Schwab v. Reilly

Nadejda Reilly (debtor) filed for Chapter 7 bankruptcy when her catering business failed. William Schwab (plaintiff) was trustee of Reilly’s bankruptcy estate. Reilly submitted Schedule B and Schedule C with her bankruptcy petition. Schedule B listed Reilly’s assets, including kitchen equipment with an estimated value of $10,718. Schedule C listed Reilly’s claimed exempt interests in the equipment. Reilly claimed the statutory maximum tools-of-the-trade exemption of $1,850 under 11 U.S.C. § 522(d)(6) and an $8,868 wildcard exemption in the equipment under § 522(d)(5), which allowed exemptions up to $10,225. Under the Federal Rules of Bankruptcy Procedure, interested parties must object to a debtor’s claimed exemptions within 30 days after a meeting of the debtor’s creditors. If a party failed to object, the debtor’s claimed exemption would exclude the property from the estate even if the exemption’s value exceeded an amount allowed by the Bankruptcy Code. Schwab did not object to Reilly’s claimed exemptions because they fell within the statutorily allowable limits. However, an appraisal subsequently valued the equipment at much higher than $10,718. Schwab moved to auction the equipment and distribute any excess proceeds over the claimed exempt value to Reilly’s creditors. Reilly asserted that Schwab’s motion was untimely and expressed her intent to exempt the equipment’s entire value, even if that amount was more than she had claimed on her schedules and more than the Bankruptcy Code allowed. The bankruptcy court denied Schwab’s motion. The district court and appellate court affirmed, and the United States Supreme Court granted certiorari.