U.S. Supreme Court Dicta: Bankruptcy Court Cannot Bar Defendant From Amending Schedule C (Exemptions)

The bankruptcy rules allow debtors to file amendments to their bankruptcy paperwork any time before they receive a final discharge. However, some courts will not allow debtors to amend their exemption schedule (Bankruptcy Schedule C) after the deadline for creditors to object to the claimed exemptions has passed.

A recent U.S. Supreme Court case, Law v. Siegel, _S.Ct._ (March 4, 2014), calls into question this practice. In Law v. Siegel the U.S. Supreme Court said that a bankruptcy trustee couldn’t surcharge (take away) the debtor’s homestead exemption and instead use the money to recover the trustee’s fees. In this case, the trustee incurred over $500,000 of fees over five years to ultimately prove that the debtor lied about his mortgages on his bankruptcy papers and in so doing, attempted to defraud the bankruptcy court. Despite the fact that the debtor was clearly a bad actor, the U.S. Supreme Court said that the bankruptcy court could not deny the debtor his exemption because its reason for doing so was not enumerated in the exemptions statutes. (To learn more about facts and ruling of this case, see Law v. Siegel: Did the U.S. Supreme Court Let a Conniving Debtor Off the Hook?)

In its decision, the Supreme Court also stated that a court cannot "bar a debtor from amending schedules to claim an exemption" if the ground for denial is not based in the bankruptcy code. Many bankruptcy experts take this to mean that a bankruptcy judge cannot bar a debtor from amending Schedule C just because the creditor’s deadline to file an objection has passed.

If you want to amend Schedule C but the judge won't allow it, you should talk to a lawyer.