Sixth Circuit Holds that Law v. Siegel Limits Bankruptcy Court Authority to Disallow Exemptions

In Ellmann v. Baker (In re Baker), 2015 U.S. App. LEXIS 11437 (6th Cir. 2015), the Sixth Circuit Court of Appeals held that Law v. Siegel, 134 S. Ct. 1188 (2014), limits a bankruptcy court's power to disallow claimed exemptions. The debtors had failed to disclose a cause of action in their bankruptcy schedules until years after the close of their case. The bankruptcy trustee moved to reopen the case to pursue the cause of action and the debtors filed an amended exemption of the cause of action. The trustee objected, claiming the exemption was fraudulent and asserted in bad faith. Affirming the district court, the Sixth Circuit held that Law v. Siegel prohibits a bankruptcy court from disallowing the debtors' claimed exemptions because of their alleged bad faith and fraudulent conduct. Further, the Court affirmed the district court's finding that the trustee had waived his objection to the timeliness of the exemption amendment.