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What Can I Protect Under Illinois Bankruptcy Laws?

Article written by Illinois & Iowa Attorney Kevin O'Flaherty
Updated on
March 17, 2020

In this article, we’ll discuss Illinois bankruptcy exemptions, how Illinois handles bankruptcy exemptions, and list some of the common bankruptcy exemptions to be aware of if you’re filing for bankruptcy in Illinois.

Filing for bankruptcy in Illinois doesn’t mean you’ll lose everything and end up living in a cardboard box underneath a bridge. The process is designed so that the individual or business owner can get back on their feet and continue living their life in much the same fashion as before but with a newfound understanding of how to avoid debt and better manage monthly expenses. Many of your assets can be exempt from bankruptcy, allowing you to keep your house, car, and business property. What happens to your nonexempt assets depends on the type of bankruptcy that is right for you. For more information check out these articles on filing Chapter 7 bankruptcy versus Chapter 13 bankruptcy.

Chapter 7 Bankruptcy Versus Chapter 13 Bankruptcy Quick Overview

Chapter 7 bankruptcy involves a trustee managing the bankruptcy and working to sell all nonexempt property to settle the creditor’s claims.

In Chapter 13 bankruptcy the trustee does not sell all your nonexempt property but instead helps you work out a “repayment plan” to pay the value of your nonexempt property over a period of up to 5 years.

Illinois Requires Using State Exemptions in Bankruptcy Cases

Depending on the state in which you are filing bankruptcy, you can choose between the state exemptions or federal bankruptcy exemptions; however, Illinois is not one of those states and requires the use of state exemptions or federal non-bankruptcy exemptions where appropriate.

Also, in Illinois, if you are a married couple filing bankruptcy jointly you will be able to double the exemption amount if you both have a ownership interest in the property.

File Your Exemptions Carefully With the Help of an Attorney

The trustee (the person appointed to handle your bankruptcy case) in your bankruptcy case can deny your exemptions, possibly causing you to lose what may be an exempt asset. The trustee objecting to one or more of your exemptions can occur if you do not exempt your property carefully. Below are some common issues with exemptions you’ll want to avoid.

Don’t Assume You’ll Automatically Get To Keep Everything You List As Exempt. 

For the most part, exemptions will include the things you’ll need to continue to be a functioning member of society, such as a home, furnishings, clothing, and some equity in a vehicle. Most items listed beyond that will be objected by the trustee. All the assets you plan to list as exempt should be included on the Schedule C: The Property You Claim As Exempt form.

The bankruptcy trustee assigned to your case will review the Schedule C form and decide which items pass as exempt and which items do not. However, this is not the final ruling as the trustee will pass her objections to the judge who will decide the fate of the potential exemption. Here is where it is important not to lie and to avoid trying to exempt frivolous or unnecessary things. For example, do not try to list something under an exemption category that is questionable for that particular item, such as trying to list an older rare motorcycle as a piece of art. 

If you make a mistake when categorizing something in the Schedule C form the trustee will usually try to work through it informally with you before going to the judge. However, if it was clear you were trying to deceive the trustee or if you outright lied (in the case of bankruptcy fraud) you could face a fine of up to $250,000 and 20 years in prison.

Items Under Illinois Bankruptcy Exemption List

  • Illinois Homestead Exemption - Allows you to exempt up to $15,000 of the equity in your primary residence.
  • Illinois Motor Vehicle Exemption - Allows up an exemption of up to $2,400 in equity.
  • Wildcard Exemption - $4,000 you can use towards just about anything.
  • Alimony, Support, Maintenance - The amount required for these categories can usually be exempt.
  • Franchise, Permit, and License Interests - Certain permits and other business-related costs may be exempt.
  • Crime Victim Exemption - Any money awarded to you as the victim of a crime can be exempt.
  • Insurance Benefits - Life insurance proceeds to a spouse or dependent of the person filing bankruptcy, in the amount determined necessary for support. Also exempt are health, disability, and unemployment benefits (the total amount exempt under unemployment may differ from case to case if child support claims are involved)
  • Partnership Property - Under Illinois’ Uniform Partnership Act a partner’s interest in a specific property is exempt.
  • Retirement Benefits - Certain pensions and qualified retirement accounts (401k, IRA) are considered exempt in Illinois Bankruptcy up to a certain amount.
  • Worker’s Compensation and Veteran’s benefits are 100% exempt.

This list is not exhaustive and exemptions can change over time. If you are considering bankruptcy it’s advised that you speak with a qualified bankruptcy attorney and see if bankruptcy is the best option for your situation. Bankruptcy can be a painful process, but it doesn’t have to ruin your life. Your attorney can guide you through the process and make sure you get the exemptions your deserve. For more information don’t hesitate to give us a call at 630-324-6666.

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Illinois Requires Using State Exemptions in Bankruptcy Cases

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