Law v. Siegel (In re Law)
Law v. Siegel (In re Law), No. 12-5196, 571 U.S. __ (United States Supreme Court 3/4/14): In a unanimous decision authored by Justice Scalia, the Supreme Court found that a bankruptcy court may not surcharge the homestead exemption as a result of the debtor’s misconduct.
The bankruptcy court found that the debtor created a fictional loan "to preserve his equity in his residence beyond what he was entitled to exempt" by perpetrating "a fraud on his creditors and the court." That court surcharged the debtor’s $75,000 homestead exemption to reimburse the trustee’s attorney fees. The surcharge was upheld on appeal to the Bankruptcy Appellate Panel, 2009 WL 7751415 (Oct. 22, 2009) (per curiam), and the Ninth Circuit Court of Appeals, In re Law, 435 Fed. Appx. 697 (2011) (per curiam), on the basis that the surcharge reimbursed actual costs incurred by reason of the fraud, and would protect the integrity of the bankruptcy process. The Supreme Court reversed.
The National Consumer Bankruptcy Rights Center filed an amicus brief in the Supreme Court on behalf of the NACBA membership in which it set out the arguments ultimately relied on by that Court in reversing the decision.