29 May Exemptions and Unknown Values
You have a claim against someone of an unknown amount, perhaps from a car accident. What’s the best way to protect it? The First Circuit Court of Appeals just gave us some guidance.
The case is called Barroso-Herrans v. Lugo-Mender (In re Barroso-Herrans), 2008 U.S.App. LEXIS 9729. The debtor had pending lawsuits which were valued at $4,000 and for which $4,000 exemptions in total were claimed. The suits settled for $100,000. The debtor argued that the full settlements should be protected, since the claimed exemptions were 100% of the estimated values of the suits. Moreover, the 30 day deadline for objecting to exemptions has long passed and the trustee could no longer attack the exemptions.
Nope, said the First Circuit. A reasonable bankruptcy trustee would have read this as claiming a $4,000 exemption in $4,000 worth of the law suits, especially since over $1 million was the suits’ claims. A stronger argument would have been made if the law suits and the exemptions were stated as “unknown” in value (which was allowed by the Supreme Court), or were each stated at $1.00 (which was allowed by the 11th Circuit), or if other “red flags” were used, such as “unknown,” 100%, “to be determined.”
The opinion leaves open the possibility that an exemption claimed in bad faith might justify setting aside the exemption.
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