Bankruptcy Exemptions: Schedule C
Choosing your exemptions is critical to what property you keep after bankruptcy
One of the purposes of our bankruptcy system is to give people who have had financial issues a "fresh start." To that end, no bankruptcy is going to leave a debtor (that's what we call people who file bankruptcy) destitute. The debtor and his or her dependents will always be left with the basics for a new start. That will include furniture, clothing, household goods, even cars and equity in a homestead.
The property that you're allowed to keep in a bankruptcy case is called exempt property. So that the court and your creditors will know what property you're keeping, you are required to affirmatively claim those exemptions.
One of the documents you file with your bankruptcy paperwork is called Schedule C: The Property You Claim as Exempt, Official Form B 106C. Schedule C is arguably the most important document that you complete when filing for bankruptcy, no matter the chapter. Schedule C contains your claims of exemption. These exemptions permit you to keep property which would otherwise become property of the bankruptcy estate and the bankruptcy trustee.
Where do We Find Exemptions?
Bankruptcy exemptions are based in state and federal law. Each of the individual states has enacted its own exemptions. These exemptions apply to more than just bankruptcy cases. They will also apply when a creditor obtains a judgment and wants to take property of the debtor to satisfy it.
Congress has also passed a set of federal exemptions. Depending upon where you live and file for bankruptcy, the law of the state may permit you to only use the state exemptions, as opposed to the federal exemptions. For example, in California, you may only choose state exemptions and not federal exemptions.
But in Texas, you can choose whether to apply the Texas state exemptions or the federal exemptions. You can read more about the various exemptions available in each state.
Completing Schedule C
Part 1, Question 1
In Part 1 of Schedule C, you will notice that the document requires that you select a box if you are claiming exemptions pursuant to 11 U.S.C. section 522(b)(2) or 11 U.S.C. section 522(b)(3). If you choose state law exemptions, select 522(b)(3); section 522(b)(2) indicates that you have chosen federal law exemptions. Some states do not allow you to choose federal law exemptions. Consult with a bankruptcy lawyer to determine if this is the case in your state of residence.
Part 1, Question 2
Description of Property
Starting with Question 2, you will list all of the property from Schedule A/B for which you claim an exemption. If you do not list property from Schedule A/B, it will not be exempt, and the bankruptcy trustee may take it and sell it! You should use the same descriptions that you used in Schedule A/B.
Current Value of the Portion You Own
You will also state the amount that is the current value of the portion of the property that you own. You can choose to list a specific amount.
For example, section 703.140(b)(3), in California, allows a value of $550 per item. Thus, in that example, you would put $550 in the blank for the value. As an alternative, you can choose to say that you are claiming 100% of the fair market value, up to any limits listed in the applicable exemptions statute you are using.
Specific Laws that Allow Exemption
In this blank you will put the specific code section that provides for the exemption. For example, in California, you would cite California Code of Civil Procedure section 703.140(b)(3) for exemptions in household goods and clothing. Each state has its own set of exemptions, and there are also exemptions contained in the bankruptcy code and in other federal statutes.
For more, see Bankruptcy Exemptions By State
Part 1, Question 3
Question 3 asks about whether you are claiming an exemption in your homestead of more than a certain amount (which adjusts every three years), and whether you acquired the property more than 1,215 days before you filed the bankruptcy case.
This is because regardless of whether you use state or federal exemptions, you are limited to a homestead exemption of a certain maximum amount if you obtained the homestead relatively recently. This is to prevent filers from converting non-exempt assets into cash and using that cash to purchase an expensive property not long before filing bankruptcy.
Part 2 on the second page is just a continuation of Part 1, Question 2. You can also add additional pages as necessary to ensure that you have covered all property you wish to exempt.
Objections to Your Claims of Exemption
After you file your bankruptcy, any creditor, the bankruptcy trustee, or the U.S. Trustee can object to your claims of exemption. This is done by filing a written objection with the bankruptcy court. A hearing will be conducted before a bankruptcy judge on the objection. A party may object to your claims of exemption for a variety of reasons, such as improperly categorized exemptions (claiming an exemption in clothes under an exemption statute for a car). An objection to your claims of exemption must be filed within 30 days that the trustee concludes your meeting of creditors, or within 30 days of any amendments to the Schedule C.
Allowance of Exemptions
If no one objects to your claims of exemptions within the above-referenced 30 day periods, your exemptions will be allowed by "operation of law." This means that your exemptions are automatically allowed and you can keep all of the exempted property and the trustee cannot sell it. Allowance of your exemptions in bankruptcy is crucial to retaining assets.
For More Information
To learn more about how exemptions work in bankruptcy cases, check out these articles:
Updated October 2016 by Carron Nicks