In Schwab v. Reilly, ___U.S.___, 130 S. Ct. 2652 (2010), the debtor claimed certain restaurant equipment as exempt as tools of the trade using federal exemptions. The exemption was expressed in a dollar amount equal to the fair market value of the equipment as listed on Schedule B. The trustee did not object to the exemption, and after the 30 day deadline to object had passed, the trustee filed a motion to sell the equipment. The debtor objected to the motion to sell arguing that the equipment was removed from the bankruptcy estate when the trustee did not timely object to the exemption.
The trustee argued that it was the monetary amount that the debtor claimed as exempt, not the asset “in kind.” The Court ruled that if the asset claimed as exempt was properly claimed (the asset type was allowed to be claimed as exempt) in a certain dollar amount, then the trustee could sell the asset and turn over the exempt proceeds without filing an objection to the claimed exemption. It was the monetary value that was exempt, not the asset itself.
Recently, In re Orton, 687 F.3d 612 (3rd Cir. 2012), considered facts similar to Schwab and confirmed that statutory exemptions that are expressed in dollar terms must be claimed in dollars. The opinion states:
[T]he quintessential purpose of limiting a debtor to a dollar-amount exemption is to permit the trustee to liquidate assets in the best interest of the creditors by cashing out the debtor, effectively removing him from considerations about how to administer the estate. See 11 U.S.C. § 704(a)(1) (“[The Trustee must] collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of the parties…”).
Id. at 619.
The Court also confirmed that the estate is entitled to any appreciation in asset value over the amount claimed as exempt. Id. (citing In re Reed, 940 F.2d 1317 (9th Cir. 1991); In re Paolella, 85 B.R. 974 (Bankr. E.D. Pa. 1988)). The Court relied on the language of §541(a)(6) which defines bankruptcy estate property to include any ‘“[p]roceeds, products, offspring, rents, or profits of or from property of the estate..’ in other words, appreciation of value…” Id.
Language in Schwab suggests that if a debtor wants to indicate his intent to exempt the asset “in kind,” then he should use specific language that was not expressed in dollar terms, such as “100% of FMV.” Most courts interpreting Schwab have not allowed debtors to convert the monetary exemptions to “in kind” exemptions by using language such as “100% of FMV.”
In re Salazar, 449 B.R. 890 (Bankr. N.D. Tex 2011) was a consolidated decision involving objections to exemptions in nine (9) separate Chapter 7 and Chapter 13 cases. In each case, debtors had claimed property as exempt using the language “100% of FMV.” The debtors had followed the purported directive of Schwab and put the trustees on notice that they intended to claim the asset as exempt “in kind.” The Court ruled that an objection by the trustee to the language “100 of FMV” could be sustained without an evidentiary hearing in cases in which an exemption should be expressed in terms of dollars. The bankruptcy estate is entitled to post petition appreciation in asset values. Therefore, if an exemption is expressed in terms of dollars, then the exemption must be claimed in dollar amounts. The use of terms such as “100% of FMV” is an attempt to claim post petition appreciation, and is facially invalid. Id. The Courts in In re Massey, 465 B.R. 720 (B.A.P. 1st Cir. 2012) and In re Luckham, 464 B.R. 67 (Bankr. D. Mass. 2012) have also held that an evidentiary hearing is not necessary on an objection to exemptions when a debtor claims “100% of FMV” of an asset as exempt on the basis that it a facially invalid attempt to exempt post-petition appreciation in property values.
The Bankruptcy Court for the North District of Texas, Forth Worth Division, holds evidentiary valuation hearings on objections to exemptions claiming “100% of FMV.” The Court ruled in In re Moore, 442 B.R. 865 (Bankr. N.D. Tex. 2010), that “[t]he debtor will have the burden of going forward and must show a plausible basis for the claim that “100% of FMV” falls within the statutory limit on the amount that may be exempted. Once the debtor has satisfied that burden, the party opposing the exemption will have, as provided by Rule 4003(c), the burden of proving that, in fact, the exemption exceeds the statutory limit.” Id. at 866.
To the best of my knowledge, the issue has not been raised in Mississippi. A few attorneys in Mississippi have started using the “100% of FMV” language. I have not objected to any of the exemptions because I did not intend to administer the assets claimed as exempt, but I may do so in the future.