Filing for personal bankruptcy is never a decision people take lightly. It’s a significant financial step that can remain on your credit report for up to 10 years. Yet despite its reputation, bankruptcy isn’t the end of your financial life; it’s a legal tool designed to help you move forward.
One of the most common fears we hear from clients is, “Will I lose my home, my car, or everything I’ve worked for?” The truth is that while the bankruptcy trustees can seize and sell certain assets to repay creditors, the overwhelming majority of Illinois residents who file Chapter 7 bankruptcy don’t lose any property at all.
That’s because Illinois law provides bankruptcy exemptions, which are protections built into the law that shield certain property from being sold. And thanks to updates scheduled to take effect in 2026, those protections will soon become even stronger.
Before you begin your bankruptcy journey, it’s important to understand how these exemptions work, what they cover, and how much property you can keep in Illinois.
What are Bankruptcy Exemptions?
Bankruptcy exemptions exist so that people filing bankruptcy aren’t left with nothing and can rebuild after filing. Without them, individuals emerging from bankruptcy would have no chance at stability if they lost everything.
Exemptions set clear dollar limits on the equity you can protect in different types of property. The concept is simple: if your equity in an asset is less than or equal to the exemption amount, you get to keep it. If it’s greater than the exemption, the bankruptcy trustee may have the right to sell the property and use the proceeds to pay creditors. However, in practice, this is rare.
Does Illinois Allow You To Use The Federal Bankruptcy Exemptions?
Over time, states have developed their own exemption systems for bankruptcy filers. In some parts of the country, debtors can choose between using the federal bankruptcy exemptions or their state’s exemptions. In those states, you don’t get to mix and match; you must pick one set or the other.
Illinois works differently. If you file bankruptcy in Illinois, you must use the Illinois exemptions. Federal bankruptcy exemptions are not available here. Fortunately, Illinois’ exemptions are broad enough that most people are able to protect everything they own.
That doesn’t mean federal law never comes into play. There are also federal nonbankruptcy exemptions, which apply in very specific situations. If you qualify, you may be able to use these federal nonbankruptcy protections in addition to the Illinois exemptions.
For most Illinois residents, though, it’s the Illinois state exemption system that will determine exactly what property you can keep in bankruptcy. And those exemptions are about to get stronger. While the current exemption amounts apply in 2025, a new law (SB 1738) will raise many of them beginning January 1, 2026.
Illinois Bankruptcy Exemptions
Illinois law lays out a wide range of exemptions designed to protect your property if you file for bankruptcy. These exemptions work much like they do in other states, but with rules unique to Illinois.
It’s important to remember that in most Chapter 7 cases, debtors don’t actually lose property. According to national statistics, about 90% of Chapter 7 bankruptcies are “no asset” cases, meaning the trustee doesn’t seize anything because everything is exempt.
Here’s a look at the most common Illinois bankruptcy exemptions:
| Exemption Type | Amount (2025) | Notes |
| Homestead Exemption | $15,000 equity ($30,000 if married filing jointly) | Applies to houses, condos, farms, or mobile homes |
| Motor Vehicle | $2,400 equity | One vehicle |
| Tools of Trade | $1,500 | Covers equipment, books, or tools needed for work |
| Wildcard (any property) | $4,000 | Can apply to cash, bank accounts, furniture, or other personal property |
| Wages | 85% of gross weekly wages, or 45x federal minimum hourly wage (whichever is greater) | Protects take-home pay |
| Personal Injury Recovery | Up to $15,000 | Worker’s Compensation awards fully exempt |
| Alimony & Child Support | Amount reasonably necessary for support | Usually means full protection |
| Retirement Accounts | Fully exempt | No dollar cap |
| Government Pensions | Fully exempt | Includes teachers, police, firefighters, state employees, judges, municipal employees, and more |
| Burial Funds / Cemetery Plots | Fully Exempt | Includes prepaid burial contracts |
| Other Property | Exempt if reasonably necessary | Clothing, health aids, family photos, school books, and certain life insurance |
Illinois Homestead Exemption
The homestead exemption protects up to $15,000 of equity in your residence. Married couples filing jointly can protect up to $30,000.
Equity means your home’s value minus any mortgages or liens. For example, if your home’s value is $180,000 and you still owe $168,000 on the mortgage, you have $12,000 in equity.
Because $12,000 is less than the exemption, you would keep your home in bankruptcy.
Illinois Vehicle Exemption
You can protect up to $2,400 of equity in one motor vehicle.
For example, if your car is worth $9,000 and you owe $7,000, the $2,000 equity is fully protected. If the car had $4,000 in equity, $1,600 might be exposed unless you use the wildcard exemption to cover the difference.
Read more about Illinois auto repossession laws to learn more about what filing bankruptcy means for your car.
Illinois Wage Exemption
Illinois protects your wages so you can continue supporting yourself and your family. The exemption covers the greater of:
- 85% of your gross weekly wages, or
- 45 times the federal minimum hourly wage per week
For most people, this means almost your entire paycheck is protected, but higher earners may see limits.
Illinois Tools of Trade Exemptions
If you own equipment, tools, or books you use to earn a living, you can exempt up to $1,500 in value. This helps tradespeople, contractors, and small business owners keep the items they need to work.
Illinois Alimony & Child Support Exemptions
Money you receive for child support or alimony is exempt, but only to the extent it’s considered reasonably necessary for you and your dependents. In most cases, that means the full amount is protected.
Illinois Pension Exemptions
Public pensions for various types of employees are considered completely exempt in the State of Illinois. These employees include:
- Firefighters
- Police officers
- City, county, and state employees
- Judges
- Public library employees
- Municipal employees
- Civil service employees
- Park employees
- State university employees
- Teachers
- House of Correction employees
Illinois Retirement Account Exemptions
All qualified retirement accounts and government pensions are fully exempt in Illinois, with no dollar limits. Qualifying retirement accounts, such as 401(k)s, 403(b)s, SEPs, SIMPLE IRAs, IRAs, and Roth IRAs, are completely exempt regardless of their value.
Illinois Cemetery & Burial Fund Exemptions
Any property you’ve prepaid for in relation to burial or future care funds is considered exempt.
Illinois Personal Injury & Wrongful Death Exemptions
The State of Illinois allows you to exempt a wrongful death award up to the amount that is considered reasonable for the support of the bankruptcy filer.
Personal injury awards and settlements are also exempt up to $15,000.
You can also exempt an entire workers’ compensation award or settlement. You can read more about these exemptions on our pages for workers’ compensation, personal injury, and bankruptcy.
You can read more about these exemptions on our page about workers’ compensation/personal injury, and bankruptcy.
Illinois Wild Card Exemption
The wildcard exemption lets you protect up to $4,000 of property not covered by other exemptions. Many people use it to protect cash in a bank account, jewelry, or household items.
Additional Illinois Property Exemptions
In addition to the property listed above, the following property items are also considered exempt under the Illinois bankruptcy code:
- Clothing necessary for daily life
- Title certificate for a boat over 12 feet in length
- Bibles
- Family photos and school books
- Health aids
- Proceeds from the sale of exempt property
- Illinois College Savings Pool or ABLE accounts
- Property held in a trust
- Certain life insurance benefits (if the beneficiary is a spouse, child, or dependent)
Other Illinois Bankruptcy Exemptions
Check with your bankruptcy attorney, who can examine all of your property to determine what is and is not considered exempt.
Illinois protects college savings accounts, but only those created at least a year before the bankruptcy filing. Also protected by exemptions are veterans’ benefits, unemployment compensation, and Social Security.
Insurance is more complex, particularly with policies that accumulate cash values. Generally speaking, the exemption is in place if the beneficiary is a spouse, child, or other dependent.
Federal Nonbankruptcy Exemptions
You can use the federal nonbankruptcy exemptions to supplement the Illinois exemptions if you qualify for them. Most of the exemptions are designed for specific government employees or groups of individuals.
Examples of federal nonbankruptcy exemptions include:
- Retirement benefits for federal employers, CIA workers, railroad employees, and military service members
- Survivor’s benefits for judges, Supreme Court staff, lighthouse workers, and military service members
- Death and disability benefits for government employees, harbor workers, and longshoremen; also benefits received for injury, hazard, or death due to war
- Military group life insurance
- Seamen’s wages and clothing
- Saving account deposits for military members stationed overseas
- Social Security and veterans’ benefits (fully exempt)
These exemptions are narrow, and not everyone will qualify. But if you do, they can be a valuable supplement to the Illinois exemptions. For instance, a retired railroad worker may be able to utilize both the Illinois state exemptions and the federal non-bankruptcy exemptions to protect different aspects of their income and benefits.
Coming January 1, 2026: Exemption Increases in Illinois
A new law (SB 1738) will significantly raise exemption amounts in Illinois starting in 2026. These increased exemptions are as follows:
- Homestead: $50,000 (single) / $100,000 (joint)
- Motor Vehicle: $3,600
- Tools of Trade: $2,250
- New $1,000 automatic exemption in checking/savings accounts
These increases will give Illinois filers even greater protection in bankruptcy.
Are Exemptions The Same For Both Chapter 7 & Chapter 13?
Yes, the property that’s considered exempt under Illinois law is protected in both Chapter 7 and Chapter 13 bankruptcy. What changes is how the law treats nonexempt property (anything that isn’t covered by an exemption).
In Chapter 7 bankruptcy, the trustee has the power to sell nonexempt property. The proceeds from the sale are then distributed to your creditors. This is why exemptions are so important in Chapter 7 — they determine exactly what you get to keep.
In Chapter 13 bankruptcy, you don’t lose nonexempt property. Instead, you keep all of your assets, but the value of your nonexempt property (or your disposable income, whichever is higher) must be paid to creditors through your repayment plan. In other words, Chapter 13 lets you hold onto more property, but you’ll repay some of its value over three to five years.
This is why exemptions matter regardless of which type of bankruptcy you file. In Chapter 7, they protect property from being sold, and in Chapter 13, they help determine how much you’ll need to repay creditors through your plan.
Eligibility For Illinois Bankruptcy Exemptions
Not everyone who files bankruptcy in Illinois is automatically eligible to use Illinois’ exemption. Bankruptcy law has residency requirements that prevent people from moving to a state just to take advantage of more generous exemption rules.
Here’s how it works:
- You’re eligible to file for bankruptcy in Illinois if you’ve lived in the state for at least 180 days (about six months) before filing
- To use Illinois bankruptcy exemptions, however, you must have lived in Illinois for at least 730 days (two full years) before your filing date
If you haven’t met the two-year residency requirement, you’ll be required to use the exemptions from the state where you lived previously. For example, if you moved to Illinois a year ago from Missouri, you’d need to use Missouri’s exemptions instead of Illinois’.
This rule can make things complicated, especially if you’ve moved between states in the last few years. That’s why it’s always wise to consult with a bankruptcy attorney who can determine which exemption system applies in your case.
How Exemptions Work If Filing Jointly
If a couple decides to file for bankruptcy jointly, then virtually all exemption amounts can be doubled. This can provide significant additional protection for your property.
Here’s how it works:
- Each spouse is entitled to claim the full exemption amount on jointly owned property
- For example, the Illinois homestead exemption is $15,000 per filer. If a married couple files jointly and both spouses have an ownership interest in the home, they can protect $30,000 of equity in total.
- The same principle applies to other exemptions like the wildcard, vehicle, and tools of trade.
It’s important to note that doubling only works if both spouses actually have an ownership interest in the property. For instance, if only one spouse’s name is on the vehicle title, only that spouse can use the vehicle exemption.
Filing jointly doesn’t just double the exemptions—it also combines income and debts, which can affect eligibility for Chapter 7 or Chapter 13. A bankruptcy attorney can help you weigh the benefits of filing individually versus filing together.
Exemption Objections
When you file for bankruptcy, you’ll list all of your exemptions on Schedule C of your bankruptcy paperwork. Just because you claim an exemption doesn’t automatically mean you get to keep the property.
The bankruptcy trustee will carefully review your Schedule C to make sure you’ve applied Illinois exemptions correctly. If the trustee believes you’ve claimed property that isn’t exempt, they can raise an objection.
Here’s how the process typically works:
- Review: The trustee examines your exemption claims during the initial case review.
- Informal resolution: If there’s a concern, the trustee will usually try to resolve it informally with you and your attorney.
- Formal objection: If no agreement is reached, the trustee files a formal objection with the bankruptcy court.
- Court decision: A judge will then decide whether the property is exempt or nonexempt.
It’s also worth noting that honesty is critical. If you deliberately try to claim nonexempt property as exempt, or make false statements on your bankruptcy forms, it can be considered fraud. Bankruptcy fraud carries severe penalties, including fines of up to $250,000, possible imprisonment, or both.
The best way to avoid exemption objections is to work with an experienced Illinois bankruptcy attorney who knows how to apply the exemption laws and protect your property correctly.
What Happens to Nonexempt Property?
While most people in Illinois are able to protect all of their property using exemptions, it’s still important to understand what happens if you own nonexempt property—items or equity that fall outside Illinois’ exemption limits.
In Chapter 7 bankruptcy, the trustee can seize and sell nonexempt property. The money from the sale is then used to pay creditors. For example, if you own a second vehicle that isn’t covered by the vehicle exemption or the wildcard exemption, the trustee may decide to sell it.
In Chapter 13 bankruptcy, you keep both exempt and nonexempt property. However, your repayment plan must pay creditors at least the value of your nonexempt assets or your disposable income (whichever is greater).
In practice, most Illinois bankruptcy cases are “no-asset” cases, which means the trustee doesn’t sell anything because all of the filer’s property is exempt. But if you do own nonexempt property that you want to keep, Chapter 13 may be the better choice because it allows you to retain the property while repaying creditors over time.
Speak with an Illinois Bankruptcy Lawyer Today
Bankruptcy exemptions are at the heart of protecting your property when you file. They determine what you keep, how much creditors can reach, and what your financial future will look like once your case is over.
The good news is that most people in Illinois who file bankruptcy don’t lose anything at all. With exemption amounts scheduled to increase in 2026, residents will soon have even greater protection.
Still, every situation is unique. The type of bankruptcy you file, how long you’ve lived in Illinois, and the property you own all affect which exemptions apply to you. An experienced attorney can walk you through the details, make sure your assets are protected, and guide you through every step of the process.
At Benson Law Firm, we’ve helped countless Illinois residents get a fresh start through Chapter 7 and Chapter 13 bankruptcy. We’ll take the time to review your property, explain exactly which exemptions apply in your case, and build the strategy that gives you the most protection.
Call us today at (800) 723-6766 or fill out our online form to schedule your free consultation with Attorney Mike Benson. We’re here to make the bankruptcy process clear, affordable, and as stress-free as possible.
Illinois Bankruptcy Exemption FAQs
Can I keep my car if I file for bankruptcy in Illinois?
Yes, Illinois allows you to protect up to $2,400 of equity in one vehicle under the 2025 exemptions. If you’re filing jointly with your spouse and both names are on the title, you can double that amount. Beginning in 2026, the vehicle exemption will increase to $3,600.
Does Illinois allow federal bankruptcy exemptions?
No. Illinois requires bankruptcy filers to use the state exemptions. However, certain federal nonbankruptcy exemptions—such as Social Security, veterans’ benefits, and military insurance—may apply if you qualify.
What happens to my retirement accounts in bankruptcy?
Qualified retirement accounts, including 401(k)s, IRAs, Roth IRAs, SEPs, and SIMPLE IRAs, are fully exempt in Illinois. Public pensions, such as those for teachers, firefighters, police, and state employees, are also fully protected. There is no dollar cap on retirement exemptions.
What’s the difference between the Chapter 7 and Chapter 13 exemptions?
Exemptions apply in both chapters, but how nonexempt property is treated differs. In Chapter 7, nonexempt property can be sold by the trustee to pay creditors. In Chapter 13, you keep all property, but the value of nonexempt assets must be repaid through your plan.
Important Disclaimer: The information discussed above and throughout this website should not be relied upon to make any decisions without first speaking to a bankruptcy attorney. There are many intricate rules of law governing bankruptcy with many exceptions to the general rules that could change the advice given by an attorney based on the differing facts in each person’s special set of circumstances. THEREFORE, it is important to discuss any information contained in this website with one of our attorneys before taking any action or refraining from taking any action.
