Law v. Siegel
Law v. Siegel, 571 U.S. 415 (2014), is a ruling of the Supreme Court of the United States that describes the extent of the powers of bankruptcy courts in dealing with the bad faith of debtors. Background. When Law filed for Chapter 7 bankruptcy in 2004, his sole asset was a home in Hacienda Heights, California that was said to be worth $363,000. He declared that: It was discovered in subsequent litigation that the second mortgage lien did not exist. The house sold for about $680,000, and only one creditor timely filed a proof of  claim which was settled for $120,000. The trustee sought to surcharge the homestead exemption in order to be reimbursed for his legal expenses in the matter. The courts below. The United States Bankruptcy Court for the Central District of California, in accordance with existing jurisprudence within the Ninth Circuit, ordered that Law's homestead must be surcharged in its entirety. This was affirmed by the Bankruptcy Appeals Panel, and subsequently by the United States Court of Appeals for the Ninth Circuit. At the Supreme Court. The Ninth Circuit ruling was reversed. In a unanimous ruling, Justice Scalia noted that : As expressly states that a homestead exemption is "not liable for payment of any administrative expense," the court exceeded the limits of its authority under §105(a) and its inherent powers. The Court's ruling in "Marrama" would not have led to a different result, as its dictum only "suggests that in some circumstances a bankruptcy court may be authorized to dispense with futile procedural niceties in order to reach more expeditiously an end result required by the Code." The bankruptcy court still has various sanctions available to enforce its judgments: Justice Scalia acknowledged the seeming unfairness of the result: Impact . The decision is described as "brisk and workmanlike," and "[t]he absence of qualifications or quibbles in its description of the relevant principles make it just the kind of opinion that is likely to be cited frequently in future briefs to the Court." "Law" is also seen as forcing trustees and creditors to be more aggressive, early in the case, either to object to exemptions or file a motion to extend the time to object to exemptions in order to provide enough time for investigation. Justice Scalia did not note another sanction that is available under FRBP § which provides that a  trustee may still file an objection to a debtor’s claim of exemption "at any time prior to one year after the closing of the case, if the debtor fraudulently asserted the claim of exemption." However, this provision only came into effect in 2008, and therefore was not applicable in this case. While equitable subordination is authorized under as a remedy to ensure that creditors acting in bad faith will not be paid until other valid creditors are paid in full, the "Bankruptcy Code" does not explicitly provide for a similar "equitable disallowance" remedy with respect to debtors acting in  bad faith. Although several of the lower courts had previously ruled in favour of such a remedy, it appears that "Law" strongly supports the conclusion that equitable disallowance does not exist under the Code. "Law", together with "Stern v. Marshall", can also be seen as another limitation on the bankruptcy courts' inherent authority under §105, thereby reducing the courts' flexibility and discretion that are necessary for the proper functioning of the bankruptcy system.