A common misconception by Debtors is that they will lose their property when they file bankruptcy. A Chapter 7 case, for example, is a “liquidation bankruptcy” and the Trustee can sell any of the Debtor(s)’ assets which are over allowed exemption amounts, in order to pay a portion to the Debtor(s)’ unsecured creditors. However, Debtors are allowed certain exemptions of their assets in bankruptcy. Like all states, Illinois has its own set of exemptions that you may use when filing for Chapter 7 or Chapter 13 bankruptcy. Some states allow debtors to choose between the state exemption system and a set of federal bankruptcy exemptions – but Illinois is not one of them. In Illinois, you must use the state exemptions. The following is a short list of these exemptions, but is not exhaustive.
- $15, 000 – Equity exemption in a primary residence (spouse may double exemption to $30,000).
- $2,400 – Equity exemption in 1 vehicle for each Debtor.
- Generally unlimited – Clothing and wearing apparel
- Unlimited – Retirement accounts (401(k), 403(b), IRA, SEP, SIMPLE, etc.
- Unlimited – Education IRA’s and College Savings Plans.
- Unlimited – Prepaid funeral expenses.
- Unlimited – Government benefits (Soc. Sec., SSI, Food Stamps, Welfare, Housing Benefits, Earned Income Credit, Child Tax Credits).
- Unlimited – Health aids needed by the Debtor.
- Generally unlimited – Child support / alimony received
- Generally unlimited – Crime victim award proceeds
- $15,000 – Personal injury award proceeds
- Unlimited – Worker’s compensation awards
- Unlimited – Family pictures, family Bible
- Unlimited – cash value life insurance if the beneficiary is a spouse or dependent child of the Debtor.
- $1500 – Books and implements necessary for trade or business.
- $4000 – Wild-card exemption (can be used for any and all other assets).
How do you value property in a bankruptcy? Generally the bankruptcy court uses the Tax Assessor’s assessed value for real property, unless the Debtor has a recent appraisal showing a different value. For vehicles, our office generally uses Kelly Blue Book’s private party value, or sometimes NADA, which can both be valued online. As for all other personal property, it is valued at what you could get for it if you were to sell it at a garage sale or auction. On rare occasions, we are required to look up values for similar items selling in newspapers or at online auctions like eBay or listed on Craigslist.
As the value of most Debtor(s)’ possessions is typically on the lower end, and as Debtors are permitted a number of exemptions as listed above, a very high percentage of Debtors will not lose any of their assets or property when they file bankruptcy; their cases are deemed “no asset” cases. If a Debtor does have significant equity in a non-exempt asset, he or she may elect to file a Chapter 13 bankruptcy instead of a Chapter 7. In a Chapter 13, unsecured creditors are entitled to receive as much as they would received in a Chapter 7 liquidation (or how much you can afford to pay them over the life of the plan, whichever is greater). However, in a Chapter 13, the Debtor pays this amount in installments over the course of a 3 – 5 year Plan, and in exchange, gets to keep all of his non-exempt property.
If you have specific questions about your property or assets, and whether or not you would benefit from a bankruptcy filing, call Manuel & Associates at 217-344-3400. We would be happy to counsel you with regard to your particular situation.
www.manuelassociates.com or Call Us : 217-344-3400