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Congress considers bankruptcy reforms

On Behalf of | Oct 25, 2021 | Consumer Bankruptcy |

Bankruptcy reforms may be on the horizon in Illinois and throughout the United States. Representatives are considering the Consumer Bankruptcy Reform Act, which, if passed, creates the largest overhaul of personal bankruptcy law since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

What does the Consumer Bankruptcy Reform Act do?

The proposed Consumer Bankruptcy Reform Act abolishes Chapter 13 bankruptcy filings and replaces them with Chapter 10 filings. A person who files for Chapter 10 must complete a repayment plan like those currently required under Chapter 13. However, there are significant differences including a new homestead exemption, additional retirement savings protections and a wildcard exemption of up to $30,000.

Residency requirement in the Consumer Bankruptcy Reform Act

The Consumer Bankruptcy Reform Act bill creates a residency requirement for state filing exemptions. Under current law, allowed exemptions vary significantly by state. Discrepancies can lead to similarly situated filers getting very different results depending on their state of filing. Individuals may seek to file in the most favorable state in order to maximize their allowances and exemptions.

The legislation seeks to end forum shopping by imposing a residency requirement of two years before allowing a filer to claim state-specific exemptions. While the filer may still begin their case during the two-year waiting period, exemption limits from their previous state of residency apply. In addition, under the proposed law, a court has the discretion to limit abuse of exemptions if they are unnecessary for support of the filer and minor dependents.

Using bankruptcy laws to your advantage

Understanding current bankruptcy laws can help you maximize your case result. The type of filing that is best for you depends on your income and your complete financial picture. It’s important to understand what exemptions you can claim and what documentation you need in order to utilize Illinois bankruptcy law to your advantage.