Douglas Ellmann v. Michael James Baker, 791 F.3d 677

Michael and Suzie Baker filed a Chapter 13 petition in February 2008, converted to Chapter 7, and received a discharge; their case closed in February 2009.
They did not disclose a post-foreclosure cause of action (challenging the foreclosure and related consent judgment) in their original bankruptcy schedules.
In March 2009 the Bakers sued in Michigan state court over the foreclosure; that state action continued for years without the bankruptcy schedules being amended.
The bankruptcy case was reopened in November 2013 after the chapter 7 trustee (Ellmann) learned of the state-court claim; the trustee sought to administer the claim for the estate and later settled it.
In December 2013 the Bakers amended their schedules to disclose the cause of action and each claimed a §522(d)(5) wildcard exemption in the claim; the trustee objected based on alleged concealment, bad faith, and prejudice to administration.
The bankruptcy court overruled the trustee’s objection, holding Law v. Siegel barred disallowing exemptions as a sanction for debtor misconduct and alternatively finding the trustee waived a Rule 1009 timeliness challenge; the district court affirmed, and the trustee appealed.

Issue	Plaintiff's Argument (Trustee)	Defendant's Argument (Bakers)	Held
Whether Law v. Siegel forbids a bankruptcy court from disallowing exemptions/amendments as a sanction for debtor misconduct, including in a reopened case	Siegel should not govern reopened (previously closed) cases; Lucius allowing sanctions for concealment remains good law for reopened cases	Siegel prohibits courts from creating equitable exceptions to Code exemptions; it bars disallowing exemptions for bad faith even after reopening	Court held Siegel controls; bankruptcy courts may not disallow exemptions/amendments as a sanction for bad faith or concealment, including in reopened cases
Whether the trustee waived a Rule 1009 untimeliness objection by failing to raise it timely	The trustee argued at hearing that Rule 1009 barred post-closure amendments as of course and that this argument became relevant only after Siegel was decided	The Bakers argued the trustee never timely raised that argument and thus waived it	Court held the trustee waived the Rule 1009 timeliness objection by not raising it in his written objection or timely at the hearing

Law v. Siegel, 134 S. Ct. 1188 (2014) (Supreme Court: bankruptcy courts lack equitable power to deny or surcharge exemptions as sanctions when the Code provides the exclusive rules)
Lucius v. McLemore, 741 F.2d 125 (6th Cir. 1984) (prior Sixth Circuit authority allowing disallowance of exemptions for debtor concealment or bad faith)
Taylor v. Freeland & Kronz, 503 U.S. 638 (1992) (Supreme Court: Rule 4003(b) time limit for objecting to claimed exemptions is mandatory)