Formal And Informal Chapter 7 Bankruptcy Exemptions In Illinois

Mostly because of the way it affects businesses, Chapter 7 picked up the misleading liquidation bankruptcy nickname. Businesses usually have little or no exempt property. Therefore, the trustee (person who oversees Chapter 7 bankruptcies for judges) normally liquidates pretty much everything. Personal bankruptcies are different. As outlined below, the exemptions in Illinois are so broad that, in most cases, debtors don’t have nonexempt assets.

Many of these exemptions are written in Illinois law. Others involve somewhat obscure legal doctrines which often are not directly related to creditor and debtor laws. Only an experienced Chicago bankruptcy lawyer knows about them. Furthermore, only a very talented lawyer knows how to leverage these informal exemptions and maximize your fresh start.

Formal Exemptions

The formal property exemptions, most of which are in Chapter 735 of the Illinois Compiled Statutes, are necessary for the aforementioned fresh start. Debtors who lose most or all of their assets don’t get a fresh start. They get unfairly penalized. These formal exemptions include:

• Home equity,
• Retirement account,
• Motor vehicle,
• Personal property, and
• Government benefits.

Additionally, Illinois law includes a wildcard exemption. Bankruptcy debtors in the Prairie State may exempt up to $4,000 of otherwise nonexempt property.

Properly valuing exempt assets is often the key to maximizing the exemption. Clever use of legal loopholes is important too.

Home equity is a good example. Illinois law allows debtors to exempt up to $15,000 in equity. In other words, if the debtor has more than this amount of equity, the trustee may seize the property and liquidate it.

Bankruptcy value, or as-is cash value, is usually a lot different than fair market value. Many home investors offer mere pennies on the dollar for as-is, no-inspection cash sales. The lower the value, the more equity a Chicago bankruptcy lawyer can protect. Additionally, if a married couple resides in a house but only one person legally owns it, the house may be shielded, regardless of the amount of equity.

Informal Exemptions

The best interests of creditors rule and the mootness doctrine are two of the most common informal exemptions in Illinois bankruptcies.

Assume Philip owns a bass boat which the formal exemptions, including the wildcard exemption, cannot protect. If it was in good condition, the boat would be worth about $1,000.

However, the boat needs about $500 worth of work, which the trustee must pay for. The trustee must also pay for things like seizure, storage, and marketing. Furthermore, anyone who has ever sold a used item knows that the asking price is usually higher than the sales price.

The bottom line is that it would be so expensive to liquidate the boat that the creditors would make little or nothing in the transaction. Since liquidation isn’t in their best interests, the trustee cannot touch Phillip’s boat.

Now assume Philip had $2,000 in his checking account when he filed bankruptcy. By the time the trustee files a formal demand for the money, Philip has spent the money on monthly expenses. Since the money is gone, it doesn’t matter who owned it. The point is moot, and in most cases, courts cannot rule on such matters. 

Connect with Diligent Cook County Lawyers

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Source:

uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics