Sometimes, situations happen beyond a debtor’s control, and they can no longer pay their debt. Medical debt and job loss are two common reasons debtors in Chicago, Illinois, file bankruptcy. Depending on the type of bankruptcy, debtors may have to sell some assets.
Nonexempt assets in Chapter 7
Chapter 7 helps the debtor erase unsecured debts using liquidation to convert assets to cash. The funds derived from the sale of nonexempt assets get divided among creditors to pay debt. Chapter 7 removes some unsecured debts, which means debts that don’t have collateral. Chapter 7 bankruptcy filers must undergo a means test to determine if they have enough disposable income to pay debts.
Nonexempt assets include anything the court deems unnecessary to survive, such as jewelry or valuable artwork. Some other nonexempt assets in Chapter 7 may include a second home or vehicle with equity, watercraft, vacation homes and valuable clothing. Exempt property includes essential items necessary for living, such as the primary home, a primary vehicle and reasonable furniture and clothing.
Nonexempt assets in Chapter 13
Chapter 13 helps the debtor get relief by reorganizing debts so that they are easier to pay. The debtor will make monthly payments to a trustee, who divides the payment among creditors. The debtor commonly gets three to five years to finish a court-approved plan, and they don’t have to sell assets. However, they must maintain the payments because bankruptcy does not remove liens.
Nonexempt assets determine how much the debtor’s payment is each month, and they must commonly pay at least the asset value. Illinois offers a wild card exemption for several nonexempt assets if the debtor has lived in the state at least two years.
A benefit of bankruptcy is the automatic stay, which prohibits creditors from pursuing debt temporarily. There are federal and state exemptions, but debtors can only choose one. Meeting with a finance professional may help them decide what to do.