ELECTRONIC CITATION: 2007 FED App. 0011P (6th Cir.)

File Name: 07b0011p.06

BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT

In re: GREGORY ANDERSON and ROSE

ANDERSON,

Debtors.

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COLLEEN M. OLSON, Trustee, 

Plaintiff-Appellant,

v.

DAVID A. ANDERSON and DAVID ALLEN

ANDERSON, 

Defendants-Appellees.

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No. 06-8105

Appeal from the United States Bankruptcy Court

for the Western District of Michigan, Northern Division, at Marquette.

Case No. 04-90467, Adversary Proceeding No. 06-99002.

Submitted: August 1, 2007

Decided and Filed: November 7, 2007

Before: LATTA, PARSONS, and SCOTT, Bankruptcy Appellate Panel Judges.

____________________

COUNSEL

ON BRIEF: Steven L. Rayman, Steven M. Ellis, RAYMAN & STONE, Kalamazoo, Michigan, for

Appellant.
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____________________

OPINION

____________________

JOSEPH M. SCOTT, JR., Bankruptcy Appellate Panel Judge. Appellant Colleen M. Olson

(the “Trustee) appeals the bankruptcy court’s order disapproving the settlement agreement entered

into by the Trustee and Defendants David Allen Anderson and David A. Anderson (the

“Defendants”). For the reasons that follow, the panel concludes that although the bankruptcy court

abused its discretion by applying an erroneous legal standard, the court’s decision should be

affirmed.

I. ISSUES ON APPEAL

The overarching issue on appeal is whether the bankruptcy court abused its discretion in

disapproving the settlement agreement entered into between the Trustee and the Defendants by

applying an erroneous legal standard. Nevertheless, under the particular facts ofthis case, resolution

of this issue is not determinative. The underlying issue is whether the Trustee’s failure to object to

the Debtors’ claimed exemption within the deadline imposed by Federal Rule of Bankruptcy

Procedure 4003(b) removed the property in its entirety from the bankruptcy estate.

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit (the “BAP”) has jurisdiction to hear and

decide this appeal. 28 U.S.C. § 158(b)(1). The United States District Court for the Western District

of Michigan has authorized appeals to the BAP, and neither party has timely elected to have this

appeal heard by the district court. 11 U.S.C. §§ 158(b)(6), (c)(1). A final order of a bankruptcy

court may be appealed by right under 28 U.S.C. § 158(a)(1). An order is final if it “ends the

litigation on the merits and leaves nothing for the court to do but execute the judgment.” Midland

Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citations omitted).

Ordinarily, an order disapproving a settlement is not considered final for purposes of appeal by right

under 28 U.S.C. § 158(a)(1). However, in the present case, the orders on appeal entirely dispose of

the Trustee’s claims against the Defendants. “[A]n order that concludes a particular adversarial

matter within the larger case should be deemed final and reviewable in a bankruptcy setting.”
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Geberegeorgis v. Gammarino (In re Geberegeorgis), 310 B.R. 61, 63 (B.A.P. 6th Cir. 2004)

(citations omitted).

A bankruptcy court’s decision to approve or disapprove a settlement rests in the sound

discretion of the bankruptcy judge. A reviewing court will not disturb or set aside the decision

unless it achieves such an unjust result as to amount to an abuse of discretion. Machinery Terminals,

Inc. v. Woodward (In re Albert-Harris, Inc.), 313 F.2d 447, 449 (6th Cir. 1963) (citations omitted).

Generally, a court “abuses its discretion only when it relies upon clearly erroneous findings of fact

or when it improperly applies the law or uses an erroneous legal standard.” Fleischut v. Nixon

Detroit Diesel, Inc., 859 F.2d 26, 30 (6th Cir. 1988). Whether the bankruptcy court’s discretionary

decision is based upon an erroneous interpretation of the law is a legal question that is reviewed de

novo. Slutsky v. Am. Express Travel Related Servs. Co. (In re William Cargile Contractor, Inc.), 209

B.R. 435, 436 (B.A.P. 6th Cir. 1997). Regardless, the decision of the bankruptcy court can be

affirmed “if it is correct for any reason, including a reason not considered by that court.” Gibson v.

Gibson (In re Gibson), 219 B.R. 195, 200 (B.A.P. 6th Cir. 1998) (quoting McDowell v. Krawchison,

125 F.3d 954, 957 (6th Cir. 1997)).

III. FACTS

On May 24, 2004, Gregory Anderson and Rose Anderson (the “Debtors”) filed their chapter

7 petition and accompanying schedules, and Colleen M. Olson (the “Trustee”) was appointed chapter

7 trustee. On October 4, 2004, the Debtors amended Schedules A and C to include a previously

undisclosed interest in real property located in the Township of Crystal Falls, County of Iron,

Michigan (the “Cabin property”). According to those Schedules, the Debtors possessed an undivided

one-half interest in the Cabin property as tenants by the entirety, with the remaining one-half interest

held in joint tenancy by the Defendants. Amended Schedule C listed the property as follows:

1⁄2 interest in old cabin. The debtors own a 1⁄2 interest in an old cabin that may have

a total value of about $30,000. The debtors’ interest would be $15,000.

(Appellant’s App. at 42.) The schedule also identified 11 U.S.C. § 522(d)(5) as the statutory basis

for the exemption and listed the value of the claimed exemption as well as the current market value

of the Debtors’ interest in the Cabin property as $15,000. At no point did the Trustee object to the

claimed exemption.
 Section 363(h) permits the sale of property of the estate, under § 363(b), along with the interest of a co-owner

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of the property, if at the time of the commencement of the case the debtor held an undivided interest in the property as

a tenant in common, joint tenant, or tenant by the entirety, and if four additional statutory conditions are met. 11 U.S.C.

§ 363(h).

 It is difficult to understand in practical terms how the settlement would work. The Trustee proposed in her

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motion to settle the adversary proceeding by conveying to the Defendants the estate’s interest in the Cabin property “after

taking into account the Debtors’ available exemption.” Did this mean that after the conveyance by the Trustee to the

Defendants, the Defendants would own the entirety of the Cabin property, subject only to their obligation to pay the

Debtors their $15,000? Or did it mean that because the Debtors’ exemption was $15,000, which equated to 1/4th of the

value, that after the sale the Debtors would own an undivided 1/4th interest in the Cabin property, with the Defendants

owning the remaining 3/4ths of the property? Assuming the former scenario were the one contemplated by the Trustee,

it is difficult to see how the sale could have gone forward over the Debtors’ objection since the Debtors would have lost

their ownership interest in the realty without any guaranty that they could recover their $15,000 from the Defendants.

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Almost a year later, on September 19, 2005, the Trustee obtained a drive-by appraisal of the

Cabin property. Although the Debtors had indicated that the property “may have a total value of

about $30,000,” the Trustee’s appraisal gave an estimated value of $60,000. As a result of this newfound equity, the Trustee filed an adversary proceeding against the Defendants, the co-owners of the

Cabin property, seeking authority under 11 U.S.C. § 363(h) to sell both the estate’s and the

Defendants’ interests in the property.1

On April 7, 2006, the Trustee filed a motion to approve her settlement of the adversary

proceeding with the Defendants pursuant to Federal Rule of Bankruptcy Procedure 9019. Among

other terms, the proposed settlement agreement provided that the Trustee would accept $13,560 from

the Defendants in exchange for the estate’s interest in the Cabin property, taking into account the

Debtors’ claimed exemption of $15,000.2

On April 12, 2006, the Debtors filed an objection to the motion premised on their belief that

the settlement would preclude recovery of their claimed exemption of $15,000. Upon learning that

the settlement agreement contemplated their retention of the claimed $15,000 interest in the Cabin

property, the Debtors withdrew their objection.

On April 25, 2006, the bankruptcy court conducted a hearing on the motion for approval of

the settlement. At the hearing, the Debtors’ counsel confirmed that his clients had withdrawn their

objection to the settlement and that all parties present at the hearing were in agreement with its

terms. The bankruptcy court then sua sponte raised the issue of whether the bankruptcy estate had

an interest in the Cabin property to convey to the Defendants, given the absence of an objection to

the Debtors’ claimed exemption. Responding to the court’s comments, the Debtors reinstated their
 Despite the overlap in terminology, the “fair and equitable” standard as applied to Rule 9019 does not

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measure a settlement’s conformity with the absolute priority rule of 11 U.S.C. § 1129(b)(2), but instead is “fairness” and

“equity” in the traditional sense. See Motorola, Inc. v. Official Comm. of Unsecured Creditors (In re Iridium Operating

LLC), 478 F.3d 452, 463 (2nd Cir. 2007). Whether a particular settlement’s distribution scheme complies with the

Bankruptcy Code’s priority scheme is, however, a crucial factor for the court to consider when determining whether a

settlement is “fair and equitable” under Rule 9019. Id. at 464.

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original objection and additionally objected on the basis that the Cabin property had been properly

exempted and was no longer property of the estate subject to sale by the Trustee.

On October 20, 2006, the bankruptcy court issued its opinion and entered an order denying

the Trustee’s motion for approval of her settlement with the Defendants because the bankruptcy

estate no longer had an interest in the Cabin property, as a result of the Debtors’ unchallenged

exemption. On October 30, 2006, the Trustee filed a motion to reconsider, requesting that the court

reverse its October 20 decision because, in part, it was in direct conflict with the holding in In re

Heflin, 215 B.R. 530 (Bankr. W.D. Mich. 1997), a decision by a different bankruptcy judge in the

same district. On November 28, 2006, the bankruptcy court denied the Trustee’s motion to

reconsider.

On December 8, 2006, the Trustee timely filed her appeal of both orders.

IV. DISCUSSION

A. Standard for approval or disapproval of a settlement agreement

Rule 9019 of the Federal Rules of Bankruptcy Procedure provides: “On motion by the trustee

and after notice and a hearing, the court may approve a compromise or settlement.” The rule offers

no guidance as to the criteria to be used in evaluating whether a settlement should be approved, but

courts uniformly have drawn from the language of the Supreme Court’s decision in TMT Trailer

Ferry in establishing a “fair and equitable” threshold for settlement approval. See Protective Comm. 3

for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424, 88 S. Ct. 1157,

1163 (1968). Although the TMT Trailer Ferry case was decided under the Bankruptcy Act, “its

principles have been broadly held applicable to settlements under the Bankruptcy Code.” 2 Norton

Bankr. L. & Prac. 2d § 41:10 (2007). Many Rule 9019 opinions have relied on TMT Trailer Ferry

“both forthe substantive requirement that settlement represent a fair compromise of disputed issues,

and for the requirement that such settlement be preceded by adequate inquiry.” Id.
Ars Brook LLC v. Jalbert (In re Servisense.com, Inc.), 382 F.3d 68 (1st Cir. 2004); Motorola, Inc. v. Official 4

Comm. of Unsecured Creditors (In re Iridium Operating LLC), 478 F.3d 452 (2nd Cir. 2007); Will v. Northwestern Univ.

(In re Nutraquest, Inc.), 434 F.3d 639 (3rd Cir. 2006); Official Comm. of Unsecured Creditors v. Cajun Elec. Power

Co-op, Inc. (In re Cajun Elec. Power Co-op, Inc.), 119 F.3d 349 (5th Cir. 1997); Depoister v. Mary M. Holloway

Found., 36 F.3d 582 (7th Cir. 1994); Drexel Burnham Lambert, Inc. v. Flight Transp. Corp. (In re Flight Transp. Corp.

Sec. Litig.), 730 F.2d 1128 (8th Cir. 1984); Martin v. Kane (In re A & C Properties), 784 F.2d 1377 (9th Cir. 1986);

Reiss v. Hagmann, 881 F.2d 890 (10th Cir. 1989); Wallis v. Justice Oaks II, Ltd. (In re Justice Oaks II, Ltd.), 898 F.2d

1544 (11th Cir. 1990).

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The Sixth Circuit Court of Appeals has held that “the bankruptcy court is charged with an

affirmative obligation to apprise itself of the underlying facts and to make an independent judgment

as to whether the compromise is fair and equitable.” Reynolds v. Comm’r, 861 F.2d 469, 473 (6th

Cir. 1988) (emphasis added). The court must weigh the conflicting interests of all relevant parties,

“considering such factors as the probability of success on the merits, the complexity and expense of

litigation, and the reasonable views of creditors.” Bauer v. Commerce Union Bank, 859 F.2d 438,

441 (6th Cir. 1988) (citation omitted). “A bankruptcy judge need not conduct a mini-trial or write

an extensive opinion every time he approves or disapproves a settlement. The judge need only be

apprised of the relevant facts and law so that he can make an informed and intelligent decision and

set out the reasons for that decision.” Fishell v. Soltow (In re Fishell), 47 F.3d 1168, 1995 WL

66622, at *3 (6th Cir. Feb. 16, 1995) (unpublished table decision) (quoting LaSalle Nat’l Bank v.

Holland (In re Am. Reserve Corp.), 841 F.2d 159, 163 (7th Cir. 1987));see also TMT Trailer Ferry,

390 U.S. at 437 (holding that bankruptcy court must have the facts in order to make an informed and

independent decision).

Although published Sixth Circuit case law on Rule 9019 settlements is relatively sparse, in

unpublished decisions the Court of Appeals and Bankruptcy Appellate Panel have consistently

reaffirmed their adherence to the “fair and equitable” standard. See Lyndon Prop. Ins. Co. v. Katz,

196 Fed. Appx. 383, 387 (6th Cir. 2006); Bard v. Sicherman (In re Bard), 49 Fed. Appx. 528, 530

(6th Cir. 2002); In re Fishell, 47 F.3d 1168, 1995 WL 66622, at *3 (6th Cir. Feb. 16, 1995)

(unpublished table decision); Cook v. Terlecky (In re Cook), 336 B.R. 600, 2006 WL 13114, at *3

(B.A.P. 6th Cir. Jan. 4, 2006) (unpublished table decision); Porter Drywall Co. v. Haven, Inc. (In

re Haven, Inc.), 326 B.R. 901, 2005 WL 927666, at *3 (B.A.P. 6th Cir. April 7, 2005) (unpublished

table decision). Further, the vast majority of appellate courts that have addressed the issue have

relied upon the same or similar criteria. No appellate court has rejected, either expressly or 4

implicitly, the efficacy of this approach.
 The court reasoned that in drafting Rule 9019 Congress intended the settlement approval process to be 5

entirely discretionary: “Rule 9019(a) is intended to be nothing more than a safe harbor for trustees who wish to avail

themselves of the bankruptcy court’s protection prior to entering into settlement agreements which may have substantial

consequences to the estate. . . . [The trustee] may pursue and consummate a settlement without bankruptcy court

intervention if she so chooses.” In re Dalen, 259 B.R. at 599.

 “A consent decree is a strange hybrid in the law [typically used in federal employment discrimination law

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suits]. It is both a voluntary settlement agreement which could be fully effective without judicial intervention and a final

judicial order placing the power and prestige for the courts behind the compromise struck by the parties. Hence, a

consent decree is a settlement agreement subject to continued judicial policing.” Vanguards of Cleveland v. City of

Cleveland, 23 F.3d 1013, 1017-18 (6th Cir. 1994) (citations omitted). 

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Despite this uniformity in application, the bankruptcy court here chose to reject the fair and

equitable standard in favor of a standard it enunciated in In re Dalen, 259 B.R. 586 (Bankr. W.D.

Mich. 2001). According to Dalen, “the ultimate question raised in a hearing concerning court

approval of a trustee’s proposed settlement is whether the trustee, in reaching that settlement, has

complied with her fiduciary duties [of care, loyalty, and obedience] to the bankruptcy estate, its

creditors, and other parties in interest.” Id. at 611. This fiduciary standard purportedly is derived 5

from “a well developed body of Sixth Circuit case law concerning the process by which a court is

to approve consent decrees,” and, according to the bankruptcy court, “offer[s] considerable 6

assistance in determining how a bankruptcy court should evaluate a settlement agreement which has

been presented to it by a trustee for approval.” In re Dalen, 259 B.R. at 604. In reaching this

conclusion, the bankruptcy court reasoned that it was not bound by the Supreme Court case of TMT

Trailer Ferry because that case, involving the absolute priority rule, had been misinterpreted and

misapplied. Id. The bankruptcy court further reasoned that it was not bound by the Sixth Circuit

decisions Reynolds and Bauer because they were “not on point.” Id. at 604. The court also did not

believe that it was bound by the reasoning in the Sixth Circuit decision In re Fishell, which offered

“the most extensive discussion” of the process for approving proposed settlements in bankruptcy

cases, because Fishell is an unpublished decision.

The panel disagrees. Although TMT Trailer Ferry concerned the absolute priority rule, the

Supreme Court, in discussing the importance of settlements in bankruptcy cases, stated:

There can be no informed and independent judgment as to whether a proposed compromise

is fair and equitable until the bankruptcy judge has apprised himself of all facts necessary for

an intelligent and objective opinion of the probabilities of ultimate success should the claim

be litigated. Further, the judge should form an educated estimate of the complexity, expense,

and likely duration of such litigation, the possible difficulties of collecting on any judgment

which might be obtained, and all other factors relevant to a full and fair assessment of the
 Although the Dalen court looked to consent decree decisions, in particular United States v. City of Miami,

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614 F.2d 1322 (5th Cir. 1980), for guidance in determining how a bankruptcy court should evaluate a settlement

agreement, that particular decision states that the process for court approval of a consent decree represents an

“intermediate” approach between the standard for approval of a settlement in typical litigation and of a settlement in a

bankruptcy case. Id. at 1331. In fact, the Fifth Circuit in City of Miami makes clear that all bankruptcy settlements must

be approved by the bankruptcy court as “fair and equitable.” Id. at 1330. The process for court approval of consent

decrees was not developed to serve as a template for bankruptcy court settlements. Rather, the pre-established process

for bankruptcy settlement approval (i.e., mandatory court approval, notice to interested parties, and the “fair and

equitable” requirement) was altered and adjusted to fit the particularities of consent decrees. See, e.g., id. at 1332 n.18.

(“Unlike situations in which the parties are attempting to secure a settlement in a bankruptcy proceeding . . . , we need

not fear here that any party is attempting to profit at the expense of unrepresented individuals.”) The Dalen court has

applied a standard that is essentially a copy of an amended copy, asserting that it is a more accurate representation of

the original than the original itself.

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wisdom of the proposed compromise. Basic to this process in every instance, of course, is

the need to compare the terms of the compromise with the likely rewards of litigation.

TMT Trailer Ferry, 390 U.S. at 424-25.

Clearly, the bankruptcy court was in error in ignoring the Supreme Court’s directive.

Nowhere in TMT Trailer Ferry does the court discuss, much less promote, a fiduciary standard for

review of proposed settlement agreements. It was error for the bankruptcy court to ignore the Sixth

Circuit’s discussion in Reynolds and Bauer, because those cases, although not bankruptcy cases,

acknowledge that TMT Trailer Ferry established a standard for every court to apply when evaluating

a proposed settlement agreement.

In summary, the bankruptcy court was bound by the “fair and equitable” standard established

by the Sixth Circuit Court of Appeals in Reynolds and Bauer, a standard that is in harmony with the

BAP’s own, albeit unpublished, decisions in Haven and Cook, and with the weight of judicial

authority expressed by numerous other circuits. There is no precedent–binding, persuasive, or

otherwise–advocating that a bankruptcy court’s approval of a Rule 9019 settlement is to be judged

according to a trustee’s adherence to his or her fiduciary duties. Consequently, this Panel holds that 7

the bankruptcy court applied an improper standard in disapproving the settlement agreement entered

into by the Trustee and the Defendants. Even so, under the facts of this case, the court’s failure to

use the correct standard is a harmless error, not mandating reversal, for the following reasons.

The decision of the bankruptcy court to disapprove the settlement agreed to by the parties was

predicated solely on its conclusion that the Debtors’ unchallenged exemption of the Cabin property

removed the property in its entirety from the bankruptcy estate.
 The bankruptcy court recognized as much in a footnote to its decision: “It is difficult to see how a court could 8

approve as fair and equitable a settlement . . . where the bankruptcy estate is to receive $13,500 [sic] in exchange for

property if the bankruptcy estate has no interest in the property to convey.” Id. at 143 n.7.

 The Bankruptcy Code is contained in 11 U.S.C. §§ 101-1330. 9

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[T]he Chapter 7 Trustee’ssettlement with the owners ofthe other undivided one-half

interest in the [Cabin] property cannot be approved, for, as already discussed, that

settlement contemplates the Chapter 7 Trustee conveying to those owners an interest

in the [Cabin] property that the bankruptcy estate in all likelihood no longer owns.

The bankruptcy estate’s receipt of consideration from the Defendants under such

circumstances would be tantamount to fraud and, therefore, would be in violation of

the Chapter 7 Trustee’s fiduciary duty to administer the bankruptcy estate in a lawful

manner.

(Appellant’s App. at 169-70).

If the bankruptcy court was correct in its conclusion that the estate no longer possessed an

interest in the Cabin property, because of the Trustee’s failure to object to the Debtors’ claimed

exemption within the Rule 4003(b) deadline, then the BAP cannot sanction a settlement that purports

to convey that interest, regardless of the bankruptcy court’s improper use of a fiduciary standard in

disapproving the settlement. The propriety, or lack thereof, of the bankruptcy court’s ultimate 8

decision does not turn on whether the court used the mandated standard for approval of a settlement,

but instead turns on whether the court was correct in determining that the Cabin property was no

longer property of the bankruptcy estate. That is, if the court was correct regarding the exemption

issue, then it also was correct in disapproving the proposed settlement, and its decision must be

affirmed. On the other hand, if the court was wrong regarding the exemption objection issue, then

it also was in error in disapproving the proposed settlement, and its decision must be reversed.

B. Failure to object to a claimed exemption within Rule 4003(b) deadline

Upon the filing of a bankruptcy petition, “all legal or equitable interests of the debtor in

property” become the property of the bankruptcy estate. 11 U.S.C. § 541. The Bankruptcy Code9

permits the debtor to prevent the distribution of certain estate property by claiming it as exempt.

11 U.S.C. § 522(b). A properly filed exemption removes property from the bankruptcy estate, and

consequently from the reach of creditors and the bankruptcy trustee. Lebovitz v. Hagermeyer (In re

Lebovitz), 360 B.R. 612, 618 (B.A.P. 6th Cir. 2007). In Michigan, a debtor is permitted to choose
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from the exemptions afforded by state law or from the federal exemptions listed in § 522(d). In this

case, the Debtors selected the federal exemptions.

Section 522(l) of the Bankruptcy Code requires a debtor to file with the court a list of

property that he or she wishes to exempt from the bankruptcy estate. These proposed exemptions

must be listed on the debtor’s Schedule C and must include a description of the property exempted,

the statutory section authorizing the exemption, the value of the exemption, and the market value

(less applicable liens) of the exempted property. Fed. R. Bankr. P. 4003(a). Unless a party in

interest objects to the listed exemption within 30 days of the close of the meeting of creditors or

within 30 days after a subsequent amendment to the schedule, the property claimed as exempt is

exempt, revests in the debtor, and is no longer property of the estate. 11 U.S.C. § 522(l); Fed. R.

Bankr. P. 4003(b); In re Brown, 178 B.R. 722, 727 (Bankr. E.D. Tenn. 1995).

With respect to the exemption list filed by the Debtors herein, the bankruptcy court stated:

In this instance, Debtor's “list of property” [i.e., Debtor's amended Schedule C]

clearly describes the exemption claimed as the undivided one-half interest in the

hunting property. Moreover, the amount Debtors set as the value of the exemption

claimed, $15,000, not only was within the limits established under the Section

522(d)(5) exemption claimed, but also was the exact amount Debtors set as the

overall value of the undivided interest in question. It would seem then that Debtors

intended to keep as their own the undivided interest in the hunting property when

they added that property to their amended Schedule C. Consequently, that interest

would have ceased being property of the estate by operation of Section 522(l) when

neither the Chapter 7 Trustee nor any other party in interest filed an objection within

the November 3, 2004 deadline.

(Appellant’s App. at 146).

Based on this conclusion, the bankruptcy court refused to approve the Trustee’s proposed

settlement with the Defendants, which contemplated a sale of the estate’s interest in the Cabin

property. The bankruptcy court reasoned that its interpretation of § 522(l) was consistent with the

Supreme Court’s decision in Taylor v. Freeland & Kronz, 503 U.S. 638, 112 S. Ct. 1644 (1992),

wherein the Court addressed the significance of timeliness in the filing of an objection. Taking a

strict approach, the Court held that a trustee may not contest the validity of an exemption after the

30-day objection deadline has passed, even if the debtor had no colorable basis for claiming the

exemption. Id.
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In Taylor, the debtor had disclosed an employment discrimination lawsuit on her schedules,

listed its value as “unknown,” and claimed the full amount of the “unknown” proceeds as exempt.

Id. at 640. (The debtor and the trustee later agreed that the debtor could not have properly exempted

more than a small portion, approximately $2,500, of any potential recovery. Id. at 642.) The trustee

did not object to the debtor’s claimed exemption, believing that the lawsuit was of no value. Id. at

641. However, when the lawsuit was ultimately settled for $110,000, the trustee objected to the

claimed exemption on the basis that it was not filed in good faith. Id. at 643. Affirming the lower

courts’ rulings denying the trustee’s objection as untimely, the Supreme Court reasoned, “Rule

4003(b) gives the trustee and creditors 30 days from the initial creditors’ meeting to object. By

negative implication, the Rule indicates that creditors [or the trustee] may not object after 30 days

‘unless, within such period, further time is granted by the court.’” Id. at 643. As explained by the

Court:

Deadlines may lead to unwelcome results, but they prompt parties to act and they

produce finality. . . . If [the trustee] 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, [the trustee] cannot now seek to deprive [the debtor]

of the exemption.

Id. at 644.

The Taylor decision is clear that when a debtor makes an unambiguous manifestation of

intent to seek an unlimited exemption in property, then, absent a timely objection, that property is

exempt in its entirety, even if its actual value exceeds statutory limits, and it is no longer property

of the estate. The question here is what constitutes such an intent.

The Defendants argue, and the bankruptcy court agreed, that when a debtor schedules an

exemption with identical market and exemption values, as in this case, the debtor is clearly

indicating the intention to exempt the property in full, regardless of its actual value. In contrast, the

Trustee contends that a debtor’s mere listing of identical market and exemption values is insufficient

to manifest the required intent. According to the Trustee, listing identical values simply indicates

that the debtor desires to exempt an interest in property up to the specific dollar amount shown.

Therefore, maintains the Trustee, if a debtor wants to exempt a piece of property in its entirety, he
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or she must list its market value as unknown and its exempted value as 100%, or make some similar

notation evidencing such an intent.

We reject this argument. As the bankruptcy court correctly noted, there is nothing on the

form Schedule C that alerts a debtor that the required way to assert an in-kind exemption is to list

the value unknown and the exemption as 100%. To the contrary, the form which is entitled

“PropertyClaimed As Exempt” simply asks a debtor to list the property claimed exempt and to place

values on the exemption and the property. The Debtor complied with these instructions by

specifying that the property claimed as exempt was a “1⁄2 interest in old cabin.” The Debtors stated

that the Cabin property “may have a total value of about $30,000,” clearly an estimation of value,

and that therefore, their one-half interest “would be $15,000.” (Appellant’s App. at 42.) Thus, it

was clear that the Debtors were seeking to exempt their full interest in the Cabin property, which

they believed had a value of $15,000. 

Moreover, we are persuaded generally that a debtor’s listing of an exemption in an amount

sufficient to exempt all of the available (i.e., unencumbered) value in the property indicates his or

her intent to exempt the property in full. “[A]n unstated premise of the Court’s holding [in Taylor]

was that a debtor who exempts the entire reported value of an asset is claiming the ‘full amount’

whatever it turns out to be.” Allen v. Green (In re Green), 31 F.3d 1098, 1100 (11th Cir. 1994). A

contrary ruling would reverse the burden of proof placed on an objecting party to challenge the

propriety of an exemption in Rule 4003(c) and render the 30-day objection period meaningless. In

re Harrington, 306 B.R. 172, 181-183 (Bankr. E.D. Tex. 2003). As explained by the Supreme Court

in Taylor, if a trustee is uncertain about an exemption claimed by a debtor, the trustee may seek a

hearing on the issue or request an extension of time to object. Taylor, 503 U.S. at 644. “Failure to

timely object will leave the trustee without recourse if the court later determines that the debtor

intended to exempt the property in full, even if such a ruling results in an exemption greater that the

statutory limits.” Mullis v. Aggeorgia Farm Credit, ACA (In re Jones), 357 B.R. 888, 897 (Bankr.

M.D. Ga. 2005). 

We recognize that there is a split of opinion by the bankruptcy courts on this issue. See, e.g.,

In re Heflin, 215 B.R. 530, 534 (Bankr. W.D. Mich. 1997) (“[W]here the debtor claims a specific

dollar amount as exempt, the debtor is bound by that amount and . . . cannot claim that the entire
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property is exempt.”); In re Jones, 357 B.R. at 892 (“Claiming an exemption sufficient to exempt

all the available . . . value in a property should be deemed to indicate the debtor’s intent to exempt

the property in full.”). Three courts of appeals have addressed this issue. The first, Hyman v. Plotkin

(In re Hyman), 967 F.2d 1316, 1319 (9th Cir. 1992), decided by the Ninth Circuit immediately after

Taylor, is distinguishable from the facts of the present case because the debtors in Hyman did not

exempt all of the unencumbered value in the property. Instead, they listed the value of their home

as $415,000, subject to encumbrances of $347,611, thus producing equity of $67,389, but only

exempted $45,000, the maximum statutory amount. Id. at 1320. As such, it was not surprising that

the court limited the debtors’ exemption to $45,000 when the value of their property proved to be

greater than the value scheduled by the debtors. See In re Peterman, 358 B.R. 801, 804 (Bankr. D.

Colo. 2006) (Hyman is inapplicable where the debtors listed specific values of their property, “and

the value of the property and the value of the exemption claimed were the same.”); see also In re

Jones, 357 B.R. at 892 n.5 (Explaining that the Hyman result was based on a peculiarity of California

exemption law, where the homestead exemption does not apply to the property, but to the proceeds

of the property after a sale.)

In Stoebner v. Wick (In re Wick), 276 F.3d 412 (8th Cir. 2002), the Eighth Circuit considered

facts identical to those in Taylor: a debtor who valued certain stock options as unknown and claimed

an exemption in those options, also with an unknown value. The trustee did not make a timely

objection to the exemption even though the maximum permitted by statute was $3,925. When the

debtor subsequently exercised the options and received $97,200, the trustee sought turnover of the

proceeds, less $3,925. Id. at 414. Notwithstanding the similarity with Taylor, the court limited the

debtor’s exemption to $3,925, looking behind the language used by the debtor in her schedules to

determine her intent. Concluding that all of the parties understood that the options were only

partially exempt, the court found Taylor to be inapplicable. Id. at 417.

To the extent Wick suggests that any ambiguity should be resolved against the debtor, we

believe that Taylor compels a contrary result, as recognized by the Eleventh Circuit in In re Green.

In Green, the debtor, rather than listing the value of the property and exemption as “unknown” as

in Taylor, scheduled the value of the lawsuit from an auto accident as one dollar and the value

claimed as exempt as one dollar also. In re Green, 31 F.3d at 1098. The trustee did not object to

the exemption and subsequently a dispute arose over who was entitled to the proceeds from the
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settlement of the lawsuit, the trustee or the debtor. In affirming the district court’s conclusion that

the debtor was entitled to the entire proceeds from the settlement, the Eleventh Circuit rejected the

trustee’s argument that its ruling would force trustees to file needless objections to establish the

value of contingent assets. Id. at 1101. The court stated that the responsibility for this result rested

with Congress and the Supreme Court, which had made it clear that the burden is on the trustee to

object in a timely manner to any improper exemption claims. Id. 

We believe that the Green court’s holding promotes the finality contemplated by Rule 4003

and mandated by Taylor.

[W]here there is a date when the parties’ rights can be finally determined–in this

case, thirty days after the creditors’ meeting if no objection is filed–the parties can

proceed from that date knowing which property is property of the estate and which

property belongs to the debtor. The debtor from that day forward can treat exempted

property as his or her own and is not forced to wait until some unknown future date

when the trustee or another party in interest might haul the debtor into court seeking

that property.

In re Peterman, 358 B.R. at 804 (quoting Taylor v. Freeland & Kronz, 938 F.2d 420, 425 (3rd Cir.

1991), aff’d, 503 U.S. 638 (1992));see also In re Morgan-Busby, 272 B.R. 257, 265 (B.A.P. 9th Cir.

2002) (“Allowing a trustee to distinguish between an objection to an exemption itself and the value

of the property subject to that exemption does not promote finality.”).

In summary, under the facts of this case, the bankruptcy court was correct in holding that the

Cabin property was not property of the bankruptcy estate. As such, the court’s denial of the

proposed settlement was appropriate. 

V. CONCLUSION

For the foregoing reasons, the orders of the bankruptcy court denying approval of the

settlement proposed by the trustee are AFFIRMED.