Justices Rule Against Bankrupt Caterer

(CN) - A bankruptcy trustee can sell the catering equipment of a woman who claimed its worth was exactly what she's allowed to keep under law, the Supreme Court ruled Thursday.

Nadejda Reilly had a catering business when she filed for Chapter 7 bankruptcy in 2005, which allowed her to keep up to $10,718 worth of property. She claimed that the value of her cooking equipment totaled exactly that amount -- "a remarkable coincidence," Chief Justice John Roberts noted during oral arguments.

Bankruptcy trustee William Schwab failed to object within 30 days, and Reilly considered her property safe from the auction block.

But when an auctioneer appraised the equipment at $17,000, Schwab pushed for to a sale. He wanted to sell the items, give Reilly $10,718 of the proceeds and distribute the rest of the money to her creditors.

Reilly objected, arguing that Schwab couldn't sell her tools because he missed the 30-day deadline to object to the value of her exemptions.

In the high court's 6-3 ruling, Justice Clarence Thomas wrote that the trustee "had no obligation to object," and that Reilly's approach "threatens to convert a fresh start into a free pass."

"Congress balanced the difficult choices that exemption limits impose on debtors with the economic harm that exemptions visit on creditors," Thomas wrote, "and it is not for us to alter this balance by requiring trustees to object to claimed exemptions based on form entries beyond those that govern an exemption's the (Bankruptcy) Code."

Justice Ruth Bader Ginsburg, writing for the dissent, said the value of exempt property becomes final "absent a timely objection."

"In addition to departing from the prevailing understanding and practice," she wrote, "the Court's decision exposes debtors to protracted uncertainty concerning their right to retain exempt property, thereby impeding the 'fresh start' exemptions are designed to foster."

Justice Stephen Breyer and Chief Justice Roberts joined Ginsburg in dissent.

The majority's opinion reverses and remands the 3rd Circuit's ruling for Reilly.

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