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What Is Exempt Property in a Bankruptcy Filing?

What Is Exempt Property in a Bankruptcy Filing?

Chapter 7 is the simplest, fastest form of bankruptcy, discharging filers’ debts within a matter of months. But there’s a catch—the trustee may seize and sell your property in something called a liquidation process.

Fortunately, every state has a list of bankruptcy exemptions. A bankruptcy exemption is a type of property or amount of funds that you can shield from the liquidation process. When you claim an exemption, you can receive a debt discharge without losing that property. Most people file Chapter 7 bankruptcy because, after calculating the value of their assets and other possessions, they determine that they can complete the process without suffering from the liquidation process.

What Can You Exempt in Illinois?

If you file Chapter 7 in Illinois, you will have to use state exemptions. Unlike some courts throughout the country, Illinois bankruptcy courts do not recognize federal exemptions.

You can protect the following from Chapter 7 liquidation in Illinois:

  • Tax-exempt retirement accounts
  • Thrift savings plans
  • Clothing, family pictures, and schoolbooks
  • Health aids
  • Tuition trust funds
  • College savings pool accounts
  • Firefighters’ disability
  • Veterans’ benefits
  • Retirement and pension benefits
  • Assets in trusts
  • Boat title certificates
  • Liquor permits
  • Alimony and child support
  • Compensation for occupational diseases
  • Workers’ compensation
  • Public assistance (earned income and child tax credit)
  • Fraternal benefits
  • Restitution benefits for Aleuts and Japanese Americans
  • Disability/health benefits
  • Proceeds from the sale of exempt property
  • Life insurance proceeds
  • Home insurance proceeds (if the home is destroyed)
  • National guard arms/uniforms
  • 85% of unpaid weekly wages (or 45x the federal minimum wage)
  • Up to $1,500 in tools of trade/professional books
  • Up to $2,400 in a single motor vehicle
  • Up to $15,000 in personal injury settlements
  • Up to $15,000 in equity in a home
  • Up to $4,000 for any other property that isn’t cash, salary, or wages (wildcard exemption)

For the above exemptions without a threshold, single filers can claim an unlimited amount.

Chapter 13 Bankruptcy and Property Exemptions

Although Chapter 13 doesn’t involve a liquidation process like Chapter 7, property exemptions will still play a role in your case.

Instead of selling nonexempt property to repay your creditors, the court in a Chapter 13 case will require you to pay the value of your nonexempt property over the course of your 3-5-year repayment plan. This is because Chapter 13 bankruptcy must give creditors the same amount or more than they would have received through the Chapter 7 liquidation process.

Despite this requirement, Chapter 13 is a good opportunity for those who are willing and able to pay to keep their nonexempt property. Fortunately, your monthly payments will depend largely on your disposable income, which means this plan should (in theory) be reasonable.

Choosing the Right Chapter for You

What you can—or want—to protect from liquidation will play a significant role in which chapter of bankruptcy you file. If you would like a more personalized evaluation of your financial circumstances, come to Bach Law Offices, where our attorneys provide services backed by 40+ years of experience. We can answer all your questions and help you make fully informed legal and financial decisions. If bankruptcy isn’t right for your situation, we can help you assess all potential alternatives.

Call (847) 448-0025 or contact us online for an initial consultation, free of charge.

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