Filing for personal bankruptcy is a serious step that can remain on your credit report for as long as 10 years. However, don’t be confused by the many myths surrounding bankruptcy. While it’s true that the bankruptcy trustee can seize and sell your assets to pay creditors, it’s also true that the overwhelming majority of people who file Chapter 7 do not lose any property. That’s because there are state and federal exemptions that protect most personal property from bankruptcy. Be sure to consult an experienced bankruptcy attorney to learn about all aspects of bankruptcy, including exemptions.
What are Bankruptcy Exemptions?
Federal bankruptcy laws recognize that debtors who emerge from bankruptcy will have little chance to financially survive if they have lost their home, vehicle and any valuable property. That’s why specific exemptions were included in the federal bankruptcy laws so that debtors could protect some of their property and have the opportunity to survive and eventually flourish after bankruptcy. These federal exemptions are often referred to as federal bankruptcy exemptions and they are used by certain states in bankruptcy cases.
Does Illinois Allow You To Use The Federal Bankruptcy Exemptions?
Over time, certain states also passed their own laws granting exemptions to bankruptcy debtors. In 17 states, debtors can choose between federal or state exemptions. In these states, debtors can’t pick and choose between both sets of exemptions. They must choose either the state or federal exemptions.
Illinois is one state in the country that requires bankruptcy debtors to use state exemptions. Fortunately, the exemptions offered by the state of Illinois are quite generous. Debtors also have the ability to use the federal nonbankruptcy exemptions if they have assets that qualify under those exemptions (more on that below).
Illinois Bankruptcy Exemptions
The state laws that created bankruptcy exemptions in Illinois are similar to those in most other states in the country. While your attorney can examine your situation and give you a definitive answer, the odds are that you won’t lose any property after filing for a Chapter 7 personal bankruptcy. According to national statistics, about 90 percent of all Chapter 7 filings are “no asset” cases. That means the trustee didn’t seize any property in the case. Here is a look at the bankruptcy exemptions in Illinois relied upon most often:
Illinois Homestead Exemption
The exemption protects up to $15,000 worth of property. Don’t be confused, however. The figure is not the total value of the property but the amount of equity available – how much the trustee would receive by selling the property. This exemption covers homes, lots, condos, farms and mobile homes. In most cases, debtors in bankruptcy cases have exhausted all available equity in their homes or property before filing for bankruptcy protection.
Illinois Vehicle Exemption
The exemption protects a vehicle worth up to $2,400. Remember that the trustee won’t go to the trouble of seizing property unless the item can bring in a significant amount above the exemption. The cost to advertise and sell property is a factor always considered by the trustee.
Illinois Wage Exemption
Illinois allows you to protect the higher of 85% of your gross income, or 45x the federal minimum hourly wage a week.
Illinois Tools of Trade Exemptions
This exemption covers tools, books and other special machinery or equipment up to a value of $1,500.
Illinois Alimony & Child Support Exemptions
Alimony and child support payments are considered exempt up to an amount that is considered reasonably necessary for the support of the bankruptcy filer and any dependents. In many cases this means the full payments are exempt, but it is possible that the full payment amount may not be considered exempt.
Illinois Pension Exemptions
Pensions for various types of employees are considered completely exempt in the State of Illinois. These employees include:
- Police officers
- City, county, and state employees
- Public library employees
- Municipal employees
- Civil service employees
- Park employees
- State university employees
- House of correction employees
Illinois Retirement Account Exemptions
Like pensions, retirement accounts such as 401(k)s, 403(b)s, SEPs, SIMPLE IRAs, IRAS, and Roth IRAs are considered 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 Award/Settlement 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 worker’s compensation award/settlement. You can read more about these exemptions on our page on worker’s compensation/personal injury and bankruptcy.
Illinois Wild Card Exemption
Finally, recognizing that some items may miss all other categories, Illinois created a wildcard exemption of up to $4,000 for any personal property not already covered.
Additional Property Exemptions
In addition to the property listed above, the following property items are also considered exempt under the Illinois bankruptcy code:
- Necessary clothing
- Title certificate for a boat over 12 feet in length
- School books
- Family photos
- Health aids
- Proceeds from the sale of exempt property
- Illinois College Savings Pool or ABLE accounts
- Property held in a trust
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 that were created at least a year before the bankruptcy filing. Also protected by exemptions are veteran’s benefits, unemployment compensation and Social Security. Insurance is a little trickier, particularly with policies that build 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. Not everyone will qualify for federal nonbankruptcy exemptions. Most of the exemptions are designed for specific government employees or groups of individuals. The federal nonbankruptcy exemptions include:
- Retirement benefits for railroad workers, CIA employees, veterans, social security benefit recipients, military service employees, and Military Medal of Honor Roll recipients
- Survivor’s benefits for judges, Supreme Court Chief Justice administrative assistants, center directors, lighthouse workers, and any military service members
- Death and disability benefits for harbor workers, longshoremen, or government employees. Any benefits received for injury, hazard, risk, or death as a result of war is also fully exempt.
- Military group life insurance
- Seamen’s clothing
- Saving account deposits while on permanent duty outside of the US for military members
- The greater of 75% of unpaid wages or 30 times the federal minimum hourly wage
- Homestead sale or lease proceeds and Indian lands
- Klamath Indian benefits for Oregon Native Americans
- Unemployment benefits for railroad workers
- Debt incurred while on voyage for seamen
- Wages of a seaman that aren’t used for child or spousal support
If you qualify for any of these nonbankruptcy exemptions, they can add a significant amount of additional protection for your assets.
Are Exemptions The Same For Both Chapter 7 & Chapter 13?
Exempt property outlined by the state is protected regardless of whether you file a Chapter 7 or a Chapter 13 bankruptcy. The thing that changes between Chapter 7 and Chapter 13 bankruptcies is how the nonexempt property is handled.
In a Chapter 7 bankruptcy, nonexempt property is sold by the bankruptcy trustee and the proceeds are then distributed to creditors to pay debts. In a Chapter 13 bankruptcy, you get to keep your nonexempt property in addition to your exempt property. However, the value of the nonexempt property equity or your disposable income (whichever is greater) must be paid in your repayment plan.
Eligibility For Illinois Bankruptcy Exemptions
There are eligibility requirements for utilizing the Illinois bankruptcy exemptions that extend beyond simply being an Illinois resident. If you’ve recently moved to Illinois, you’re eligible to file a bankruptcy in the state if you’ve been a resident for more than 180 days. It will take more time to be able to use the state’s exemptions though. You must have lived in Illinois for at least 730 days to file using the Illinois exemptions. If you don’t meet the 730 day requirement, you’ll have to file using exemptions from the state you previously lived in.
How Exemptions Work If Filing Jointly
If a couple decides to file for bankruptcy jointly, then virtually all exemption amounts can be doubled. Each spouse has the ability to claim the full amount of an exemption (unless noted otherwise) as long as each spouse has an ownership interest in the property.
Your bankruptcy exemptions will be listed on your Schedule C bankruptcy forms. You don’t automatically get to keep anything you put on this form. The bankruptcy trustee will review your Schedule C to ensure you have the legal right to protect the property you’ve claimed as exemptions.
If you made a mistake or if the bankruptcy trustee thinks you’ve added property that isn’t exempt, they will object. The trustee will usually try to resolve the matter with you informally first before filing an objection with the court. If an agreement can’t be reached, the trustee will formally file an objection with the bankruptcy court. The judge will then have to decide whether or not you get to keep the property.
It’s important to note that trying to cheat the system and purposely add nonexempt property to your Schedule C is not a good idea. Purposely making inaccurate statements on court forms would be considered fraud and bankruptcy fraud is punishable with up to two years in prison, a $250,000 fine, or both.
What Happens to Nonexempt Property?
As previously mentioned, an overwhelming majority of people who file Chapter 7 get to keep all of their property. However, this isn’t always the case. Any property that isn’t exempt in the State of Illinois would be considered nonexempt property. Your nonexempt property will be sold by the bankruptcy trustee with the proceeds used to pay off creditors for a portion of the debt you owe.
If you have property that would be considered nonexempt that you absolutely want to keep, you may want to instead consider filing for a Chapter 13 bankruptcy. With a Chapter 13 bankruptcy, you’ll keep your nonexempt property and instead pay creditors the value of whichever is greater: your nonexempt property, your nondischargeable debt, or your disposable income.
Speak With a Bankruptcy Lawyer Today
A bankruptcy lawyer can help you determine what would qualify as exempt property and what would be considered nonexempt property in your case. A Bankruptcy Law Firm, LLC offers free initial consultations, so you can sit down with Attorney Mike Benson to better understand your financial situation and options. You can schedule a free consultation with Attorney Benson today by calling (800) 723-6766 or filling out a contact form.
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.