Mary Edith Mitchell

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE: 	)
)
MARY EDITH MITCHELL 	) 	Case No. 06-144
)
Debtor. 	) 	Chapter 7
MEMORANDUM OPINION
Mary Edith Mitchell (the “Debtor”) is entitled to a $25,000 homestead exemption under
West Virginia law. 1 When she filed her Chapter 7 bankruptcy petition and schedules, she valued
her home at $21,000, and claimed the full $21,000 in value as exempt. The Debtor’s Chapter 7
trustee disagrees with the Debtor’s valuation, and has filed a motion to compel turnover of her home
on the belief that it may be worth $50,000. 	In response, the Debtor contends that she wholly
exempted her home – and because the Chapter 7 trustee failed to timely object to her claim of
exemption2 – he is now precluded from doing so under the holding of the United States Supreme
Court in Taylor v. Freeland in Kronz, 503 U.S. 638 (1992).
More specifically, the Debtor’s counsel contends that by claiming an exemption in the same
amount as the scheduled value of property, the Debtor put the Chapter 7 trustee on notice that she
1 W. Va. Code § 38-10-4(a).
2 Fed. R. Bankr. P. 4003(b) (“[A] party in interest may file an objection to the list of
property claimed as exempt within 30 days after the meeting of creditors held under § 341(a) is
concluded . . . . The court may, for cause, extend the time for filing objections if, before the time
to object expires, a party in interest files a request for an extension.”); Fed. R. Bankr. P.
9006(b)(3) (“The court may enlarge the time for taking action under Rules . . . 4003(b) . . . only
to the extent and under the conditions stated in those rules.”). Here, the Debtor’s Chapter 7
trustee never timely objected to the Debtor’s claim of exemption, and never timely requested an
extension of time to file such an objection.
1
Dated: Wednesday, January 28, 2009 2:08:53 PM
Case 1:06-bk-00144 Doc 38 Filed 01/28/09 Entered 01/28/09 14:18:15 Desc Main
Document Page 1 of 8

intended to exempt the entire property – not just a certain dollar value. The Debtor’s Chapter 7
trustee argues that, based on the facts of this case, the Debtor cannot claim an exemption that is
greater than the statutory limit available to her. 	He also states that he has no objection to the
Debtor’s $21,000 exemption claim, and concedes that the Debtor has an opportunity to amend her
claim of exemption to the full $25,000 allowed under West Virginia law. In the view of the Chapter
7 trustee, allowing the Debtor to wholly exempt her homestead on the facts of this case would be
to allow the “grossest of frauds.”
The argument between the Debtor and her Chapter 7 trustee in this case has resulted in
different outcomes in the Circuit Courts of Appeals.
The split in the Circuit Court of Appeals stems from the United States Supreme Court’s
decision in Taylor v. Freeland in Kronz, 503 U.S. 638 (1992). In Taylor, the Court held that a
trustee loses the right to contest the validity of a claimed exemption if the trustee misses the deadline
for objecting to the exemption as set forth in Fed. R. Bankr. P. 4003(b) 3 – even if the debtor did not
have a colorable basis for claiming the exemption. Id. at 644. The debtor in Taylor listed a pending
employment discrimination claim on her schedule of personal property, and stated that it had
“unknown” value. Id. at 640. On the debtor’s schedule of exempt property, she claimed the pending
lawsuit as exempt. Id. 	At the debtor’s § 341(a) meeting of creditors, the debtor explained to the
Chapter 7 trustee that the lawsuit could be worth about $90,000, but the trustee never objected to
the debtor’s claim of exemption on the grounds that no statutory basis existed to claim it. Id. at 641.
In the words of Justice Thomas:
3 When a debtor files bankruptcy, all the debtor’s property becomes property of the
debtor’s bankruptcy estate. 11 U.S.C. § 541(a). The Bankruptcy Code, however, allows a debtor
to keep some of the debtor’s property by claiming certain statutory exemptions. § 522(b). A
debtor claims these exemptions under § 522(l), which requires the debtor to file a list of the
property that the debtor claims as exempt. Unless a party in interest objects, the property
claimed as exempt on the § 522(l) list (Schedule C to the Bankruptcy Petition) is exempt. §
522(l). Fed. R. Bankr. P. 4003(b) sets the deadline for filing such an objection, and it requires
that the objection be filed within 30 days after a debtor’s meeting of creditors under 11 U.S.C. §
341(a). The meeting of creditors is generally held anywhere between 20 and 40 days after the
filing of a bankruptcy petition. Fed. R. Bankr. P. 2003(a). At the meeting of creditors, the
trustee is afforded the opportunity to examine the debtor and ask questions regarding the debtor’s
bankruptcy petition and schedules.
2
Case 1:06-bk-00144 Doc 38 Filed 01/28/09 Entered 01/28/09 14:18:15 Desc Main
Document Page 2 of 8

Deadlines may lead to unwelcome results, but they prompt parties to act and they
produce finality. In this case, despite what respondents repeatedly told him, Taylor
did not object to the claimed exemption. If Taylor did not know the value of the
potential proceeds of the lawsuit, he could have sought a hearing on the issue, see
Rule 4003(c), or he could have asked the Bankruptcy Court for an extension of time
to object, see Rule 4003(b). Having done neither, Taylor cannot now seek to deprive
Davis and respondents of the exemption.
Id. at 643.
Several facts are key to the holding in Taylor: (1) no statutory basis existed for the debtor
to claim the exemption; (2) the Chapter 7 trustee had knowledge that the lawsuit may be worth as
much as $90,000 at the time of the debtor’s § 341(a) meeting of creditors; and (3) the Trustee had
a meritorious objection to the debtor’s claim of exemption but elected not to timely file the
objection.
While acknowledging the “exemption by declaration” rule articulated in Taylor, courts
facing variations of the Taylor fact pattern have reached different results.
For example, and most analogous to the case before this court, in Schwab v. Reilly (In re
Reilly), 534 F.3d 173 (3d Cir. 2008), the Court of Appeals for the Third Circuit determined that a
debtor who properly claimed an $10,718 exemption in business equipment – that the debtor also
valued at $10,718 – had, in fact, wholly exempted the business equipment in the absence of a timely
objection from the debtor’s Chapter 7 trustee. 	Id. at 178. 	Unlike Taylor, the debtor in Reilly
properly claimed her statutory exemption, and the trustee was unaware at the time of the Debtor’s
§ 341(a) meeting of creditors that the actual value of the business equipment was $17,200. 	Id. at
174. The Third Circuit rejected the Chapter 7 trustee’s argument that he had no objection to the
amount of the claimed exemption because the exemption claimed was proper; he only believed that
the value of the property was greater than the amount of the claimed exemption, which, in his view,
did not require him to file an objection. Id. at 176, 178. The court reasoned that the debtor made
her intent known to the trustee that she was attempting to exempt the entire property itself – rather
than a specific dollar value – based on the fact that she listed the value and the exemption in the
same amount: “Such an identical listing put Schwab on notice that Reilly intended to exempt the
property fully.” Id. at 178. The trustee’s remedy was to seek an appraisal of the property and file
3
Case 1:06-bk-00144 Doc 38 Filed 01/28/09 Entered 01/28/09 14:18:15 Desc Main
Document Page 3 of 8

an objection to the debtor’s claim of exemption within the Fed. R. Bankr. P. 4003(b) deadlines. Id.4
In contrast, the Court of Appeals for the First Circuit, in Barroso-Herrans v. Lugo-Mender
(In re Barroso-Herrans), 524 F.3d 341 (1st Cir. 2008), determined that a debtor listing a pending
lawsuit as having a contingent value of $4,000 and then exempting the lawsuit in the amount of
$4,000 is limited to the $4,000 claimed exemption after the case settled for $100,000. Importantly,
the exemption claimed by the debtor, and the amount of the exemption, were proper. Id. at 345 n.2.
Also, both the debtor and the trustee initially treated the lawsuits as partially exempt; the debtor’s
argument that the lawsuits were fully exempt was only made after the bankruptcy court rejected a
fee proposal for the prosecution of the lawsuit. Id. at 343. Moreover, the demand in the lawsuit
asked for damages in excess of $4 million, including the recovery of account receivables, which the
debtor listed on his bankruptcy schedules as having a value of $170,452. Id. at 344-45. In the view
of the First Circuit, Taylor “does not tell us what has been claimed as exempt – only that whatever
has been claimed as exempt is beyond the estate’s grasp once the deadline has elapsed.” Id. at 344
(emphasis in original). The standard for determining what has been claimed as exempt is “how a
reasonable trustee would have understood the filings under the circumstances.” Id. In this regard,
the court stated:
Had Barroso listed the value of the suits as “unknown” – as the debtor did in Taylor
– or used a nominal sum like $ 1 as a placeholder, he would have a much stronger
argument. “Use of terms like ‘100% [of the property's value],’ ‘unknown,’ ‘to be
determined,’ ‘tba’ and ‘$ 1.00' are red flags to trustees and creditors,” and therefore
put them on notice that if they do not object, the whole value of the asset – whatever
it might later turn out to be – will be exempt. But Barroso used none of these “red
flag” terms. In their absence and given the much higher valuations of the accounts
receivable, the trustee might reasonably assume that the $ 4,000 figure reflected not
the expected value of the full lawsuit but rather the face value of a $ 4,000 interest
in the suit's proceeds.
4 See also Allen v. Green (In re Green), 31 F.3d 1098 (11 th Cir. 1994) (holding that a
debtor claimed a contingent lawsuit as wholly exempt by listing its value at $1.00 and exempting
it in the amount of $1.00; the Chapter 7 trustee recognized that the $1.00 value was to mark the
claim as contingent and he knew that $1.00 was not the actual value of the debtor’s lawsuit); 4
Collier on Bankruptcy ¶ 522.05[2][b] (Alan N. Resnick & Henry J. Sommer, eds. 15 th ed. rev.
2008) (“Normally, if a debtor lists an asset as having a particular value in the schedules and then
exempts that value, the schedules should be read as a claim of exemption for the entire asset, to
which the trustee should object if the trustee believes the asset has been undervalued.”).
4
Case 1:06-bk-00144 Doc 38 Filed 01/28/09 Entered 01/28/09 14:18:15 Desc Main
Document Page 4 of 8

Id. at 345.
In another variation, the Court of Appeals for the Eighth Circuit held in Stroebner v. Wick
(In re Wick), 276 F.3d 412, 416 (8th Cir. 2002), that “when a specific dollar figure given by statute
limited the amount of the exemption . . . listing “unknown” [as the value of the property and the
amount of the exemption] does not, by itself, render the [property] fully exempted.” Unlike Taylor,
where there was no legal basis for the debtor to claim the exemption in her employment
discrimination lawsuit, the debtor in Wick claimed an exemption in an “unknown” amount based on
the federal wildcard exemption of 11 U.S.C. § 522(d)(5). Id. at 414. The parties stipulated that the
unused amount of the wildcard exemption was $3,925, and the court concluded that the dollar value
set forth in the statute limited the amount of the debtor’s claimed exemption. Id. 416. The factual
determinations underlying the court’s decision were that the debtor and her counsel always
considered the property to only be partially exempt, the debtor listed a valid statutory basis for her
exemption, the Chapter 7 trustee consistently followed up on the valuation of the property in an
effort to administer it, and the trustee had no basis to object to the debtor’s proper claim of
exemption. Id. at 417. The court further opined:
We do not think that the Bankruptcy Code and Rules oblige a trustee to object every
time a debtor partially exempts an asset in order to preserve the estate's interest.
Since exemptions are routinely smaller than the assets they are designed to protect
(for example, with homes), objections would multiply greatly if Taylor were read so
broadly. Further, in these situations, the judge would have nothing to determine after
the objections, except that the debtor is exempting the asset to the extent the Code
allows--a result that is clear from the face of the exemption schedule and § 522. In
Taylor, the Court found that the debtor "in fact claimed the full amount as exempt"
but did not have a right to exempt more than a small portion of the asset. The Court
went on to note specifically that the trustee "as a result, apparently could have made
a valid objection under § 522(l) and Rule 4003 if he had acted promptly." This case
is distinguishable, and we therefore hold that Taylor does not bar the estate's interest.
Id. at 417-18. 5
5 See also In re Hyman, 967 F.2d 1316, 1319 (9th Cir. 1992) (“The Hymans' schedule of
exempt property listed ‘homestead’ as an exemption under Cal. Civ. Proc. Code § 704.720, and
valued the exemption at $ 45,000. Based on this information, the Hymans did not sufficiently
notify others that they were claiming their entire homestead as exempt property; their schedule
only gave notice that they claimed $ 45,000 as exempt, which is the proper amount of their
5
Case 1:06-bk-00144 Doc 38 Filed 01/28/09 Entered 01/28/09 14:18:15 Desc Main
Document Page 5 of 8

The Court of Appeals for the Fourth Circuit has also provided some guidance on how the
Taylor rule of “exemption by declaration” is to be given effect. 	In 	Williams v. Peyton (In re
Williams), 104 F.3d 688, 689 (4th Cir. 1997), the debtor held property under a tenancy by the entirety
that had $48,576 in equity after deducting secured liens from the property’s petition date value. The
debtor claimed a tenancy by the entireties exemption in the amount of $48,600, and argued that the
Chapter 7 trustee forfeited the right to administer the property for joint and individual creditors when
he failed to timely object to the debtor’s claim of exemption. Id. Reasoning that a tenancy by the
entirety exemption was only valid against individual creditors – not joint creditors – the Fourth
Circuit allowed the trustee to sell the property and administer the assets for the debtors’ joint
creditors. Id. at 690. Regarding the debtors’ argument under Taylor that she claimed the entire
property as exempt, the court stated that Taylor involved a case where the debtor claimed an
exemption to which she was not legally entitled; “in contrast, by specifically claiming an exemption
under section 522(b)(2)(B), Williams merely claimed an exemption to which she was legally entitled
– the exemption of her tenancy by the entirety from the claims of her non-joint creditors.” Id. In
the view of the Fourth Circuit, “Taylor does not purport to require a trustee to object to a claimed
exemption to which the debtor is fully entitled.” Id.
Also, in Ainslie v. Grablowsky (In re Grablowsky), No. 93-2289, 32 F.3d 562, 1994 U.S.
App. LEXIS 20701 (4th Cir. Aug. 8, 1994), the Fourth Circuit summarily affirmed a district court
decision holding that a debtor claiming $1.00 of a partnership interest as exempt is limited to the
$1.00 exemption. In the view of the district court:
The Supreme Court's language [in Taylor] neither states nor implies that the debtor's
valuation of the property at issue becomes conclusive when there has been no
objection pursuant to Code § 522(1) and Rule 4003(b). This language was written
in the context of a debtor who explicitly claimed as exempt the entire value of
property worth an unknown amount of money. The passage has no relevance where,
as in the present cases, the debtors have not claimed the entire amount of their
interests in property exempt but instead have claimed a precise value amount of their
interests exempt.
. . . .
homestead allowance under sections 704.720 and 704.730. Thus, the trustee had no basis for
objecting, and could well have suffered the bankruptcy judge's ire had he objected to the $
45,000 exemption to which the Hymans were clearly entitled.”).
6
Case 1:06-bk-00144 Doc 38 Filed 01/28/09 Entered 01/28/09 14:18:15 Desc Main
Document Page 6 of 8

Taylor simply does not address whether a debtor's valuation of property becomes
conclusive in the absence of a timely objection pursuant to 11 U.S.C. § 522(1) and
Rule 4003(b). . . . This Court finds more persuasive, however, those decisions which
have quite properly recognized:
the distinction between an objection to the existence of an exemption
and an objection to the valuation of the property in which debtors
claim an exemption. Only the former objection must be made within
the Bankruptcy Rule 4003(b) 30-day period following the meeting of
creditors.
Addison v. Reavis, 158 B.R. 53, 60-61 (E.D. Va. 1993) (citations omitted).
With regard to this case, the court concludes that the Debtor has not wholly exempted her
interest in her homestead for seven reasons: (1) the Debtor’s claim of exemption is proper under W.
Va. Code § 38-10-4(a); (2) the Debtor’s Chapter 7 trustee had no basis to object to the Debtor’s
claim of exemption because the amount she claimed was statutorily authorized; (3) Fed. R. Bankr.
P. 4003(b), which governs the time a party in interest has to object to a claim of exemption does not
control the time to bring a dispute before the court regarding valuation of property; (4) the
exemption claimed by the Debtor, W. Va. Code § 38-10-4(a), provides a dollar cap on the amount
of a homestead exemption that the Debtor can claim ($25,000), and by using $21,000 of this
exemption on her home, the Debtor did not notify the Chapter 7 trustee that she intended to claim
an exemption that exceeded the statutory cap; (5) the position of the Chapter 7 trustee in this case
is that he did not interpret the Debtor’s claim of exemption to be in excess of the $21,000 actually
claimed; (6) there are an absence of “red flags” in this case that effectively convey to the Chapter
7 trustee, and other interested parties, that the Debtor clearly intended to wholly exempt her
homestead regardless of its value by, for example, stating that she was claiming her homestead as
100% exempt under the Supreme Court’s holding in Taylor; and (7) the Debtor prepared her own
schedules and it is up to her Chapter 7 trustee to determine the Debtor’s intention in claiming an
exemption; thus, any ambiguity as to whether the Debtor is attempting to effect an exemption by
declaration should be construed against the Debtor as the drafter of her own exemption schedule.6
6 E.g., Barroso-Herrans, 524 F.3d at 345 (“[I]t is most fair to place on the debtor the
burden of claiming exemptions unambiguously.”); Addision, 158 B.R. at 59 (same).
7
Case 1:06-bk-00144 Doc 38 Filed 01/28/09 Entered 01/28/09 14:18:15 Desc Main
Document Page 7 of 8

In holding that the Debtor in this case is limited to a $21,000 homestead exemption (subject
to amendment), the court realizes that it is reaching a result directly contrary to Schwab v. Reilly (In
re Reilly), 534 F.3d 173 (3d Cir. 2008), which is the case most analogous to the facts before this
court, and to the view expressed in Collier on Bankruptcy. However, the court cannot conclude –
as the Court of Appeals for the Third Circuit did – that the Debtor put her Chapter7 trustee on notice
that she was claiming property as wholly exempt by equating the value of her property and her claim
of exemption when the claim of exemption is proper and below the statutory cap. In this court’s
view, it is the Debtor’s burden to unambiguously claim an exemption by declaration under Taylor.
Therefore, the court will enter a separate order pursuant to Fed. R. Bankr. P. 9021 that grants
the Chapter 7 trustee’s motion to compel turnover of the Debtor’s homestead.
8
Case 1:06-bk-00144 Doc 38 Filed 01/28/09 Entered 01/28/09 14:18:15 Desc Main
Document Page 8 of 8