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In re Ayobami

United States Court of Appeals, Fifth Circuit

January 3, 2018

In the matter of: YEMISI AYOBAMI Debtor
v.
YEMISI AYOBAMI, also known as Yemisi Aregbe, Appellee DAVID G. PEAKE, Trustee, Appellant

         Appeal from the United States Bankruptcy Court for the Southern District of Texas

          Before JOLLY, SMITH, and GRAVES, Circuit Judges.

          E. GRADY JOLLY, CIRCUIT JUDGE.

         This appeal presents questions relating to the scope of a Chapter 13 debtor's claimed exemptions under § 522 of the Bankruptcy Code. The bankruptcy court certified this direct appeal pursuant to 28 U.S.C. § 158(d)(2). We answer the certified question only, leaving the other issues the parties raise for another case on another day.

         I.

         On December 1, 2015, the Advisory Committee on Bankruptcy Rules adopted a new Schedule C form. This form allows Chapter 13 debtors, by checking the appropriate box on the form in the column titled "Amount of the exemption you claim, " to exempt from the bankruptcy estate "100% of fair market value, up to any applicable statutory limit" of certain property. When filing her Schedule C, Debtor Yemisi Ayobami checked this box indicating her intent to exempt "100% of fair market value, up to any applicable statutory limit" for 14 of her 17 exemptions. In the column titled "Specific laws that allow exemption, " Ayobami identified 11 U.S.C. §§ 522(d)(1), (3)-(5), which cap the value of a debtor's interest that may be exempted at a designated statutory limit.[1]

         Following Ayobami's Schedule C filing, the parties engaged in multiple rounds of objections, hearings, and orders. Ultimately, the district court allowed Ayobami's amended exemptions that claimed "100% of fair market value, up to any applicable statutory limit" of certain assets, but only after she also listed a claimed amount within the statutory limit in the "Specific laws that allow exemption" column. The parties then jointly requested certification to directly appeal the court's order allowing Ayobami's amended exemptions. The bankruptcy court certified a specific question for appeal, and this court granted such leave.[2]

         II.

         The bankruptcy court certified the following question: "May a debtor claiming federal exemptions under § 522 of the Bankruptcy Code ever exempt a 100% interest in an asset?" In re Ayobami, No. 15-35488, 2016 WL 3708761, at *2 (Bankr.S.D.Tex. July 1, 2016) (emphasis added). The answer is yes. A debtor may do so in certain cases because the relevant provisions of § 522 cap the value of the asset a debtor may exempt, not the debtor's interest in that asset.

         III.

         The commencement of bankruptcy triggers the creation of the bankruptcy estate, which includes "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1) (2012). A debtor is allowed, however, to exempt her interest in certain assets from the property of the estate under 11 U.S.C. § 522(d). A "party in interest, " such as a trustee, may object to the debtor's claimed exemptions. 11 U.S.C. § 522(l) (2012). And "[u]nless a party in interest objects, the property claimed as exempt . . . is exempt." Id.

         Peake, the trustee, argues that a debtor may never exempt a 100% interest in an asset under §§ 522(d)(1)-(6) because allowing such an exemption effectively removes the entire asset from the bankruptcy estate. And because the relevant subsections of § 522(d) place a monetary-value cap on the claimed exemptions, Peake argues, the exemption itself must be "limited to the specific amount, not [become] an indefinite [monetary] exemption in-kind to be determined at a later date."

         Both the bankruptcy court and Peake's counsel point us to § 522 of the Bankruptcy Code in addressing the legal question here. The relevant exemptions set forth in § 522(d) of the Bankruptcy Code are phrased as follows: the debtor may exempt her interest or aggregate interest in certain property "not to exceed [a designated amount] in value." 11 U.S.C. §§ 522(d)(1)-(6). Thus § 522(d) limits the value that may be exempted, not the debtor's interest that may be exempted. On its face, exempting a 100% interest in an asset does not violate any provision of § 522. See also Schwab v. Reilly, 560 U.S. 770, 794 n.21 (2010) (contemplating a scenario where a debtor "claimed as exempt a 'full' or '100%' interest" in an asset).[3] Of course, there are circumstances where exempting a 100% interest in an asset would not be allowable under § 522, e.g., when the statutory cap is exceeded. But addressing only the certified question before us, we hold that if, when considering any other exemptions claimed, the debtor's entire interest in an asset is less than or equal to any dollar-value limitation imposed by the applicable § 522(d) subsection, then the debtor may exempt her 100% interest in that asset.[4]

         What the certified question does not ask us to determine, and thus we decline to address, is whether claiming a 100% interest in an asset as exempt allows the debtor to "walk away" with the asset itself and potentially benefit from any post-petition appreciation of it. This concern seems to be at the heart of the question that the parties wish us to address. Although we do not address the question today, we note that the Supreme Court has found "questionable" whether "a claim to exempt the full value of the equipment would, if unopposed, ...


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