Court May Not Deny Amendment to Exemptions Based on Bad Faith

Posted by NCBRC - December 6, 2019

Based on Law v. Siegel the bankruptcy court properly overruled the trustee’s objection to the debtor’s amendment to his exemptions without regard to whether the debtor concealed assets in bad faith. Rucker v. Belew (In re Belew), No. 18-3045 (8th Cir. Nov. 26, 2019).

In his bankruptcy schedules, the debtor initially failed to disclose that he had $30,000 in cash in a home safe. When the trustee learned of the cash, the debtor sought to amend his exemptions to exempt the money. The trustee objected on the grounds that the debtor had intentionally concealed the asset and was therefore precluded from amending on the basis of bad faith. The bankruptcy court overruled the objection and the BAP affirmed.

In support of her appeal to the Eighth Circuit, the trustee cited Kaelin v. Bassett, 308 F.3d 885, 888 (8th Cir. 2002), where the court established that a bankruptcy court may deny an amendment to the debtor’s claimed exemptions if the amendment is proposed in bad faith or will prejudice creditors. The court here reexamined Kaelin in light of the Supreme Court decision in Law v. Siegel, 571 U.S. 415, 421 (2014). There, the Court held that the bankruptcy court could not surcharge a debtor’s exemptions as a consequence of the debtor’s misconduct. In that case, the Court cited the debtor’s express right, under section 522, to exempt certain property and found that that right could not be contravened by the bankruptcy court’s general power to issue necessary orders under section 105(a) or to sanction misconduct. Because Congress has not recognized bad faith as a limitation to a debtor’s right to claim exemptions, the courts cannot do so either.

The court here found that the fact that Law dealt with a surcharge against exempt property and this case dealt with amendment to exemptions was not relevant to its holding. The Court in Law plainly equated disallowing an exemption with refusing to allow an amendment to claim an exemption.

Noting that courts have other ways of dealing with bad faith, the circuit court affirmed the lower court’s and held Kaelin to be abrogated by Law.

Belew 8th Cir Nov 2019

Tags: ,

Post a Comment

Your email is never shared. Required fields are marked *