Whether the voluntary petition is filed under Chapter 7 or Chapter 13, most all common consumer assets are exempt in Illinois, meaning that debtors rarely, if ever, must forcibly surrender their property to the bankruptcy trustee (person who oversees the case for the judge).

Bankruptcy protects assets to help fulfill the law’s mission of a fresh financial start for “honest yet unfortunate” debtors. If Illinois filers lost their houses, cars, and other important assets, they would go back behind the starting line, an outcome that’s clearly not contemplated by the Bankruptcy Code.

All that being said, if the asset is secured by a mortgage or other loan, the debtor must keep making payments as originally agreed, at least in most cases.

House

Up to $15,000 in equity for a single filer ($30,000) for joint filers) is exempt under 750 ILCS 65-22.

Per the Bankruptcy Code, the debtor must declare the house’s as-is cash value, which may be substantially lower than the fair market value, because cash-paying home investors usually pay a maximum 60 cents on the dollar.

Although the value difference makes no difference in the amount of equity, as that figure remains the same regardless of the home’s value, the distinction makes a tremendous difference in terms of the loan-to-value ratio. Assume a single filer has a $200,000 home with $20,000 in equity and a $180,000 loan balance. Given those facts, the trustee could theoretically force the debtor to sell the house for the $5,000 in unexempt equity, although the judge would have to approve such a plan.

But the as-is cash value of that house may be as low as $100,000, meaning that the debtor is upside-down on the residence and there will be no sale.

There are some other loan-to-value issues related to exempt homesteads as well, including:

  • – Lien Strip: If the property’s value is too low to secure a second mortgage or other junior lien, the bankruptcy court may declare it to be unsecured, thus freeing the debtor from the obligations to make payments on that debt.
  • – Cram Down: In some cases, the outstanding loan balance can be reduced to match the property’s fair market or as-is value.

These options, and specifically a cram down, may be available for other assets as well, such as motor vehicle loans.

Cars

$2,400 in equity for a single filer ($4,800) for joint filers is exempt under 735 ILCS 5/12-1001(c). Typically, newer cars have almost no equity because the outstanding loan balance is so high, and older vehicles have almost no equity because they have almost no value.Once again, the debtor must declare the as-is cash value, which can be readily obtained from a site like kbb.com.

In addition to the cram down mentioned above, redemption may be an option as well, especially in longer lasting Chapter 13 cases. If the debtor pays the full fair market value of the collateral, the moneylender may be unable to collect the remaining balance on the loan, no matter how high it is.

Count On Experienced Attorneys

Nearly all bankruptcy debtors get to keep their houses, cars, and other key assets. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resource:

ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2102&ChapterID=59