When you file Chapter 7 bankruptcy in Illinois, you may remove certain unsecured debts, but you must list your properties on the petition. The trustee values and sells the nonexempt property to pay creditors using the proceeds. However, you are not required to relinquish all property, only the nonexempt assets.
How exemptions work
You may use exemptions in Chapter 7 and Chapter 13 bankruptcies to protect assets that otherwise would be nonexempt. While Chapter 13 doesn’t require the selling of assets, you still have to pay creditors the value of nonexempt property through repayment. Some states allow individuals to choose between federal or state exemptions, but you cannot choose both.
The state and federal guidelines set an exemption threshold for homes, vehicles, support, and various personal belongings. For example, if your car has a value of $2,000 and the exemption limit is $3,000, you would likely get to keep the car.
Federal and state exemptions
Under federal exemptions, you could protect up to $25,150 of equity in your primary residences under the Homestead Exemption. This also includes burial plots up to the same threshold, mobile homes, and co-ops. Exemptions allow you to apply up to $12,575 of unused equity toward another property.
Personal property exemptions include up to $4,000 for motor vehicles and prescription health aids; up to $1,700 for jewelry; and up to $625 per item for household goods, books, and necessary clothing. Social Security, veteran’s benefits, and other public benefits are commonly exempt.
Each state sets its own definition of personal property and various homestead exemption amounts. For example, Illinois sets the real estate and personal property exemption at $15,000, and it commonly doubles for married people. Most states allow a wild card exemption that you can apply to a nonexempt property, which is currently $4,000 in Illinois.
Consumer bankruptcy can give you a fresh start, but exemptions change every three years. Filing bankruptcy requires individuals to meet certain requirements, so a lawyer may advise about which type of bankruptcy to file.