court looked at this and said she was exempting the property in full.
The trustee knows this.
The trustee sees thousands of forms.
He had the information that he claims forms the basis of his objection well before his deadline passed, yet he allowed the 30-day period to go by without presenting an objection.
Justice Samuel Alito: Well, when she put down the figure $10,718 on page 58a of the Joint Appendix, what did she mean by that?
Mr. Brunstad: In the last column, Justice Alito?
Justice Samuel Alito: Yes.
Mr. Brunstad: She meant that the value she claimed in full of her property was what she was claiming as exempt.
Justice Samuel Alito: She meant that that was--
Mr. Brunstad: --She held the property.
Justice Samuel Alito: --She had -- she had figured out the value of the property, and her estimation of its fair market value was $10,718?
Mr. Brunstad: Yes.
She very carefully listed it, and a debtor in bankruptcy--
Justice Samuel Alito: It wasn't $10,717?
It wasn't $10,719?
It was $10,718?
That's what she meant?
Mr. Brunstad: --That was her valuation of the equipment, Justice Alito.
Justice Antonin Scalia: Well, it's not a realistic valuation.
Nobody thinks that that's an honest valuation of the equipment.
It's simply adding up the -- the exemption she was entitled to.
Mr. Brunstad: No, Justice Scalia, because she didn't exhaust--
Justice Antonin Scalia: It's just -- her valuation just happened to be exactly the amount that the two exemptions she had would add up to.
Mr. Brunstad: --No, Justice Scalia, she did not exhaust her exemption availability.
She had additional exemption availability left over after she took for her equipment.
She detailed, she listed the assets, she listed a value.
And under our law, debtors in bankruptcy who own property are considered experts with respect to the valuation of their own property.
Shane v. Shane, 891 F. 2d at 872, the owner of property is competent to testify as to its value, is competent to testify to it.
Here, the trustee offered nothing.
There's nothing in the record to rebut her valuation that she swore under penalty of perjury was accurate.
She did -- again, Justice Scalia, she had more exemptions she could have used.
Justice Samuel Alito: But that's a -- that's a totally different question.
It's just -- it is -- your submission is that it is a pure coincidence that her good faith estimation of the current market value of this property just happens to add up, to the dollar, to the amounts that she was entitled to exempt under the specific statutory provisions that she cited in the previous column?
Mr. Brunstad: --No, Justice Alito, because $10,718 is not her max.
That's not the maximum amount of value that she could have claimed.
She properly did what all debtors have to do.
They are required to do this under the forms.
They are required to inventory their property in Schedule B; they are required in Schedule C to state a value, if in fact they know it.
And in good faith--
Justice Ruth Bader Ginsburg: Now, can you elaborate on this additional -- she -- you said she could have listed something that came to a higher number.
Are you talking about the part of the leftover of the wildcard exemption that she -- she used it for food, didn't she?
Mr. Brunstad: --She used it for perishable food items.
She didn't have to use it for perishable food items.
Justice Antonin Scalia: Well, but she was maxed out.
Once she used it for that, she was maxed out, but she wanted to have her cake and eat it too.
She wanted to get the exemption for the food and she wanted to get the exemption for the -- for the equipment.
And so it just so happened that the equipment valuation added up to precisely what was left over after she took the exemption for the -- for the food.
Mr. Brunstad: Actually, the other way around, Justice Scalia.
She valued the equipment first.
Then she determined she had leftover, leftover exemption ability, and she applied it to additional items.
Justice Anthony Kennedy: But how do you know that from the form?
Number one, I think both sides have -- have an argument as to what the form means.
I don't think it's at all clear-cut.
As I say, I'm looking for some kind of a rule to tilt the case one way or the other.
I don't put a lot of credence in the fact that she -- the ambiguities are construed against her.
I am concerned that in every case, under your rule, the trustee is at risk unless he makes an objection, and I think that's just going to make bankruptcy proceedings much more protracted and much more complex.
Mr. Brunstad: Actually, I think, Justice Kennedy, the opposite.
After Taylor, after this Court's decision in Taylor, trustees understood if they had a valuation objection, if they had concern that the debtor might be getting a windfall, they needed to make an objection.
Justice Anthony Kennedy: Well, but therein -- the problem was triggered when they put in the word "unknown".
Mr. Brunstad: That's correct, Justice Kennedy, but that was the appropriate thing to say for that particular asset, an unliquidated lawsuit.
When we're talking about tangible property such as cooking equipment, where you can figure out -- you look at the pot and you have an idea of what it's worth, you are required to state that amount.
Now, I think, Justice Kennedy, a good rule of decision is -- or a good principle of decision here is that the exemptions are part of the fresh start in bankruptcy, and we construe exceptions to that fresh start against creditors, against the trustee.
Justice Stephen G. Breyer: Do you have any sense of how it works in practice?
I'm a little worried by Justice Kennedy's question, because the government says in practice what's been happening is that in most places, trustees don't -- they don't object to these kinds of valuations problems, and now suddenly when the rule has changed in some circuit, they do object as a matter of form, which is unnecessary paperwork.
The impression I had from reading Collier, and it was -- the opposite was so, that normally when you have the creditors' meeting, things would appear, what was a problem or what wasn't, and the creditor would then file an -- or the trustee would then file an objection.
Well, what is the case?
How does the practice work?
I'm -- I'm pretty uncertain.
I'm not a bankruptcy expert.
Mr. Brunstad: Yes, Justice Breyer, there has not been an avalanche of pro forma objections being filed in these cases.
Justice Stephen G. Breyer: Yes, but how did it work normally for years and years?
You'd go into a committee meeting of creditors.
They'd get into an argument about the valuation.
I'm sure that happened.
Mr. Brunstad: Yes.
Justice Stephen G. Breyer: And when that happened, did trustees file objections within 30 days or didn't they?
Mr. Brunstad: Yes, Justice Breyer.
Justice Stephen G. Breyer: How do we know that?
I mean, I was impressed by Ambro.
Isn't he the judge here?
Mr. Brunstad: In the court of appeals, yes, Your Honor.
He's a former bankruptcy judge.
Justice Stephen G. Breyer: He had been a bankruptcy judge, so maybe he knows.
Mr. Brunstad: Certainly--
Justice Stephen G. Breyer: Now, I don't know who knows, because I'm worried the government has looked into this, and somebody's telling them who knows it's the opposite.
Mr. Brunstad: --Justice Breyer, under the rules, the trustee has the burden of objecting if the trustee has any basis for objection, including valuation, and -- but the trustee has to have a good faith reason for objecting, and how that is determined is the trustee looks at the schedules, asks questions at the meeting of creditors, a section 341 meeting, and then if the trustee has any objection at all, present it.
If the trustee doesn't present it, you move on.
We have -- finality is very important here.
Justice Sonia Sotomayor: Now, under your rule, the trustee has 30 days to get this good faith basis.
Does that mean that he or she has to get a valuation on everything that's listed at full value, that that is really the burden we're talking about?
It's not the burden of filing a piece of paper that says I want an a exemption, or even one that says I have an objection.
It's what it takes to support that objection and how much effort goes to that activity.
Mr. Brunstad: Yes, Justice Sotomayor, and the trustee has had that burden for about a hundred years.
And under the former Bankruptcy Act, they had much shorter deadlines -- 20 days, 15 days.
Justice Sonia Sotomayor: No, there's a huge difference between a rule that says you don't have to actually go after this information in a formal way.
If someone's claiming only the exempt amount, then I'll go ahead and I'll administer the estate, and over time I'll talk informally to people and get a sense of whether the valuation is right or not, but I won't actually -- actually have to get a formal appraisal because I'll just use my judgment.
Your rule would require something else.
They would have to get the appraisal to lodge the request for an extension or to lodge the request for an objection.
Mr. Brunstad: But they'd have to do that in their motion to sell anyway, Justice Sotomayor.
And also in most cases it's going to be simple.
The most common asset that this is about is a car.
You take the car and you check the book value of the car, and the trustee can do a simple, easy, expedient comparison.
It's a little more complicated when--
Justice Anthony Kennedy: You mean in every single case where an asset is sold, there has to be a valuation beforehand?
Mr. Brunstad: --In a situation where the debtor claims the property as exempt, yes, and here's why, Justice Kennedy: Because the trustee again can--
Justice Anthony Kennedy: If -- if he claims the whole property is exempt?
Mr. Brunstad: --Well, if the debtor claims the whole property is exempt, then it's not property of the estate unless the trustee interposes a timely and successful objection, because section 362 of the Bankruptcy Code, which authorizes sales, only specifically authorizes sales of property of the estate; and if someone claims property as exempt, if no objection is interposed under 522(l), then the property claimed as -- is exempt.
Justice Anthony Kennedy: My question was -- I thought I understood your remark to say anytime there's a sale, there has to be a valuation or an appraisal before the sale.
Mr. Brunstad: If, in fact, the debtor claims the property as exempt, that's correct.
Unless the debtor concedes, the trustee can sell it.
That has to happen anyway, Justice Kennedy.
Justice Ruth Bader Ginsburg: Do we know what -- what's--
Justice Anthony Kennedy: But that -- but the very fact that it's -- that there's going to be a sale may indicate that your premise is not true most of the time.
Mr. Brunstad: No, Justice Kennedy, and here's why: because the statute, for example, points that the court is going to determine in the first instance whether the objection claim is valid, if there is in fact an objection.
How do we know this?
Because section 522(a) says value is determined as of the date the debtor files for bankruptcy.
We do not have sales to determine whether, in fact, the property is what it's worth.
We determine whether the -- that the claim of exemption is valid.
First, there's a judicial determination of value.
It's geared towards the date of the petition date.
Because Congress understood that debtors want this property, not just a check from the trustee.
It's part and parcel of their fresh start.
As this Court explained in Rousey and in Owen, that the fresh start policy embraces the exemption.
That is very plain.
Justice Stephen G. Breyer: I'm very confused because of your answer to Justice Sotomayor.
I thought what you were saying -- she said, well, you only have 30 days; you get all this value.
That doesn't say very much.
You said, well -- you -- you said less.
Mr. Brunstad: I'm sorry, Justice Breyer.
Justice Stephen G. Breyer: You said less time.
Which isn't much of an answer, but it's something.
Now, I would have thought you were going to say but it's 30 days from the creditors' meeting ending, and that's a movable feast that could last 5 years.
You could keep postponing it.
You can go to the judge and say, Judge, give me an extension, which he'll do.
So there's no problem here.
But you didn't say that.
So the fact that you didn't say that suggests to me you're not certain about what this practical impact is.
Mr. Brunstad: I am certain about it.
Justice Stephen G. Breyer: You are certain?
Mr. Brunstad: I would say that, Justice Breyer.
I am certain about that.
I have just -- answered one question, then taken off to another one.
I didn't get to--
Justice Stephen G. Breyer: All right.
How long do these creditors' meetings last?
How easy are they to postpone?
How -- how easy is it for the trustee to get this information together during the creditors' meeting, et cetera, et cetera?
Where do I look to find out the answer to that question?
Mr. Brunstad: --Justice Breyer, the practical reality is that there are over a million bankruptcy cases that are filed a year.
Most of those are Chapter 13 or Chapter 7 cases, hundreds and hundreds of thousands of them.
And that's why the box that's checked on page 28a is a key piece of information for the trustee.
When the debtor says, this is basically a no-asset case; after you take account of my exemptions, there's no property left over for unsecured creditors -- the trustee looks at that.
And as a practical matter, the trustee makes a judgment -- a judgment call: Hmm.
I look at all the things, does it look right?
If I feel like I need to ask questions, I will ask them at the meeting of creditors.
Which is what happened here.
If the trustee then is still suspicious in some way, then the trustee can seek an appraisal, and if the trustee wants to get that appraisal, then the trustee can ask for additional time to do it.
If the court thinks that there's perhaps merit to it, the trustee will give -- the court will give the trustee additional time.
Justice Ruth Bader Ginsburg: --Here I thought that the trustee got the appraisal before the creditors' meeting, because at the creditors' meeting he said to her, you put down, what, 10,000; I have an estimate that says $17,000.
Mr. Brunstad: --Yes.
The facts of this case are exactly that, Justice Ginsburg.
The trustee here, before the meeting of creditors, went and talked to an auctioneer.
In the ordinary situation, it will happen a little bit differently, where the trustee will look at the schedules, and perhaps before the meeting of creditors, the trustee might inquire with someone else, but oftentimes the trustee might ask questions at the meeting of creditors.
And then if the trustee wants to, if the trustee thinks it's worth it to get an appraisal, then the trustee will ask for the -- for the additional time to do -- do the appraisal, by either asking the court for an extension or by adjourning the meeting of the creditors.
But it's very important at the beginning of the case -- there's a very important finality question here, a finality principle.
The debtor needs to know as soon as possible -- and this is why we have an objection deadline.
The debtor needs to know as soon as possible: Is this my property?
Can I take this cooking equipment and can I use it?
Am I the one who is to insure it?
Can I conduct my business?
Can other creditors lend me money now, now that I'm going through bankruptcy and I have my discharge?
Or is this something that the trustee is going to take and sell?
That is why we have this objection deadline, to basically say to the trustee, if you have any objections whatsoever about the debtor keeping this property -- whether their value, or the statutory basis under 522(d) is incorrect -- whatever reason it may be, make your objection and we'll have a quick determination by the court.
It cannot be true, as the trustee would like it, that the trustee can sell at any particular point in time in the future without having to make an objection, because that--
Justice Ruth Bader Ginsburg: Mr. Brunstad, do we know what is the division among bankruptcy judges on this issue?
I mean, you are urging that when those columns 3 and 4 match, that's a tip-off that the debtor is claiming the entire property is exempt.
Do we know what is the lay of the land among bankruptcy judges?
Mr. Brunstad: --Not precisely, Justice Ginsburg, because many of these issues are resolved by unpublished orders.
That it is very difficult to evaluate and get a hold of.
But I think by and large the vast majority of bankruptcy courts follow Taylor in this -- in this area and will say, well, when you list the value of the asset, if the trustee has an objection as to value, then the trustee must make the objection.
If the trustee doesn't make the objection--
Justice Anthony Kennedy: Well, once again, Taylor had the word "unknown", and this doesn't.
And that's the problem.
Mr. Brunstad: --Yes, Justice Kennedy, so the courts have to apply the holding in Taylor to a slightly different factual context.
But most bankruptcy courts say this is really the same situation.
Because after all, in Taylor, what the trustee was saying was that I think the debtor is getting too much -- was getting too much at the end of the day.
And the same thing here, the trustee is saying: I think the debtor is getting too much; it may be worth more.
But if the debtor thinks there's a problem with the valuation -- again, make an objection, because we need to have that finality.
Finality was a key concept in--
Justice Anthony Kennedy: You mean if the trustee thinks there's a problem?
Mr. Brunstad: --Yes, Justice Kennedy, thank you for correcting me.
If the trustee thinks there is a problem, the trustee has to make an objection.
We get that finality taken care of, and then we can move on.
Justice Sonia Sotomayor: Counsel, in -- what's interesting is that all of the circuits or most, the majority, have not announced the fixed rule.
The rule they've said is: It depends on the circumstances.
And so it appears to me that most of the courts are saying to us: We don't want a default rule, because we have to see what has happened and see what has happened between the parties to determine in one situation rather than another what the intent was.
It's not an irrational rule.
Why shouldn't we be considering that as an alternative?
Because once we make an announcement like the one that you're proposing, it is an inducement to undervalue your property, for a debtor, because -- in the hopes that an overly worked trustee won't have either the time or opportunity or wherewithal to understand that the value is off and that they're going to lose something that the estate is entitled to.
Mr. Brunstad: I can see that, Justice Sotomayor, but I think that here are much worse incentives with the trustee's rule, and much worse problems, much greater harm to the statutory scheme.
Now, Your Honor's question about these court of appeals' decisions -- I think a lot of them are driven by the following, which has since been cured by an amendment to the rule.
A lot of them involve situations where the court of appeals was thinking -- and looking at the record and thinking the debtor was engaging in some kind of misrepresentation or manipulation.
And, as Justice Stevens pointed out in his concurrence in Taylor, you know, there is this -- what about this problem?
Are there 105 powers?
Are there -- is there authority for the bankruptcy court to basically act, if you have a basically bad-acting debtor?
Now the current version of Rule 4003 makes an exception for fraud.
If there were bad things that happened, that's been taken care of now under the rule.
But we shouldn't assume that and certainly not in this case.
Ms. Reilly was perfectly honest and straightforward.
She set forth everything that the forms required.
Justice Sonia Sotomayor: No.
There are comparable circuit court opinions and situations very analogous to this one, where the circuit courts have looked at what the trustee and the debtor have done during the process.
And if the debtor has not made it clear that they're seeking the full value of the property, as happened here, there was a conversation that the value was off, the debtor did not tell the trustee that she was claiming the full amount of the property.
And there are analogous situations where the circuits have said, no, that doesn't show your intent because you didn't articulate it to the trustee in the informal meetings.
That's not an irrational conclusion by those circuits.
Mr. Brunstad: --It's not an irrational conclusion, except it is one that is contrary to the statutory scheme.
It basically says to the trustee, you need not object by the 30 days, if you want to sell the property.
Justice Sonia Sotomayor: No.
What it says is, if you're engaged in good faith negotiation over a value or over the claimed exemption, you should -- both sides should be open about it.
Mr. Brunstad: Yes, but, Justice Sotomayor, it is the filing of the objection that triggers the negotiation, and this is key.
This is -- this is really quite key because the practice is that, if the trustee exempts to the -- exempts -- sorry -- objects to the valuation, then there is a court hearing, and the court will resolve the objection if the parties can't negotiate it afterwards.
And if you look--
Justice Sonia Sotomayor: Most of these cases, the objections are -- the discussions are not at the time of objection.
They are at the time of the creditors' meeting.
It is part of the discussion.
That's what the courts are looking to.
What's happening between the parties?
Have they made their intent clear, and what does that intent reflect?
Mr. Brunstad: --But if there is no objection, then is no involvement of the court, and the conversation stops.
And the reason why you have the objection is because the trustee has the burden of coming forward and demonstrating that the debtor's valuation is wrong.
And that's important because when the trustee is now saying, oh, I just need to sell, I don't have to object, the trustee is evading his burden of proof.
By just simply saying, I'm authorized to sell, I am going to sell, as long as it is not the debtor who doesn't object.
The trustee's proposal inverts the burden of proof.
It's now under the trustee's proposal, when the trustee files a motion to sell, the debtor has to come forward and object and now say, wait, I have a valuable exemption here.
What -- what the trustee then has done is simply said, I don't have to comply with my burden of proof that's set by the rule and the statute.
After all, section 522(l) puts the burden on the trustee, as well, to object.
So they are inverting the burden of proof, and Congress and rules have put the burden of proof completely in the opposite way.
And, again, we need that -- we need that finality.
The trustee would basically have, under his proposal, an ability to file a motion to sell a year later, 2 years later, 4 years later, by reopening a case that's been closed, if the trustee thought that.
Our whole point about finality, which was a key principle animating the decision below and also this Court's decision in Taylor, where the Court made the observation that, although these deadlines may yield, in some situations, unwelcome results, they serve very important finality interests.
The debtor needs to know, is this my property?
Can I use it?
Justice Ruth Bader Ginsburg: But this debtor did know at the creditors' meeting -- she certainly knew that the trustee was claiming the property was worth more than what she listed it as being worth.
She could have, at that point -- so she had the notice of what he was thinking.
She could have, at that point, said, I will remove as many items as necessary to bring me safely within the limit.
She didn't do that.
Mr. Brunstad: That's correct, Justice Ginsburg.
Instead she said, this -- the trustee wants to sell all of the property.
He's filing -- he filed a motion to sell all of it.
The trustee did not give her an opportunity to do that allocation, which she would have had if the trustee had filed an objection.
In responding to the objection, she could have said, well, I'm only going to allocate something, because the objection would have been under the exemption rules; whereas, the trustee, when the trustee filed the motion to sell, it was under 363, which is the motion to sell rules, where the debtor would then have had to come forward and object to the motion for some reason, but, again, you don't have that allocation option under section 363.
And, again, the trustee puts the cart before the horse.
The trustee cannot sell property, unless it is property of the estate, and under section 522, if, in fact, the debtor claims property as exempt, if there is no exemption -- no objection, it is exempt, and, therefore, it's not property of the estate.
"Exempt" means exempt from property of the estate.
A trustee cannot sell.
Congress set up this regime purposefully, to have judicial determinations of exemptions right away, and that, again, is triggered by an objection being filed.
That way, we know, at the beginning of the case, does the debtor have the property?
Can she use it?
Can she continue?
Third parties -- can they rely on that?
Or is this something the trustee is going to be able to sell?
Now, it's important also because the practice, in bankruptcy, as reflected in the Collier forms, is that the bankruptcy court can make a judicial determination.
Say, for example, the bankruptcy court here had said: I think there is some merit to the trustee's objection; the property is worth $12,000.
The practice, as reflected in the sample form, is for the court then to say to the debtor: Debtor, if you want to keep this property, give the trustee a check for the difference between what you're entitled to claim and what I'm establishing the value to be.
That can happen if an objection to the exemption is filed, and we're under section 522 exemptions.
That can't happen if we're under section 362 sales.
So, again, the trustee's rule eliminates that established practice and that established option in favor of the debtor.
Also, the debtor could say -- could reallocate -- the debtor has the right, under the rules, under Rule 1009, to reallocate her -- her exemptions after the trustee has -- she could have sacrificed some other area or something and taken -- taken her additional exemption availability somewhere and applied it.
All those options are foreclosed, where the trustee doesn't file an objection and the trustee moves to sell instead.
Now -- I see my time has not expired.
If there are no further questions?
Chief Justice John G. Roberts: Thank you, counsel.
Mr. Brunstad: Thank you.
Chief Justice John G. Roberts: Now, Mr. Goldblatt, 2 minutes.
REBUTTAL ARGUMENT OF CRAIG G. GOLDBLATT ON BEHALF OF THE PETITIONER
Craig G Goldblatt: Thank you.
I have two points, one practical and one about what the forms here mean.
First, as a practical matter, the task of liquidating and selling the -- the assets of the estates is the work that is done throughout bankruptcy case.
Mr. Brunstad's suggestion that, historically, that there was -- the deadline applied to the work of liquidating the estate is simply incorrect.
And, in response to Justice Breyer's question, you asked, where do I turn to find out how hard it is to simply extend the deadline?
The answer to that question, with respect to the 341 meeting, is page 7-7 of the U.S. Trustees' Manual, which says, quite clearly, that such extensions should be granted only under exceptional circumstances, and the trustee should not continue the 341 meeting when the debtor appears at that meeting.
So that we have a real practical problem of basically undermining Congress's judgment about giving the trustee adequate time to liquidate the assets for the benefit of creditors.
With respect to what these schedules mean and whether the debtor was claiming an in-kind exemption, Chief Justice Roberts, you had it right when you said -- you know, when the debtor files what the value of the property is worth is unclear, the debtor doesn't know, when they file, what this will obtain at auction.
The debtor is giving an estimate.
The question is whether one should read these forms to say, if it turns out that my estimate is wrong, I want that anyway, or if the -- or if you should read these forms to say, if it turns out that my estimate is wrong, all I want is what Congress gave me.
And we think that one shouldn't lightly impute to the debtor a claim to be making an improper and unlawful claim to keep the thing itself, when Congress quite clearly gave the debtor a monetary interest.
And, finally, with respect to the question of allocation, the debtor can, at any time, Justice Ginsburg, reallocate, including after the motion to sell, their schedules.
Rule 1009 says you can amend as a matter of course.
So there is still the opportunity to give the debtor exactly what Congress intended.
Chief Justice John G. Roberts: Thank you, counsel.
The case is submitted.
Chief Justice John G. Roberts Jr.: In case 08-538, Schwab versus Reilly, Justice Thomas has the opinion of the Court.
Justice Clarence Thomas: This case comes to us on a Writ of Certiorari in the United States Court of Appeals for the Third Circuit.
Petitioner William Schwab is a trustee of respondent Reilly’s Chapter 7 bankruptcy estate.
Reilly filed for bankruptcy when her catering business failed.
When a debtor files for bankruptcy, the bankruptcy code provides that, all of the debtor’s assets become property of the bankruptcy estate, subject to the debtor’s right to reclaim certain property as exempt.
The bankruptcy code specifies the types of property debtors may exempt and also limits the value of the exemptions a debtor may claim in certain assets.
Property a debtor claims as exempt, will be excluded from the bankruptcy estate unless a party in interest such as a trustee like Schwab objects to the exemption within a certain time period.
In this case, we resolve the disagreement among the Courts of Appeals about what kind of information triggers the duty to file such an objection.
Reilly’s professional cooking equipment was one of the assets that became property of the bankruptcy estate.
This equipment had sentimental and professional value to Reilly and quite understandably, she wished to exempt it.
The bankruptcy code and rules require debtors who wish to exempt certain property, from their estates to fill out a form, that form is known as a Schedule C and on that form they must provide certain information about their exemption and the property to which the exemption applies.
The dispute in this case arose because it is possible to read the information on Reilly's Schedule C form in one of two ways.
Either as a claim to exempt the entire value of her cooking equipment which would be objectionable because the equipment's total value exceeds the dollar amount that the code allows for exemptions in such assets or it could be read as a claim to exempt only an interest in the equipment worth a certain dollar amount within the code’s limits, which would then be proper and therefore unobjectionable.
The bankruptcy code provisions that Reilly cited on her Schedule C, entitled her to exempt an interest in her cooking equipment, not to exceed a certain dollar amount because Reilly Schedule C expressly listed the value of the claimed exemption as a specific dollar amount below the code’s limits.
Schwab did not object to the exemption before he asked the bankruptcy Court for permission to sell the cooking equipment, so that he could pay Reilly the amount of her exemption and distribute the equipment's remaining value to Reilly’s creditors.
Reilly object into the proposed sale on the grounds that Schwab should have read her Schedule as a claim to exempt the equipment in its entirety even though its appraised value exceeded the code’s exempted limits.
The District Court agreed with Reilly and held that Schwab’s failure to make a timely objection entitled her to keep the equipment.
Court of Appeals affirmed citing this Court’s 1991 decision in Taylor versus Freeland, that the deadline for bankruptcy objections must be strictly enforced.
In an opinion on file with the clerk today we reverse the judgment of the Court of Appeals, a better Schedule C entries must be read in light of the code, the bankruptcy code provisions that govern the exemptions set forth in the Schedule and code’s requirement must control over a debtor’s intent or a standalone reading of the Schedule.
In this case, the code provisions that govern Reilly’s exemptions define the property that she claimed exempt as an interest in her cooking equipment, not as a equipment itself, and place a specific dollar limit on the value of that interest because the dollar value Reilly assigned the interest on Schedule C was below the code’s specified limits.
Schwab was entitled to treat her claim as a valid exemption in the amount she listed and thus did not have to object to the claim, in order to preserve for the estate, the value in the equipment beyond that amount because Reilly’s claimed the exemption in the equipment was not objectionable, neither Bankruptcy Rule 4003’s deadline for making objections, nor our Taylor decision, if in enforcing that deadline applies here.
Justice Ginsburg has filed a dissenting opinion in which the Chief Justice and Justice Breyer have joined.