03 Aug 2018

Exemptions: How to Correctly Calculate

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In a Chapter 7 bankruptcy case, debtors may file exemptions on certain assets based on state or federal law. Exemptions allow debtors to keep protected assets, so it is important for Trustees to pay close attention to exemptions when reviewing a case.

Exemptions are listed on Schedule C of the debtor’s petition. When reviewing Schedule C, the Trustee should verify the exemptions with federal and state law to ensure they are not too high or wrongfully claimed. Otherwise, the Trustee must file an objection to the exemption.


Objections to exemptions must be filed within 30 days after the conclusion of the meeting of the creditors or the filing of amendments, whichever is later.

If the objection is not filed within this time period, the exemption will be deemed allowed.

Exemption Systems

There are two types of exemption systems that apply in bankruptcy: federal and state.

Federal Exemptions

Section 522(d) sets forth allowable exemptions under federal bankruptcy law. The allowable amounts of federal exemptions are adjusted every three years ending on April 1 to reflect changes in the Consumer Price Index. These were last adjusted in 2016.

States can choose to opt out of federal exemptions and require debtors to use the state’s exemption system. The Trustee must know which states have opted out and file an objection if a debtor who is domiciled in one of these states claims any federal exemptions on Schedule C.

State Exemptions

Debtors may choose either state or federal exemptions in 17 states, but they may not mix and match exemptions from both systems.

State exemption systems are dependent on the circumstances of the debtor’s domicile, and Trustees should review these circumstances to determine if state exemptions are correctly claimed. In order to claim state exemptions, the following domicile provisions must apply:

  • The debtor was domiciled in that state for 730 days immediately before the petition was filed; OR
  • The debtor was domiciled in that state for 180 days immediately before the 730-day period, or for a longer portion of such 180-day period in any other state.

There is a short list of exemptions prescribed by federal law which a debtor may use in addition to state exemptions, called federal non-bankruptcy exemptions. The current federal non-bankruptcy exemption amounts can be found here.

Allowable Exemptions

Allowable exemptions vary from state to state. However, some commonly allowed exemptions under both federal and state law are listed below:

  • Homes or other real property
  • Motor vehicles
  • Personal property (clothing, household items, food, books, jewelry)
  • Child support and alimony
  • Crime victim compensation
  • Insurance
  • Public benefits
  • Retirement accounts
  • Tools of the trade
  • Wages
  • Wrongful death and personal injury payments

Wildcard Exemptions

Federal law and some state laws include wildcard exemptions which the debtor may apply to non-exempt assets or add to other exemptions:

  • The federal wildcard exemption amount is $1250, plus up to $11,850 of any unused homestead exemption.
  • State wildcard exemption amounts vary. If a state’s exemption system includes a wildcard exemption, the debtor can apply it to otherwise exempt property, or add the wildcard amount to an existing exemption.

Calculating Asset Values based on Exemptions

With the values and exemptions listed on Schedules D and C, the Trustee can determine the amount that can be returned to the estate from the asset’s remaining value. It is a good practice to verify asset values with outside sources, for example from real property valuation sites such as Zillow, Kelly Blue Book, and NADA.

If there is a large discrepancy between the listed valuation and those from outside sources, the Trustee may want to employ a professional to evaluate the asset, such as an agent or auctioneer. The Trustee should make note of these findings in order to ask questions of the debtor or request additional information as needed.