Bankruptcy Exemptions

One of the most common concerns about filing bankruptcy is what will happen to your property. Bankruptcy exemptions are laws that may protect certain assets and property from being used to pay creditors, subject to applicable requirements and limits.

A bankruptcy attorney in Chicago can help you understand which exemptions may apply to your property and how those exemptions may affect a Chapter 7 or Chapter 13 bankruptcy.

What Are Bankruptcy Exemptions?

Bankruptcy exemptions allow qualifying property or a certain amount of its value to be protected during bankruptcy. Exemptions do not necessarily protect every asset or the full value of every item you own.

The exemptions available and how they apply depend on applicable law and your individual circumstances.

Property that may potentially receive exemption protection can include:

  • Equity in a home
  • Motor vehicles
  • Household goods and furnishings
  • Clothing and personal belongings
  • Certain retirement accounts
  • Tools used for work
  • Certain insurance benefits
  • Other qualifying property

Illinois Bankruptcy Exemptions

Individuals filing bankruptcy in Illinois generally need to consider the exemptions available under Illinois law. Each exemption has specific eligibility requirements and limits, and those amounts can change over time.

The amount of protection available may also depend on factors such as ownership, equity, the type of property, and whether the bankruptcy is filed individually or jointly.

Because exemption rules can significantly affect a bankruptcy case, it is important to determine which exemptions apply before filing.

Bankruptcy Exemptions in Chapter 7

In Chapter 7 bankruptcy, a bankruptcy trustee reviews your property and applicable exemptions.

Property that is fully protected by an available exemption generally can be retained. If property has value beyond the amount protected by an exemption, the trustee may have the ability to administer the nonexempt portion for the benefit of creditors.

This makes reviewing your home equity, vehicles, bank accounts, personal property, and other assets an important part of preparing for Chapter 7.

Bankruptcy Exemptions in Chapter 13

Exemptions are also important in Chapter 13 bankruptcy, even though Chapter 13 generally allows individuals to retain their property while completing a court-approved repayment plan.

The value of nonexempt property can affect the amount that may need to be paid to unsecured creditors through the repayment plan.

Understanding your exemptions can therefore be important when evaluating both Chapter 7 and Chapter 13.

Home and Vehicle Equity

A home or vehicle may be one of your most valuable assets. Bankruptcy generally considers the amount of equity you have rather than simply the property’s total market value.

Equity is generally the difference between the property’s value and the amount owed on loans or liens secured by that property.

Whether your equity is protected depends on the exemptions available and the circumstances of your case.

Other Property and Financial Assets

Bankruptcy exemptions may also affect bank accounts, retirement funds, household belongings, work-related property, and other assets.

Different types of property may receive different levels of protection. Some assets may also receive protection under laws outside the general bankruptcy exemption rules.

For this reason, it is important to provide complete and accurate information about your property when evaluating bankruptcy.

Understand Your Property Before Filing Bankruptcy

Bankruptcy does not automatically mean that you will lose everything you own. However, the treatment of property depends on applicable exemptions, the value of your assets, existing liens, and the bankruptcy chapter you choose.

Consider speaking with a Chicago bankruptcy attorney before filing to understand how Illinois bankruptcy exemptions may apply to your home, vehicle, bank accounts, retirement funds, and other property.