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 bankruptcy laws so that debtors would have the opportunity to survive and eventually flourish after bankruptcy. Over time, states also passed laws granting exemptions to bankruptcy debtors. In 17 states, debtors can choose between federal or state exemptions, although they can’t pick and choose between both. Illinois is one of the majority of states in the country that requires bankruptcy debtors to use state exemptions.
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:
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. If a couple is filing bankruptcy, that figure – along with virtually all exemption amounts – can be doubled.
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.
· Tools of trade. This exemption covers tools, books and other special machinery or equipment up to a value of $1,500.
Pension, Insurance, Child Support
Virtually any type of pension, child support obligation or insurance policy is protected by an exemption. Check with your bankruptcy attorney who can examine all of your property to determine if there is anything that may be non-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.
Finally, recognizing that some item may miss all other categories, Illinois created a wildcard exemption of up to $4,000 for any personal property not already covered.
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.