Trustee Objection to Schedule C Exemptions

By Beverly Bird

When you file for bankruptcy, Schedule C is the part of the paperwork that helps provide you with a fresh start. It lists the exemptions you're claiming. These are dollar values in property you want to keep; by exempting them, you prevent the trustee from selling them to pay off your debts.

When the Trustee Objects

When you file for bankruptcy, the trustee will review your Schedule C. Your case is then scheduled for a 341 hearing, which is also called a meeting of creditors. The trustee may ask you some questions about your exemptions at the hearing. He has 30 days after the meeting to notify the court that he objects to one or more of them. The objection is then set for a hearing and a judge will decide whether to allow the exemption.

Why the Trustee Might Object

The trustee might not object to an exemption itself, but rather the dollar value you're assigning to certain property. For example, if your state offers a $4,000 automobile exemption and you claim that your late-model luxury vehicle is only worth $4,000 so you can keep it, this might raise an eyebrow. Or, you might have used your homestead exemption to protect a residence you don't actually live in. The trustee is paid a percentage of the value of the property he sells, so he might put your Schedule C under a microscope to make sure you can legally keep every asset you're claiming.

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What Is the Wild Card Exemption When Filing Chapter 7 Bankruptcy?

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Bankruptcy Exemption Requirements

If your debts are out of control and you have little hope of catching up on the bills, you have the option to file for bankruptcy protection. The federal bankruptcy code allows you to file under Chapter 7 or Chapter 13 of the code. In a Chapter 7 bankruptcy filing, a court-appointed trustee seizes your non-exempt property to repay your debts. In a Chapter 13 filing, the trustee sets a repayment schedule, and you are allowed to keep your property. Exemptions are an important consideration in both forms of bankruptcy.

Do You Always Get a Notice of Abandonment From a Trustee?

Although it may seem to defy logic, receiving a notice of abandonment from the trustee is often cause to celebrate if you've filed for Chapter 7 bankruptcy. It means he's walking away from your property, declining his right to liquidate it and pass the money on to your creditors. Sometimes a trustee neglects to issue notices of abandonment, but if he doesn't sell your property by the time you receive your discharge and the case closes, it's considered abandoned anyway. However, abandonment isn't an issue in Chapter 13 bankruptcies because you're repaying your debts from your own income, not the sale of your assets.

How to Benefit From a Trust in Bankruptcy

If you learn you're the beneficiary of a trust soon after you file for bankruptcy protection, it may be too late to protect your inheritance. Your bankruptcy trustee can, and probably will, direct you to relinquish your share of trust assets to your creditors to pay off some or all of your debts. It’s not a hopeless situation, however. If you act before you inherit and before you file, you might still benefit from the trust.

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