Two important bankruptcy law decisions were issued recently, one by Judge Kornreich from the Maine Bankruptcy Court, and the second from the U.S. Supreme Court.
The first decision was in the case of In re Mclean, a Chapter 13 case in which the debtors claimed vehicle exemptions in their two jointly owned vehicles, of $5,000 in each vehicle. The Chapter 13 Trustee objected to the exemptions, asserting that each debtor could only claim a $2,500 exemption in each vehicle since each debtor had a 1/2 interest in each vehicle. Maine permits each debtor a vehicle exemption of up to $5,000 in equity in one motor vehicle. The Court overruled the Trustee's objection, holding that under Maine law, joint ownership of personal property is by "per my and per tout" (French for by share and by whole), thereby authorizing each debtor to claim up to $5,000 towards their interest in one of the vehicles. This decision clarifies the extent to which debtors are able to claim exemptions in Maine where property is jointly owned.
The second decision, from the U.S. Supreme Court, was in the case of Law v. Siegel. Law filed Chapter 7 bankruptcy in California and asserted ownership of certain real estate, on which the debtor claimed 2 voluntary liens. The Chapter 7 Trustee challenged the validity of one of the liens, claiming it was a fraudulent and fictional lien. After extensive and expensive litigation, the bankruptcy court concluded the trustee was correct, and surcharged the debtor's homestead exemption in the sum of $75,000 to cover the trustee's attorneys fees in disputing the debtor's fraudulent misrepresentations. The court's authority for the surcharge was Section 105 of the Bankruptcy Code. The case was appealed to the U.S. Supreme Court, which held that the bankruptcy court overstepped its authority in surcharging the debtor's homestead exemption. The Supreme Court noted, however, that the bankruptcy court had many other tools at its disposal to punish the debtor for his bad behavior, including a denial of discharge under Section 727 or sanctions for bad faith litigation tactics under Section 105.