The recent Supreme Court decision of Schwab v. Reilly dealt with a rather technical question of just what are debtors protecting when they claim an exemption in their bankruptcy? The Court said that a debtor must indicate that they are claiming an exemption for the full value of the item not just a portion of it. In Schwab, the debtor listed office equipment with a value of $10,718.00 and exempted the equipment for $10,718.00, which was not the total amount that could have been exempted. The trustee in the case claimed that the value of the equipment was much higher and that the debtor was only entitled to an exemption up to the amount claimed, which was $10,718.00. Therefore, he argued that the equipment could be liquidated and only $10,718.00 would have to be given to the debtor with the balance going to the debtor’s creditors on a pro rata basis. The Court sided with the trustee.
Often bankruptcy exemptions have a ceiling as to how much can be claimed exempt. For example, in New York a debtor can now exempt a vehicle up to $4000.00. Here, Schwab does not really pose a problem, as a debtor can simply claim the full exemption of $4000.00, even if the vehicle is only worth $1000.00. In that case, if the trustee claims the value of the vehicle is really $3000.00, it would still be 100% exempt. But, there are exemptions that do not have a ceiling, and this is where Schwab has more of an impact.
For instance, in New York, most retirement accounts are exempt and there is no limit as to the amount that can be claimed exempt.
