Top Five Exemptions in an Illinois Chapter 7

The Bankruptcy Code gives debtors fresh starts. So, bankruptcy laws also contain a number of property exemptions. Otherwise, former bankruptcy debtors would be behind the starting line.

For the most part, Illinois’ bankruptcy exemptions are rather generous. They are also rather straightforward. However, there are some important intricacies that a Chicago bankruptcy lawyer must deal with.

Home Equity

If the owners have lived in their house for less than ten years, this exemption is usually not an issue. Most of these owners have very little equity in their homes. But if the owners have lived in their houses for more than ten years, they often have substantial equity.

Up to $30,000 of equity is exempt. There are a number of ways an attorney can legally stretch this exemption even further.

A tenancy of the entirety is legal in Illinois. It is illegal for any creditor to seize jointly-owned property to satisfy the debts of one partner. For example, before Bill files bankruptcy, he gives his wife Stacy a tenancy of the entirety. Bill’s creditors cannot take the house to satisfy his debts, no matter how much equity it has.

Always speak with a bankruptcy attorney before making such pre-filing legal moves. They could be considered fraudulent.

Additionally, there is often a significant difference between a home’s fair market value and its immediate sale value. Most home investors only offer pennies on the dollar, at least initially. So, Bill and Stacy’s house might have a $200,000 fair market value, but only a $20,000 as-is cash value. So, in effect, they have negative equity in their home, for bankruptcy purposes.

Personal Property

This wide-ranging category usually includes the following:

• – Vehicle Exemption: Up to $2,400 in vehicle equity is exempt. Most new vehicles have substantial value but almost no equity. Most used cars have substantial equity but essentially no economic value.
• – Personal Possessions: Furniture, clothing, electronics, and other household items are usually 100 percent exempt. That’s especially true if they double as tools of a trade.
• – College Savings Accounts: Typically, savings accounts are not exempt. College savings accounts, however, are an exception. The exemption amount usually depends on the account’s value and the account’s opening date.

Other personal property exemptions include most personal injury or other lawsuit settlements along with most home health aides.

Insurance Proceeds

Homeowners, life insurance, and other insurance payouts are usually exempt. This category also includes things like disability payouts and fraternal order life insurance benefits.

Pensions

The Supreme Court recently affirmed that most IRAs, 401(k)s, and other pension plans are 100 percent exempt, regardless of the account value. That’s good news for many debtors. Frequently, a retirement account is a family’s largest financial asset.

A number of other pension plans, mostly defined benefit plans, are exempt under Illinois law. This list includes teacher retirement plans, university retirement plans, and most civil servant retirement accounts.

Public Benefits

This exemption is related to the insurance proceeds exemption. Most public benefits, such as workers’ compensation and Social Security payments, are exempt. This category includes both Social Security Disability health-based benefits and Social Security Insurance age-based benefits.

Commingling is sometimes an issue. Although public benefits are exempt, most private wages are not. If these two sources are in the same account, it’s difficult to tell the difference. Once again, always speak with a bankruptcy attorney before you move money.

Connect with Dedicated Lawyers

Most of a family’s key assets are untouchable in bankruptcy proceedings. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. After-hours visits are available.

Resource:

uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/process-bankruptcy-basics

/whats-the-difference-between-chapter-13-and-chapter-7/