Help Center

Bankruptcy Experts Discuss Supreme Court’s Ruling in Schwab v. Reilly and Exemptions for Consumer Debtors

Date: 
Friday, June 18, 2010
Issue: 

The U.S. Supreme Court ruled (6-3) today in favor of the trustee in the case of Schwab v. Reilly in order to determine the proper rule to apply when a debtor claims an ambiguous exemption in bankruptcy. The Court reversed and remanded a decision by the Third Circuit.

Speakers: 

Prof. Robert M. Lawless teaches at the University of Illinois College of Law and specializes in bankruptcy, consumer credit, and business law.

Claire Ann Resop is a shareholder in the Madison, Wis., office of von Briesen & Roper SC, where she concentrates her practice in bankruptcy, real estate and commercial and claim litigation. She is appointed to the Panel of Chapter 7 Trustees for the Western District of Wisconsin and serves on ABI's Board of Directors.

Moderator: 

Former ABI Resident Scholar Prof. Juliet Moringiello of Widener University Law will serve as the moderator for the teleconference.

Background: 

The Supreme Court ruled (6-3) in favor of the trustee in the case of Schwab v. Reilly in order to determine the proper rule to apply when a debtor claims an ambiguous exemption in bankruptcy. The Court reversed and remanded a decision by the Third Circuit. The debtor, Nadejda Reilly, was a caterer who filed a Schedule C bankruptcy form valuing her cooking equipment at $10,718. On the same form, she claimed an exemption in the equipment worth the full $10,718—within her permissible exemption amount. The trustee, William Schwab, did not object to this claimed exemption within the required 30-day period, but he did inform the debtor that he believed the cooking equipment was actually worth closer to $17,000—which exceeded the debtor’s statutory exemption limit. The trustee claimed the right to sell the equipment, give the debtor $10,718 in cash to cover her claimed exemption and distribute the excess profit to her creditors. In response, the debtor moved to call off the bankruptcy proceeding, but the bankruptcy court denied the motion. This left the court to resolve a dispute over what was covered by the exemption that the debtor had claimed—and which the trustee had ratified by failing to object within 30 days. In writing the opinion in the case, Justice Thomas wrote for a 6-3 Court decision “that Schwab was not required to object to Reilly’s claimed exemptions in her business equipment in order to preserve the estate’s right to retain any value in the equipment beyond the value of the exempt interest.” To hold otherwise “threatens to covert a fresh start into a free pass,” Thomas wrote.