SCHWAB v. REILLY

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Case Basics
Docket No. 
08-538
Petitioner 
William G. Schwab
Respondent 
Nadejda Reilly
Advocates
(for the petitioner)
(Assistant to the Solicitor General, Department of Justice, for the United States, as amicus curiae, supporting the petitioner)
(for the respondent)
Term:
Facts of the Case 

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.

Question 

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?

Conclusion 
Decision: 6 votes for Schwab, 3 vote(s) against
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.

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SCHWAB v. REILLY . The Oyez Project at IIT Chicago-Kent College of Law. 26 November 2014. <http://www.oyez.org/cases/2000-2009/2009/2009_08_538>.
SCHWAB v. REILLY , The Oyez Project at IIT Chicago-Kent College of Law, http://www.oyez.org/cases/2000-2009/2009/2009_08_538 (last visited November 26, 2014).
"SCHWAB v. REILLY ," The Oyez Project at IIT Chicago-Kent College of Law, accessed November 26, 2014, http://www.oyez.org/cases/2000-2009/2009/2009_08_538.