Debtor May Exempt 100% FMV When Value Does Not Exceed Statutory Cap

Posted by NCBRC - January 18, 2018

“There are certain situations where a debtor claiming federal exemptions under § 522 of the Bankruptcy Code can claim an exemption of a 100% interest in an asset. What we do not decide is whether doing so entitles such a debtor to clear title in that asset and any post-petition appreciation.” Ayobami v. Peake, No. 16-20589 (5th Cir. Jan. 3, 2018).

The case was before the Fifth Circuit on a certified question from the bankruptcy court to resolve the issue of whether, on Schedule C of her bankruptcy filing, a debtor is entitled to exempt 100% of the value of an asset up to the statutory cap. Yemisi Ayobami claimed fourteen exemptions under sections 522(d)(1), (3)-(5). Under the amount of the exemptions, Ms. Ayobami listed 100% of the fair market value. The court permitted the exemptions but required that Ms. Ayobami specify the amount of the exemptions in the “Specific laws that allow exemption” column of Schedule C.

Upon request by both parties, the bankruptcy court certified the following question to the Fifth Circuit: “May a debtor claiming federal exemptions under § 522 of the Bankruptcy Code ever exempt a 100% interest in an asset?” In re Ayobami, No. 15-35488, 2016 WL 3708761, at *2 (Bankr. S.D. Tex. July 1, 2016). The trustee argued that by claiming the exemptions in an unspecified amount, Ms. Ayobami essentially removed the assets from the estate and further, that because section 522(d) specifies a cap on dollar amounts that may be exempted, the debtor must also claim the exemption in a specific amount.

The court disagreed. It concluded that section 522 permits exemptions of a debtor’s interest in an asset while section 522(d) places a cap on the value of that asset. The court cautioned that if the value of an asset exceeds the statutory cap, a debtor’s claimed exemption in the amount of 100% of her interest would run afoul of section 522. But it stated that that was not the situation before it. Turning to the limited question of whether a debtor may theoretically claim an exemption in the amount of 100% of the value of the asset, it stated: “we hold that if, when considering any other exemptions claimed, the debtor’s entire interest in an asset is less than or equal to any dollar-value limitation imposed by the applicable § 522(d) subsection, then the debtor may exempt her 100% interest in that asset.”

Because the certified question did not require resolution of the question, the court did not address the issue the parties seemed most interested in: whether, by claiming an exemption in the amount of 100% of the FMV, a debtor is able to “walk away” with the asset and benefit from any post-petition appreciation. Hinting that Supreme Court dictum would steer that question toward the negative, the court suggested that “[w]hen the case arises, whose facts present the question, we hope to rise to the occasion. In the meantime, the bankruptcy courts have ample discretion to frame the question in a proper case.”

Ayobami 5th Cir opinion Jan 2018

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