exemptions

Upon losing their employment, Richard and Betty Jo Rousey rolled over their pensions and 401(k) accounts into individual retirement accounts (IRAs). The Rouseys had trouble finding new work, which led to their inability to pay their debts. They subsequently filed for Chapter 7 bankruptcy protection in the United States Bankruptcy Court for the Western District of Arkansas. The bankruptcy trustee demanded that the Rouseys' IRAs be turned over to satisfy their debts, but the couple argued that their IRAs were exempt from the bankruptcy proceeding under 11 U.S.C. 522(d)(10)(E). This statute provides that any funds paid under a pension or similar plans or contracts on account of illness, disability, age, length of service or various other conditions may be exempt from the bankruptcy estate. The Bankruptcy Court, the Bankruptcy Appellate Panel, and the U.S. Court of Appeals for the Eighth Circuit have each held that the Rouseys' IRAs are not covered by 11 U.S.C. 522(d)(10)(E) and are thus not exempt from Chapter 7 proceedings.  The Supreme Court granted certiorari to decide whether IRAs are indeed exempt from bankruptcy estates under 11 U.S.C. 522(d)(10)(E).

Questions as Framed for the Court by the Parties

Issues

In 2005, Nadejda Reilly filed a Chapter 7 bankruptcy petition. On the petition she listed her business property as an exemption, demonstrating her intent to retain the entire property by declaring the property’s exemption amount to be equal to her estimation of the asset’s value. The bankruptcy trustee assigned to the case, William Schwab, did not object to Reilly’s exemption but later determined the business property had a higher value than Reilly’s estimation and sought to sell the property to recoup the difference. Reilly argued that Schwab’s failure to object within the thirty-day statutory period rendered the property exempt. Schwab countered that Reilly’s exemption was limited to the specific amount claimed and did not serve to fully exempt the property from distribution. Schwab also argued that the objection deadline applied only to the type of property claimed as exempt, not to the value. The United States Court of Appeals, Third Circuit disagreed, holding that Schwab was on notice that Reilly intended to fully exempt the property and failure to object in time rendered the property exempt. The U.S. Supreme Court’s decision will determine whether a debtor in a Chapter 7 proceeding successfully claimed a full exemption in an asset by declaring that the exemption value equals the asset’s value, and whether the thirty-day objection period applies.

Questions as Framed for the Court by the Parties

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