Law v. Siegel, 134 S. Ct. 1188

Law filed for Chapter 7 bankruptcy and valued his California home at $363,348, claiming $75,000 exempt under California’s homestead exemption §704.730(a)(1).
Two liens attached to the home: $147,156.52 in favor of Washington Mutual Bank and $156,929.04 in favor of Lin’s Mortgage & Associates, producing no apparent equity for other creditors if valid.
Trustee Siegel challenged the Lin lien, amid a long-fought dispute over a purported Lili Lin who allegedly funded the lien; the court eventually found the loan a fiction used to preserve Law’s exemption.
The Bankruptcy Court surchargeed the entire $75,000 homestead exemption to cover Siegel’s attorney’s fees incurred in defeating Law’s fraud, which the Ninth Circuit affirmed at the panel level and on appeal.
The Supreme Court held that the Bankruptcy Court exceeded its authority by ordering the exempt $75,000 to be used to pay administrative expenses, thereby violating §522 and §105(a).

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether surcharge of exempt property violates §522 and §105(a).	Law contends equitable powers may support surcharge for misconduct.	Siegel contends surcharge is permissible to address debtor misconduct within §105(a) and inherent powers.	Surcharge violates §522 and §105(a); not authorized.
Whether finality of exemption prevents trustee from revisiting exemption via surcharge.	Trustee could revisit exemption despite finality under procedural history.	Exemption finality bar allows revisiting only under statutory grounds; §522 exhaustive.	Exemption finality does not justify keeping surcharge; §522 exhaustively governs exemptions.
Whether Marrama supports using equitable power to override exemptions.	Marrama suggests courts may rely on equitable power to avoid futile outcomes.	Marrama does not authorize overriding express Code provisions.	Marrama does not authorize surcharges that contravene the Code.
Whether other sanctions can address debtor misconduct without invalidating exemptions.	Other sanctions exist (discharge denial, Rule 9011, etc.).	Sanctions exist but do not permit diverting exempt assets to pay administrative expenses.	Yes; other sanctions exist, but they do not permit using exempt assets to cover such expenses.

Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007) (equitable powers do not override explicit Code provisions)
Taylor v. Freeland & Kronz, 503 U.S. 638 (1992) (timeliness of exemptions affects trustee challenges)
Latman v. Burdette, 366 F.3d 774 (9th Cir. 2004) (equitable surcharge of exemptions acknowledged in exceptional cases)
Guidry v. Sheet Metal Workers Nat. Pension Fund, 493 U.S. 365 (1990) (statutory balance governs remedies for trustees and debtors)
Schwab v. Reilly, 560 U.S. 770 (2010) (Congress balances exemption limits with creditor interests)
Degen v. United States, 517 U.S. 820 (1996) (courts’ powers are bounded by statutory directives)
TRW Inc. v. Andrews, 534 U.S. 19 (2001) (strict interpretation of exemptions and exceptions)
United States Realty & Improvement Co. v. SEC, 310 U.S. 434 (1940) (limits on equitable powers when statutes are explicit)