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Supreme Court Ruling Against Bankruptcy Debtor May Benefit Debtors and Attorneys

July 14, 2010

As Ontario consumer bankruptcy attorneys, we were very interested to read about a Supreme Court ruling that affects bankruptcy filers' rights. As the Wisconsin Law Journal reported July 1, the U.S. Supreme Court ruled recently that personal property exempted by the bankruptcy filer can be brought back into the bankruptcy assets, even after the deadline to object has passed. The case, Schwab v. Reilly (PDF), concerned a woman who exempted assets from her catering business from a Chapter 7 bankruptcy. That debtor lost at the Supreme Court, which means she must turn over the assets for sale to her trustee. But because the 6-3 ruling also provides clear guidance on how to exempt assets, some commentators said it might actually benefit debtors.

Nadejda Reilly estimated the value kitchen equipment for her catering business at $10,718. Her Chapter 7 bankruptcy trustee did not object. Later, however, an appraisal showed that the equipment could be worth as much as $17,200, and the trustee filed a motion to sell the property. The bankruptcy court, district court and Third Circuit Court of Appeals all ruled against the trustee, saying Reilly had indicated her intent to exempt the full value of the assets. But the Supreme Court reversed them, ruling that the trustee had no duty to object because the estimated value Reilly gave her equipment was within the bankruptcy code's guidelines. Significantly, the court included guidelines for similar future disputes in its ruling, saying debtors can show that they intend to exempt full market value of the asset by claiming "full fair market value" or using similar language.

The article included commentary by attorneys in the bankruptcy field, many of whom said the ruling was good news for bankruptcy filers. Thanks to the court's guidelines, they said, debtors have clear guidance on how to exempt the full value of their assets. One exception was brought up in the dissent by Justices Ginsburg, Roberts and Breyer, who objected that self-represented debtors won't know how to use this information. Another criticism raised in the article said the ruling will mean more work for trustees and bankruptcy courts, because trustees will now have to routinely object to exemptions.

As Covina individual bankruptcy lawyers, we have mixed feelings about this ruling. The clear language provided by this ruling allows debtors to be very clear in their filings, which in turn means there's less risk of those exemptions being successfully challenged. This is generally good news for debtors and bankruptcy attorneys like us. However, we are not so pleased with the Supreme Court's decision as to Reilly herself, which went against all of the lower court rulings. By allowing trustees to challenge exemptions after a deadline for doing so has passed, the decision helps to render that deadline meaningless. This in turn takes away confidence and, arguably, rights from bankruptcy filers. As the article noted, it also gives trustees and filers more reason to fight over exemptions in courts, dragging out the process and costs for everyone.

At Howard Law PC, we represent people throughout California who are considering filing for bankruptcy to deal with overwhelming debt. Unfortunately, job losses and the depressed economy mean more and more people are considering bankruptcy. Our Yorba Linda personal bankruptcy attorneys start each case by examining whether clients could solve their financial problems without a bankruptcy, and offering other options to people who can use them. If bankruptcy is the best choice for you, we can help you choose between Chapter 7 and Chapter 13 bankruptcies, depending on your own individual circumstances and assets, and help you through the bureaucratic and sometimes emotional process of filing and completing the bankruptcy. Because we believe our job is to help clients land on their feet, we also counsel them on tax and other financial consequences as they emerge and begin to rebuild their finances.

If you feel so far in debt that you'll never get out and you're considering bankruptcy, you should talk to Howard Law right away. We offer free, confidential consultations, so you can speak to us at no further obligation. To set up a meeting, call us today at 1-800-872-5925 or send us a message through our website.