Unemployment, inflation, medical conditions and unexpected events combine, becoming a growing, uncontrolled whirlwind of debt, causing your finances to spiral out of control. After months or years of dodging creditor calls, stress levels flare, affecting relationships with friends and family. If you’re holding on by your fingertips, desperately looking for a break, Illinois bankruptcy and its exemptions might be the calm after the storm you need.
What are Bankruptcy Exemptions?
Almost everyone has heard the myth about people losing everything when going through bankruptcy. Although it’s true that many of your assets are liquidated (sold) and used to pay creditors, there are Illinois bankruptcy exemptions that protect most of your personal property. Lawmakers understand that you must keep certain vital assets to emerge from Chapter 7 and survive. As a result, the exemptions protect specific property from being liquidated so that you can thrive when your case is complete.
Illinois bankruptcy exemptions are generous. Most Chapter 7 filings are “no asset” cases, which means that the trustee assigned to your case by the court may not seize any property for liquidation. Here are some of the most commonly used exemptions in Chicago.
Illinois Homestead Exemption
State law protects up to $15,000 worth of property, including:
- Residential homes
- Mobile homes
This would be the total amount of equity available if the trustee sold the property, not its total value. Most people have exhausted the equity in their homes or properties by the time they file for bankruptcy protection, so they don’t have much, if any, equity available.
For example, you have a mortgage. To pay expenses, you take out a second mortgage. Now you can’t afford the monthly mortgage payments, and the debt is almost as much as (or more than) your home is worth.
Illinois Vehicle Exemption
Bankruptcy trustees typically seize property they can liquidate for a significant amount above the exemption. The state exemption protects vehicles worth up to $2,400. Before determining whether to accept the exemption, they factor in the cost of advertising and selling the vehicle.
Illinois Alimony and Child Support Exemptions
These payments are exempt up to the amount considered reasonably necessary to support you and your dependents. The partial to total amount of the payments may be exempt.
Illinois Wrongful Death and Personal Injury Settlements
If you receive personal awards and settlements, they are exempt up to $15,000. The entirety of a worker’s compensation award/settlement is also exempt.
Additional Illinois Bankruptcy Exemptions
State bankruptcy laws protect a broad range of assets. You may only qualify for some of them or have to decide which ones are most important. Additional exemptions include:
- Personal Property – Includes household goods, musical instruments, and furniture.
- Health Aids – Prescribed items, such as hearing aids, wheelchairs, and nebulizers.
- Tools of Trade – Covers books, tools and special equipment or machinery up to a specific value.
- Pension – Many federal, state, and local government employees qualify for this exemption, including but not limited to police officers, firefighters, state university staff, teachers, and civil service employees.
- Retirement Accounts – Entirely accounts exempt accounts, regardless of value include IRAs, IRAS, SEPS, 401(k)s, 403(b)s, SIMPLE and Roth IRAs.
- Wages – Protects either 85% of your gross income or 45x the federal minimum hourly weekly pay, whichever is higher.
- Cemetery and Burial Funds – Prepaid property in relation to burial or funeral expenses is exempt.
- Illinois College Savings Pool or ABLE accounts – Any money in an ABLE Savings plan established by eligible individuals under Section 529A legislation is exempt from bankruptcy
- Illinois Wild Card Exemption – Covers up to $4,000 for personal items that might miss other categories.
Necessary clothing, schoolbooks, family photos, and property held in trust are also protected in bankruptcy.
Federal Nonbankruptcy Exemptions
Depending on your situation, you may qualify for federal nonbankruptcy to supplement the Illinois exemptions. They typically apply to specific government employees or groups of individuals, from judges and military service members to seamen and railroad workers.
Are Chapter 7 and Chapter 13 Exemptions the Same?
The exempt property is the same, regardless of whether you file Chapter 7 or Chapter 13. The difference is in how the trustee handles nonexempt property. In Chapter 7, the bankruptcy trustee sells eligible assets to pay creditors. In Chapter 13, your disposable income or the bankruptcy value of nonexempt property equity must be paid in the repayment plan.
Get Help with Illinois Bankruptcy Exemptions
Bankruptcy is a complex legal process. It also affects your ability to get a loan, lease and other high value items. The law doesn’t require that you have a lawyer. However, having experienced counsel can ensure you get the most from the process, including keeping as much of your property as possible. Contact me or call 312.853.3100 to schedule a free initial consultation to learn more about bankruptcy and whether it is right for you.