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Top Five Property Exemptions in Illinois


Many states have limited bankruptcy property exemptions. In these states, since the trustee (person who oversees a bankruptcy for a judge) has broad powers to liquidate assets, debtors must think twice before they file bankruptcy. Illinois is different. The Prairie State has extremely broad property exemptions. In fact, for most purposes, most Chicagoland residents don’t have nonexempt assets, unless they own yachts and private jets.

Asset protection is only one benefit of bankruptcy. Others include debt discharge, mostly of credit card bills and other unsecured debts, the Automatic Stay, which stops most forms of creditor harassment, and the protected repayment period, which gives debtors up to five years to gradually catch up on past-due mortgage loans and other secured debts. A Chicago bankruptcy lawyer helps debtors take full advantage of the property exemptions and other benefits of bankruptcy.

Home Equity

Illinois law exempts up to $15,000 in home equity. That may not sound like much, but a Chicago bankruptcy lawyer knows how to expand this exemption.

First, there’s a difference between home equity and home value. Mortgage loans are amortized. In the first few years, nearly all the payments go to future interest. The bank pays itself before homeowners build equity. So, if you’ve lived in your house for less than ten years, you probably have substantially less than $15,000 in equity. Therefore, your home is untouchable for bankruptcy purposes.

A lower market value could affect this exemption as well. Assume Paul and JoAnne bought their $500,000 home with an 80/20 mortgage ($400,000 senior lien and $100,000 junior lien). If their home’s value has dropped to $400,000, the junior lien is an unsecured debt, which means it’s dischargeable in bankruptcy.

Retirement Account

The Supreme Court has consistently held that earned retirement accounts, such as IRAs and 401(k)s, are completely exempt, regardless of their value. Defined benefit retirement accounts, such as pension plans, are usually 100 percent exempt as well. This exemption usually also applies to 529 college savings plans and other long-term savings accounts.

Slightly different rules apply to inherited retirement accounts. These accounts might not be 100 percent exempt. Earned retirement accounts indicate financial sacrifice. Inherited accounts don’t have that same dynamic.

Motor Vehicle

Illinois exempts $2,400 of motor vehicle equity. As mentioned, there’s a difference between equity and value. If you own a new car, you probably have almost no equity in the vehicle. Used cars have practically no financial value.

Informal exemptions, such as the best interests of creditors rule, sometimes apply as well. If a seizure and sale wouldn’t significantly benefit creditors financially, the trustee cannot seize it, even if it isn’t legally exempt.

Government Benefits

Social Security, workers’ compensation, VA disability, and other government benefits are like retirement accounts for bankruptcy purposes. They’re 100 percent exempt. Most Chicago bankruptcy lawyers recommend that debtors deposit these funds into separate accounts to avoid commingling them with other kinds of income, which may not be exempt.

Wildcard Exemption

In Illinois, debtors might be able to keep their private jets and yachts. State law allows debtors to protect up to $4,000 of otherwise non exempt assets. The wildcard exemption could apply to money in a savings account. This exemption does not apply to real estate property.

 Reach Out to a Hard-Working Cook County Lawyer

No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.



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