Illinois Bankruptcy Exemptions

Illinois bankruptcy exemptions protect your property when filing for bankruptcy, and becoming familiar with them before filing can help you determine whether your assets are at risk. If you have more questions, read How to File Bankruptcy in Illinois. You'll find answers, helpful checklists, and more.

How Do Bankruptcy Exemptions Work?

Bankruptcy helps struggling people get back on their feet by lessening their debt burden, not stripping them of everything they own. Exemptions allow bankruptcy filers to keep things needed to maintain a home and employment. To determine whether your property is protected under exemption laws, you'll compare your property to the available laws. Most filers must use state exemption laws, but some states allow filers to use the federal exemption laws instead.

However, paying creditors is also an important consideration. Bankruptcy exemptions balance these interests by letting filers keep necessary property but not unnecessary luxury items.

Creditors receive bankruptcy funds when a bankruptcy filer owns "nonexempt" property not covered by a bankruptcy exemption. In Chapter 7 bankruptcy, the trustee responsible for the case sells the nonexempt property and pays creditors with the proceeds. In Chapter 13 bankruptcy, filers must pay an amount equal to the nonexempt portion through the Chapter 13 repayment plan, which the trustee forwards to creditors. (You'll find a more extensive explanation of Chapters 7 and 13 below under the heading "What Are the Differences Between Chapters 7 and 13 Bankruptcy?")

Example. When Maria filed for Chapter 7 bankruptcy, she had $5,000 in her checking account. In her bankruptcy petition, she listed her state's $500 cash exemption and gave the nonexempt $4,500 to the bankruptcy trustee.

Example. Harold owned an RV worth $25,000 when he filed for Chapter 13 bankruptcy. His state's exemption statutes didn't protect RVs, so he was required to pay the value of the RV to creditors as part of his monthly Chapter 13 payment.

Will Illinois Bankruptcy Exemptions Protect My Property?

Yes, but you must use the Illinois bankruptcy exemptions because the federal bankruptcy exemptions aren't available in this state. However, Illinois filers can use the federal nonbankruptcy exemptions in addition to the state exemptions. In many cases, married filers can double the exemption amount when filing together when they both own the property.

What Are the Illinois Bankruptcy Exemptions?

Caution: The state exemptions are not being updated in real time and should not be relied upon; they should only be used as a general guide. Some state exemption amounts could be higher, and your state may have changed the law by adding new exemptions or deleting old ones. You must verify exemption availability through independent research or by consulting a local bankruptcy attorney.

Illinois Homestead Exemption

Generally, the homestead exemption protects equity in the home you live in. In Illinois, you can exempt up to $15,000 of equity in your residence, including a farm, mobile home, lot with buildings, condominium, or cooperative. This exemption also protects proceeds from the sale of a homestead for one year. (735 ILCS 5/12-901, 902, 906.) You might also be able to protect more equity if you hold your residence as tenants by the entirety and only one spouse files for bankruptcy. (735 ILCS 5/12-112.)

Learn more about the Illinois homestead exemption in bankruptcy and other requirements you must meet when protecting your home in bankruptcy.

Motor Vehicle Exemption

You won't have to be without transportation if you file for bankruptcy, but your car must be modest. In Illinois, you can protect up to $2,400 in one motor vehicle. (735 ILCS 5/12-1001(c).) (44-13-100(a)(3).) Learn more about protecting cars in bankruptcy and how the motor vehicle exemption works in a Chapter 7 case.

Wildcard Exemption

A wildcard exemption protects any property of your choosing. You can protect $4,000 of any property other than real estate in Illinois. (735 ILCS 5/12-1001(b).)

More Illinois Bankruptcy Exemptions

How Do I Find Illinois Bankruptcy Exemptions?

Illinois's exemption amounts adjust periodically and are not being updated in real-time in this article. You'll find Illinois's statutes online on the Illinois General Assembly website. The best way to verify exemptions is by consulting a local bankruptcy lawyer.

What Are the Differences Between Chapters 7 and 13 Bankruptcy?

Chapter 7 works for people who can't afford to repay creditors. Chapter 13 filers typically earn too much to qualify for Chapter 7 and must pay into a five-year repayment plan.

Before filing for bankruptcy, you'll take a "means test" to determine whether you qualify for Chapter 7 or 13. Most Chapter 7 cases close after four months, although the Chapter 7 bankruptcy trustee sometimes needs additional time to sell property or resolve a dispute. Chapter 13 cases take three to five years to complete.

Occasionally, people who qualify for Chapter 7 file for Chapter 13 to prevent a home foreclosure, car repossession, or wage garnishment. The Chapter 13 plan allows the filer to catch up on back payments over time, a benefit not available in Chapter 7. The same exemptions are used in Chapters 7 and 13. However, what happens to "nonexempt" property you can't protect depends on the chapter filed.

What Happens to Nonexempt Property in Bankruptcy?

One of two things. You'll either lose nonexempt property or pay to keep it, depending on whether you file for Chapter 7 or Chapter 13.

In Chapter 7, the bankruptcy trustee sells nonexempt property and distributes the proceeds to creditors. In Chapter 13, filers pay the value of the nonexempt property to unsecured creditors. The procedural differences are necessary because filers can keep all property in Chapter 13 but not in Chapter 7. Without different systems, creditors would receive less in Chapter 13 than in a Chapter 7 case.

Example. Suppose you couldn't exempt a motorcycle in Chapter 7, and the Chapter 7 trustee sold it, paying unsecured creditors $10,000 after deducting sales costs. If you filed for Chapter 13, your plan would provide unsecured creditors at least what they would have received in Chapter 7 (likely more because you must meet other Chapter 13 rules), but you'd retain the motorcycle.

What Will Happen If I Make an Exemption Mistake?

The bankruptcy trustee will review Schedule C to ensure you have the right to protect the claimed property. If an exemption problem arises, most trustees will likely try to work out the matter informally by discussing it at the 341 meeting of creditors or by phone or email. If you can't resolve it, the trustee will file a motion with the bankruptcy court, and the judge will decide whether you can keep the property.

It's worth noting that it's not a good idea to finesse exemptions. Not only are you obligated to supply correct information on your bankruptcy forms, but purposefully making inaccurate statements could be fraudulent. Bankruptcy fraud is punishable by up to $250,000, 20 years in prison, or both.

Example. Jeff owns a rare, classic car worth $15,000, but the state vehicle exemption will only partially protect it. Believing that the car qualifies as art, Jeff exempts it using his state's unlimited artwork exemption. The trustee reviews Schedule C, disagrees with Jeff's characterization, and files an objection with the court. After consideration, the judge will likely side with the trustee, determining that the vehicle doesn't qualify as a piece of art.

How Can I Avoid Bankruptcy Exemption Problems?

Exemption issues can be more complicated than they seem, so it's important to understand bankruptcy law. For instance, you can file for bankruptcy in a state after living there for over 180 days. However, you must live in the state for at least 730 days before using its exemptions. Otherwise, you'd use the previous state's exemptions. If you hadn't lived in one state for two years before filing, you'd use the exemptions of the state you lived in the longest during the 180 days before the two years immediately preceding your filing. (11 U.S.C. § 522(b)(3)(A).)

More rules exist, including requirements for multiple bankruptcy filings. Find out more about filing for bankruptcy after moving to a new state and who can and can't file for bankruptcy.

Should I Hire a Lawyer to Help With Bankruptcy Exemptions?

Chapter 13 bankruptcy filers will almost always want to hire a bankruptcy lawyer because it's too complicated for most people to navigate successfully. Chapter 7 filers also benefit from hiring a bankruptcy lawyer. Still, it's more feasible to represent yourself if you have a relatively simple Chapter 7 case. However, you should know that Chapter 7 filers can't dismiss a Chapter 7 matter without court approval, so it's prudent to consult a bankruptcy lawyer about potential issues. The extra step could help prevent unexpected property loss.

How Much Does It Cost to File for Bankruptcy in Illinois?

You can expect to pay $1,500 to $2,500 for the average Chapter 7 case and more for a Chapter 13 matter. Bankruptcy lawyers with more experience will charge higher fees than those practicing in large cities because of the costs associated with doing business. Even so, most bankruptcy matters won't require a top-tier lawyer. But because of the specialized nature of bankruptcy rules, you will want someone who has filed many cases.

At the time of writing, filing fees for Chapter 7 are $338, and for Chapter 13, they are $313. Mandatory credit counseling and debt management courses cost $50 to $75.

Can I Make Payments to My Bankruptcy Lawyer?

No, not in a Chapter 7 case. Chapter 7 lawyers won't file your matter before you've paid in full because the bankruptcy court would erase any outstanding balance with other dischargeable debts. You can pay Chapter 13 attorneys' fees in installments through the Chapter 13 plan.

Need More Bankruptcy Help?

Did you know Nolo has made the law accessible for over fifty years? It's true, and we wholeheartedly encourage research and learning. You can find many more helpful bankruptcy articles on Nolo's bankruptcy homepage. Information needed to complete the official downloadable bankruptcy forms is on the Department of Justice U.S. Trustee Program website.

However, online articles and resources can't address all bankruptcy issues and aren't written with the facts of your particular case in mind. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.