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Chicago Bankruptcy Lawyer > Blog > Bankruptcy > Formal and Informal Property Exemptions in an Illinois Bankruptcy

Formal and Informal Property Exemptions in an Illinois Bankruptcy


The Bankruptcy Code guarantees debtors a fresh start. This fresh start wouldn’t be possible unless the debtor’s assets were exempt (protected) from creditor or trustee seizure. Creditors might try to repossess property if the debtor is delinquent. Trustees (people who oversee bankruptcies for judges) seize property, liquidate it, and distribute the money among creditors. Some of the formal and informal bankruptcy exemptions in Illinois are outlined below.

Bankruptcy is not a friendly process. As mentioned above, trustees and creditors don’t want debtors to get fresh starts. They want debtors to pay as much money as possible. Their lawyers can easily carry out this vision, unless a Chicago bankruptcy lawyer is there to stop them. An attorney not only advocates for debtors in court. An attorney provides solid legal advice, so debtors can maximize their fresh starts.

Formal Exemptions

The property exemptions listed in federal bankruptcy law are a little different from the exemptions listed in Illinois state law. However, debtors in the Prairie State must use the state law exemptions. These property protections include:

  • Motor Vehicle Equity: The $2,400 figure in Illinois law seems ridiculously low. Most new and used motor vehicles cost ten times that much. But there’s a difference between value and equity. Most new cars have high values but almost no equity. Car buyers pay interest on the loan before they pay down principal. At the other end, most used cars have high equity, but practically no financial value.
  • Home Equity: The same principles of value and equity apply in these cases. People who have owned their homes for less than fifteen years often have little or no equity. Additionally, there’s a difference between a home’s fair market value and its garage sale value (as-is cash sale value). Most home investors pay pennies on the dollar for a quick, no inspection, as-is cash sale.
  • Government Benefits: Many older people rely almost entirely on government pensions, like teacher retirement, and government payments, like Social Security payments, to make ends meet. Public pensions are 100 percent exempt regardless of their value. Most private pensions, like IRAs, are 100 percent exempt as well. Furthermore, Social Security and other government benefits are, by law, exempt assets.

Illinois also has a wildcard exemption. Debtors can protect up to $4,000 of otherwise non-exempt, non-real estate property, such as a second car or a boat.

A word of caution. Bankruptcy trustees aggressively pursue possible bankruptcy fraud cases. Such charges are usually forthcoming if the trustee spots a suspicious transaction, like moving a large sum of money into an IRA immediately before filing, or if the trustee suspects misuse of the process, such as multiple filings within the past year.

Informal Exemptions

A Chicago bankruptcy lawyer knows how to use legal loopholes and extend the formal exemptions. Mootness is a good example.

First, the principle. Assume Tom and Jerry each claim ownership of a home and the case goes to court. Before the judge rules, the house burns down. If that happens, the judge cannot rule on the matter. Since the house is gone, it doesn’t matter who owned it.

How does this principle apply to bankruptcy? We’re glad you asked. Assume Tom has $1,000 in a checking account he cannot protect with a formal exemption. Jerry, who has been promoted to bankruptcy trustee, claims the money is a nonexempt asset and demands payment.

By the time the judge rules, Tom has spent the $1,000 on regular living expenses. At that point, it doesn’t matter who owned the money, because the money is gone.

 Count on a Detail Oriented Cook County Lawyer

No matter what kind of financial problem you are having, there’s usually a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout the Prairie State.

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