In re Tallerico

Federal Rule of Bankruptcy Procedure 4003(c) is invalid to the extent it assigns the burden of proof on an objection to a state-law claim of exemption in a manner contrary to state law.

The Bankruptcy Rules Enabling Act, 28 U.S.C. § 2075 , forbids rules that alter substantive rights. The Supreme Court clarified in Raleigh v. Illinois Dep’t of Revenue, 530 U.S. 15, 20-21 , 120 S.Ct. 1951 , 147 L.Ed.2d 13 (2000), that burden of proof is substantive, not procedural. It follows that Rule 4003(c), which was first adopted in 1973 on the assumption that burden of proof was procedural, offends § 2075.

The state law governing the state exemptions claimed in this case specifies that exemption claimants have the burden of proof. This state-law rule of decision also triggers state rules of evidentiary presumptions per Federal Rule of Evidence 302.

The burden of proof is crucial here. At trial of this “Motion for Turnover” (which subsumes three distinct contested-matter issues: judgment hen avoidance, objection to exemption, and turnover by a custodian), the key issue was whether the debtor owned personal property claimed as exempt. The debtor did not satisfy his burden of…