Debtors may want to amend their exemption plan (on Schedule C) for several reasons during their bankruptcy case. For example, the debtors may find it advantageous to shift their exemption limits from one asset to another asset to make sure preferred assets are completely covered by exemptions. If the valuation of one or more assets becomes an issue a debtor may want to remove an exemption from one asset to fully protected the increased value of another asset. A Florida bankruptcy court recently addressed the issue of whether or not there are time limits during a Chapter 7 bankruptcy to the debtor’s right to amend his exemptions.
In this case a joint debtors’ s initial bankruptcy petition claimed a homestead exemption on their primary residence. They apparently thought they could afford to keep their home. Because they claimed a homestead exemption these debtors were not eligible for the $4,000 wildcard exemption. These debtors had non-exempt personal property over and above their $1,000 personal property exemption allowance.
A trustee has 30 days after the creditor meeting to object to a debtor’s exemptions. This trustee did not file an objection to the debtor’s homestead exemption or any other exempt property.
After the 30 day objection period the joint debtors decided that they would surrender their home to their mortgage company. They filed amended bankruptcy schedules which indicated their intent to surrender the homestead, and on schedule C they omitted the homestead exemption. Without the homestead exemption claim the debtors were able to claim a combined $8,000 of wildcard exemption which they applied to protect their previously non-exempt property which property would have to be surrendered or repurchased from the trustee.
The Trustee objected to the changed exemption plan. He said the debtors could not change their exemption plan in this case after the trustee had made no objection during his 30 day challenge window.
The court permitted the debtors to amend their exemptions. The court said that the Bankruptcy Code permits debtor to amend petition schedules any time during a bankruptcy proceeding until the bankruptcy case is closed unless there is a showing that debtors acted in “bad faith” or the amendments causes prejudice to the creditors.
When the debtors filed amended exemptions the trustee had a fresh 30 days to evaluate and to object to the amended exemptions.
Just as there is pre-bankruptcy planning, there can also be post-bankruptcy planning. A debtor can reconsider his bankruptcy schedules as fact and issues change during a bankruptcy, and the debtor may freely amend his schedules to better protect assets. In re Allen Case No. 10-38136 EPK