Bankruptcy gives consumers in Chicago, Illinois, an option when debt becomes impossible to pay. However, they may hesitate to file for fear of losing assets, such as homes. Contrary to popular belief, an individual doesn’t lose all of their assets in bankruptcy.
Exempt and nonexempt assets in bankruptcy
Chapter 7 is a consumer bankruptcy that discharges unsecured debts by selling assets through a trustee. Chapter 13 sets up a court-approved payment plan the debtor commonly has three to five years to pay.
Exempt property in Chapter 7 is essential assets the court cannot sell, such as primary homes and vehicles. Some other exempt assets include reasonable clothing and furniture, appliances, a portion of wages and home equity, and public benefits. Nonexempt assets are what the court considers nonessential for living, such as valuable artwork, valuable heirlooms, and second homes or vehicles.
In Chapter 13 bankruptcy, the individual doesn’t lose assets, as long as they continue making timely payments. They must pay creditors the value of the non-exempt assets, which are worked into the payment plan.
Saving nonexempt property with exemptions
An individual may choose federal or state exemptions to protect a nonexempt asset, but they can’t apply both. Illinois allows a homestead a $15,000 equity exemption and $30,000 for married couples filing jointly, which applies to mobile homes and condominiums.
Illinois residents are allowed a $2,4000 motor vehicle exemption and $4,800 for married couples filing together, even for luxury vehicles. A partner’s interest in a specific property is also protected from bankruptcy under the Uniform Partnership Act. A wild card exemption protects up to $4,000 of personal property, such as watercraft or nonexempt jewelry.
Bankruptcy can give consumers a fresh start and prevent creditors from temporarily collecting debt with the automatic stay. However, the debtor should consider the pros and cons before filing bankruptcy and seek financial advice.