When you file for bankruptcy under Chapter 7 or Chapter 13, you have to complete a packet of forms and file them with the court. Schedule C: The Property You Claim as Exempt is one of the most important forms because it tells the court what property you can keep, or “exempt,” under state or federal law.
When you file for Chapter 7 bankruptcy, you’re allowed to keep the property that you will need to live and work, such as a modest car and reasonably-valued household furnishings. This property is called “exempt” property and your creditors can’t take it from you. Your state has a list of the property you can claim as exempt when you file for bankruptcy.
While the bankruptcy trustee can't touch your exempt property, if you have more than what you're allowed, the trustee can take it. For example, if your state allows you to keep one car and you have two, the bankruptcy trustee can sell the second car and distribute the proceeds to your creditors.
The exemption lists in most states include at least some equity in a home, a vehicle, personal belongings (such as clothing, furnishings, and jewelry), and the tools of your trade. For information on exemptions—and links to every state's list of exempt property—see Bankruptcy Exemptions - What Do I Keep When I File for Bankruptcy?
If you file under Chapter 13, instead of using your nonexempt property to repay your creditors, you use your income to fund a three- or five-year repayment plan. Because of this, you don't stand to lose any property, whether or not it's exempt.
However, exemptions are still important in a Chapter 13 case. If you use Chapter 13, you must repay your creditors at least as much as they would have received if you had filed under Chapter 7. In other words, you must repay them at least the value of your nonexempt property.
On Schedule C, you tell the trustee, the court, and your creditors what property you are claiming as exempt. Exemptions aren't automatic. You must claim them on this form in order to take advantage of them. If you don’t, you’ll lose the property. You should be as thorough and accurate as possible in claiming exemptions. The more property you are able to claim as exempt, the more property or income you will get to keep in your bankruptcy case.
You’ll transfer all of the property that you can claim as exempt from Schedule A/B: Property onto Schedule C. In the first column, you’ll list the item of property and the line the property appears on in Schedule A/B. You can lump together items of low value, such as kitchen items or clothing.
In the second column, you’ll list the current replacement value of the property, meaning what it would cost to buy the same item, in the same condition and of the same age. (To learn more about how to value your property, see Completing the Bankruptcy Forms.)
In the third column, you’ll put the amount of the exemption you’re claiming. Often, an exemption will allow you to protect up to a certain value or equity in your property. Some exemptions allow you to exempt certain types of property entirely, such as your clothing or your wedding ring. In this column, you usually list either the value of your property (from the second column) or the maximum value of the exemption, whichever is less.
In the fourth column, you'll need to insert the citation to the state or federal law that provides the exemption. In some states, you can choose between the state's exemption list and the federal exemption list. However, you can't mix and match some exemptions from one list and some from the other.
Some states allow you to use only the state exemptions. California allows you to choose between two lists of state exemptions. For links to each state's exemption list—which include the citations you will need to complete this column—as well as information on the federal exemption list, see Bankruptcy Exemptions - What Do I Keep When I File for Bankruptcy?