Formal And Informal Property Exemptions In An Illinois Bankruptcy
When Monopoly players declare bankruptcy, they instantly lose all their property. That’s because the rules of this board game do not include property exemptions. Fortunately for distressed, real-life debtors, Illinois law is much different. Section 735 of the Illinois Compiled Statutes contains some of the broadest property exemptions in the country.
The written exemptions are only part of the story. A number of unwritten exemptions are available as well. These informal exemptions are just as effective as the written ones, and only a Chicago bankruptcy lawyer knows how to use them properly. Informal exemptions are another reason why an investment in a bankruptcy attorney always pays off.
Formal Exemptions
Typically, debtors who have lived in the Prairie State for at least two years may use the state’s property exemptions. Some of the highlights of these exemptions include:
- Homestead Exemption: Debtors may protect up to $15,000 of home equity. Unless you have paid off more than half the loan, you probably have little equity in your home. If this limit is still not high enough, some informal exemptions are available, as outlined below.
- Motor Vehicle Exemption: The law shields up to $2,400 in one vehicle’s equity. Once again, unless you’ve paid off more than half the loan, you probably have little equity in your vehicle. Used cars have very low fair market values, so the amount ceiling usually isn’t an issue.
- Personal Property: No matter how much it’s worth, most furniture, electronics, jewelry, and other items are exempt. Life insurance benefits and policy equity are usually exempt as well.
- Retirement Account: The law exempts IRAs, 401(k)s, and other nest egg accounts, no matter how much money they contain. This same exemption usually applies to 529 college savings plans and other tax-deferred savings accounts.
- Government Benefits: VA disability benefits, Social Security payments, and most other government benefits are completely exempt. On a similar note, most private benefits, like child support receipts, are exempt as well.
- Wildcard: Illinois debtors may protect up to $4,000 worth of non real estate, nonexempt property. Examples include a second car or cash in a bank account.
If you have lived in Illinois for less than two years, you may typically use the exemptions from the state where you previously lived.
Informal Exemptions
Two rather obscure legal principles, the tenancy of the entirety rule and the as-is cash value rule, often extend the home equity exemption.
A Chicago bankruptcy attorney can title your house as a tenancy of the entirety. One spouse owns it, and the other spouse is a tenant. Creditors cannot seize one person’s assets to pay another person’s debts. So, if Husband files bankruptcy and Wife is a tenant, creditors cannot seize the house, no matter how much it is worth.
Furthermore, there’s usually a difference between a home’s fair market value and its as-is cash value. A home investor might offer pennies on the dollar for a no-inspection, as-is cash sale. Ben’s $100,000 home might have a $10,000 as-is cash value. So, even if he’s over the equity limit, he gets to keep his home.
These are only two examples of some informal exemptions. Others, which we’ll examine in future posts, include the mootness doctrine and the best interests of creditors rule.
Connect with Diligent Lawyers
A good lawyer helps you maximize your fresh start. 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/ilcs4.asp?DocName=073500050HArt.+XII+Pt.+1&ActID=2017&ChapterID=56&SeqStart=79200000&SeqEnd=86200000
