Summary:
In several related Chapter 7 cases, the Debtors exemptions included a provision relying on Schwab v. Reilly, ___ U.S. ___, 130 S. Ct. 2652 (2010), that they “intend[ed] to claim 100% of Debtors’ interest and 100% fair market value in each and every item listed, irrespective of the actual value claimed as exempt.” Following objections by the Chapter 7 Trustee, the Debtors, still seeking to maximize their exemptions, amended their exemptions to include a provision that contemplated three separate scenarios: 1. If the “net value” of the asset is less than or equal to the claimed exemption and the “net value” is also less than the maximum exemption amount, the Debtors claimed to exempt the asset and their entire interest. 2. If the “net value” of the asset is greater than the maximum exemption amount*, the Debtors claimed to exempt the maximum exemption amount.* 3. If the value assigned to the asset was unknown, the Debtors claimed to exempt the maximum exemption amount.* * The Debtors may have affirmatively claimed less than the maximum exemption amount, likely to preserve exemptions for other assets, in which case the amount actually claimed was the limit. To use the illustration provided by the bankruptcy court, if an individual debtor listed the “net value” in his residence as $30,000.00 and claimed that amount as exempt, the trustee would be unable to administer the property if his investigation revealed the value to be higher unless he had timely objected; this is so despite the fact that the $30,000.00 is within the permissible exemption amount. Accordingly, the Chapter 7 Trustee renewed his objections. In analyzing the permissibility of this provision, the bankruptcy court began by recognizing that North Carolina, having opted out of the federal exemption scheme, has two categories of exemptions. The first allows debtors to exempt the asset in full, regardless of value. See N.C.G.S. § 1C-1601 (6) (Life Insurance), (7) (Health Aids), (8) (Personal Injury and Wrongful Death Settlements), (9) & (11) (Certain Retirement Accounts), (12) (Alimony & Child Support) and N.C.G.S. § 1-362 (60-Days of Wages). The second category allows debtors to exempt an interest in value up to a specified monetary amount in the particular item, asset or property described. See N.C.G.S. § 1C-1601(a) (1) (Homestead), (2) (Wildcard), (3) (Motor Vehicle), (4) (Household Goods), (5) (Tools of Trade) and (10) (College Savings Plans). Based on this distinction, the bankruptcy court then held that “listing the value of an exemption as ‘FMV,’ ‘100% of FMV,’ or other comparable language to that effect, is wholly inappropriate in instances where the relevant statutory exemption scheme assigns a maximum dollar value to the exemption. See for example, In re Luckham, 464 B.R. 67, 77 (Bankr. D. Mass. 2012) and In re Stoney, 445 B.R. 543, 552 (Bankr. E.D. Va. 2011). The provisions in the Debtors’ exemptions impermissibly merged the two categories of exemptions in a manner that “does not accurately claim nor conform to [the] statutory limits imposed....”
Commentary:
The “100% of FMV” language was proposed in Schwab as a remedy for the problem of Chapter 7 Trustees who sit on assets for an extended period of time, neither actively administering the asset nor allowing to clearly revert to the Debtor. Following this decision, it would appear that the best option for a Debtor faced with this dilemma may be to file a Motion to Abandon pursuant to 11 U.S.C. § 554, in order to push the Trustee to “fish or cut bait.”
For a copy of the opinion, please see:
Gregory- Permissibility of Exemption of 100% of FMV.pdf
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