Taylor v. Freeland & Kronz, 503 U.S. 638 (1992)

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certiorari to the united states court of appeals for the third circuit

No. 91-571. Argued March 2, 1992—Decided April 21, 1992

On the schedule she filed pursuant to 522(l) of the Bankruptcy Code, debtor Davis listed as exempt property the expected proceeds from her pending employment discrimination suit. Petitioner Taylor, the trustee of Davis' bankruptcy estate, did not object to the claimed exemption within the 30-day period allowed by Federal Rule of Bankruptcy Procedure 4003(b). However, upon later learning that the discrimination suit had been settled for a substantial sum, Taylor filed a complaint in the Bankruptcy Court against respondents, Davis' attorneys in that suit, demanding that they turn over settlement proceeds as property of Davis' estate. Concluding that Davis had no statutory basis for claiming the proceeds as exempt, the court ordered respondents to "return" to Taylor a sum sufficient to pay off all of Davis' unpaid creditors, and the District Court affirmed. The Court of Appeals reversed, holding that the Bankruptcy Court had erred because Davis had claimed the money in question as exempt, and Taylor had failed to object to the claimed exemption in a timely manner.

Held: A trustee may not contest the validity of a claimed exemption after the Rule 4003(b) 30-day period has expired, even though the debtor had no colorable basis for claiming the exemption. Pp. 642-646. (a) Because the parties agree that Davis did not have a statutory right to exempt more than a small portion of the lawsuit proceeds, let alone the full amount, Taylor apparently could have made a valid objection under 522(l)—which provides, inter alia, that "property claimed as exempt . . . is exempt" "[u]nless a party in interest objects," but does not specify the time for objecting—if he had acted promptly under Rule 4003(b)—which establishes the 30-day objections period for trustees and creditors "unless, within such period, further time is granted by the court." P. 642. (b) However, Taylor's failure to promptly object precludes him from challenging the validity of the exemption at this time, regardless of whether or not Davis had a colorable statutory basis for claiming it. By negative implication, Rule 4003(b) indicates that a trustee may not object after 30 days unless a further extension of time is granted. Because no such extension was allowed by the Bankruptcy Court in this case, 522(l) has made the settlement proceeds exempt. This Court

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