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 (someone who files for bankruptcy) destitute. The debtor and their dependents will always be left with the basics for a new start. That will include furniture, clothing, household goods, a car, and equity in a home.
The property that you're allowed to keep in a bankruptcy case is called exempt property. The bankruptcy code requires that you affirmatively claim those exemptions so the court and your creditors will know what property you intend to keep.
Bankruptcy exemptions are based on 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 the property of a 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.
Bankruptcy exemptions are complicated, and if you get it wrong, the consequences can range from uncomfortable to devastating. This is why it's important to consider hiring a bankruptcy attorney.
Consider Getting Professional Help
Bankruptcy exemptions are complicated. Although you don't have to hire an attorney to represent you when you file a bankruptcy case, one of the most important reasons you might pay for legal assistance is choosing and filing your exemption list. If you get it wrong, the consequences can range from uncomfortable to devastating.
Bankruptcy Schedule C
One of the documents you file with your bankruptcy paperwork is Schedule C: The Property You Claim as Exempt. It is arguably the most important document that you complete when filing for bankruptcy. Schedule C contains your exemption claims. These exemptions permit you to keep property that would otherwise become the property of the bankruptcy estate and the bankruptcy trustee.
Completing Schedule C
Here is an explanation of Schedule C.
Part 1, Question 1
In Part 1 of Schedule C, you will notice that the document requires that you select a box indicating whether 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.
Part 1, Question 2
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.
You will also state the current value of the portion of the property that you own. You can choose to list a specific amount. For example, in California, section 703.140(b)(3) allows residents to claim up to $600 per item for household goods and furnishings. Thus, in that example, you would put $600 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.
Another column asks for specific laws that allow exemption. In this blank, you will put the specific code section that allows 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.
Part 1, Question 3
Question 3 asks whether you are claiming a homestead exemption of more than a certain amount (which adjusts every three years) and whether you acquired the property more than 1,215 days before filing the bankruptcy case. You are limited to a homestead exemption of a certain maximum amount if you obtained the homestead relatively recently. The current maximum is $170,350. This prevents 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 after the trustee concludes your meeting of creditors or within 30 days of any amendments to Schedule C. The trustee has up to one year after closing the case to object if the debtor fraudulently claimed an exemption.
Allowance of Exemptions
If no one objects to your exemptions within the above-referenced periods, your exemptions will be allowed by "operation of law." This means that your exemptions are automatically allowed and you don't have to be concerned that the trustee will come after any property you've exempted.
United States Courts. "Schedule C: The Property You Claim as Exempt (Individuals)," Page 1. Accessed Nov. 23, 2020.
California Legislative Information. "Code of Civil Procedure Article 1 General Provisions." Accessed Nov. 23, 2020.
United States Courts. "Schedule C: The Property You Claim as Exempt," Page 2. Accessed Nov. 23, 2020.
Legal Information Institute. "Rule 4003. Exemptions." Accessed Nov. 23, 2020.