Appreciation of Florida Assets during Bankruptcy

July 27, 2014

Post-bankruptcy appreciation of property of a Florida bankruptcy estate is not exempt. For example, suppose a Chapter 7 debtor owns 100 shares of stock in Gooey Gum, Inc, with a value of $10 per share on the day she files bankruptcy. The debtor’s attorney applies $1,000 of an available wildcard to exempt the stock.

Shortly before the end of the case, the bankruptcy trustee reveals that Gooey Gum stock has skyrocketed. Apparently they have released a new product, Gooey Glum Gum, and teenagers can’t get enough of it. Each share is now worth $20.appreciation

“No problem-o,” the debtor’s attorney says. “She has exemptions available.”

“Oh, yes. There is a problem-o,” says the trustee.

The debtor is not entitled to the appreciation in value after the bankruptcy filing. See In re Orton, 687 F.3d 612 (3rd Cir. 2012)(Section 541(a)(6) defines bankruptcy estate property to include any “ [p]roceeds, products, offspring, rents, or profits of or from property of the estate.. in other words, appreciation of value…”); In re Reed, 940 F.2d 1317 (9th Cir. 1991); and In re Paolella, 85 B.R. 974 (Bankr. E.D. Pa. 1988). In our example, the debtor must either pay the trustee $1,000 cash or turn over $1,000 worth of Gooey Gum stock.

The Supreme Court in Schwab v. Reilly, 130 S. Ct. 2652 (2010), noted that a debtor may indicate an intent to fully exempt an asset. The Court suggested that the debtor could claim an exemption of “full market value (FMV)” or “100% of FMV” on Schedule C, a debtor could clearly indicate that he is exempting the full value of his property (and not just a partial, exemptible interest in the property). This compels the trustee’s obligation to object within 30 days or lose the entire asset from the bankruptcy estate.

Bankruptcy courts and trustees have reacted to the Schwab ruling differently. In most cases, a debtor claiming an exemption of “full market value” or “100% of FMV” triggers a trustee objection and a hearing in bankruptcy court to determine the value of the property. In other cases, trustees are continuing the meeting of creditors in order to avoid starting the 30 day clock while seeking to determine a FMV and applicable exemption amount. The courts also differ on who has the burden of proof when a debtor claims a 100% FMV exemption. Some courts have required the trustee to prove that the fair market value of the asset exceeds the allowed amount of the exemption.

In the case of In re Salazar, 449 B.R. 890 (Bankr. N.D. Tex 2011), nine bankruptcy cases were consolidated for hearing where the debtors had claimed exemptions of “100% of FMV.” Following the Schwab decision, these debtors attempted to put the trustees on notice that they claimed assets as exempt “in kind” and not simply a monetary amount. The Texas bankruptcy court held that an objection by the trustee to a claimed exemption of “100% of FMV” could be sustained without hearing because the debtor’s exemption claim attempts to attach post-petition appreciation, which is facially invalid. Other courts have agreed. See In re Massey, 465 B.R. 720 (B.A.P. 1st Cir. 2012); In re Luckham, 464 B.R. 67 (Bankr. D. Mass. 2012).

Claiming the full exemption is an important step in the bankruptcy process. Jacksonville attorney Robert Peters understands the bankruptcy laws and how to protect your assets. Call (904) 421-6907 today for a Free Consultation.

Appreciation of Florida Assets during Bankruptcy

June 3, 2014

Post-bankruptcy appreciation of property of a Florida bankruptcy estate is not exempt. For example, suppose a Chapter 7 debtor owns 100 shares of stock in Gooey Gum, Inc, with a value of $10 per share on the day she files bankruptcy. The debtor’s attorney applies $1,000 of an available wildcard to exempt the stock.Appreciation of Florida Assets during Bankruptcy

Shortly before the end of the case, the bankruptcy trustee reveals that Gooey Gum stock has skyrocketed. Apparently they have released a new product, Gooey Glum Gum, and teenagers can’t get enough of it. Each share is now worth $20.

“No problem-o,” the debtor’s attorney says. “She has exemptions available.”

“Oh, yes. There is a problem-o,” says the trustee.

The debtor is not entitled to the appreciation in value after the bankruptcy filing. See In re Orton, 687 F.3d 612 (3rd Cir. 2012)(Section 541(a)(6) defines bankruptcy estate property to include any “ [p]roceeds, products, offspring, rents, or profits of or from property of the estate.. in other words, appreciation of value…”); In re Reed, 940 F.2d 1317 (9th Cir. 1991); and In re Paolella, 85 B.R. 974 (Bankr. E.D. Pa. 1988). In our example, the debtor must either pay the trustee $1,000 cash or turn over $1,000 worth of Gooey Gum stock.

The Supreme Court in Schwab v. Reilly, 130 S. Ct. 2652 (2010), noted that a debtor may indicate an intent to fully exempt an asset. The Court suggested that the debtor could claim an exemption of “full market value (FMV)” or “100% of FMV” on Schedule C, a debtor could clearly indicate that he is exempting the full value of his property (and not just a partial, exemptible interest in the property). This compels the trustee’s obligation to object within 30 days or lose the entire asset from the bankruptcy estate.

Bankruptcy courts and trustees have reacted to the Schwab ruling differently. In most cases, a debtor claiming an exemption of “full market value” or “100% of FMV” triggers a trustee objection and a hearing in bankruptcy court to determine the value of the property. In other cases, trustees are continuing the meeting of creditors in order to avoid starting the 30 day clock while seeking to determine a FMV and applicable exemption amount. The courts also differ on who has the burden of proof when a debtor claims a 100% FMV exemption. Some courts have required the trustee to prove that the fair market value of the asset exceeds the allowed amount of the exemption.

In the case of In re Salazar, 449 B.R. 890 (Bankr. N.D. Tex 2011), nine bankruptcy cases were consolidated for hearing where the debtors had claimed exemptions of “100% of FMV.” Following the Schwab decision, these debtors attempted to put the trustees on notice that they claimed assets as exempt “in kind” and not simply a monetary amount. The Texas bankruptcy court held that an objection by the trustee to a claimed exemption of “100% of FMV” could be sustained without hearing because the debtor’s exemption claim attempts to attach post-petition appreciation, which is facially invalid. Other courts have agreed. See In re Massey, 465 B.R. 720 (B.A.P. 1st Cir. 2012); In re Luckham, 464 B.R. 67 (Bankr. D. Mass. 2012).

Claiming the full exemption is an important step in the bankruptcy process. Jacksonville attorney Robert Peters understands the bankruptcy laws and how to protect your assets. Call (904) 421-6907 today for a Free Consultation.