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Bankruptcy & Property Exemptions of Your Equity Part: 2

Published on March 29th, 2018

Second of two Articles: Or: Can Keep my Car if I have to file Bankruptcy?

This is the second of two articles on protecting your property if you are advised to file for Bankruptcy. I decided to begin with the exemptions protecting real estate. Now we can discuss personal property. Some information I will repeat here for those who have not read the first article as basic information. I have been doing Bankruptcy cases since 1990. I have seen several significant changes. When I started there was no means test. I was living and working in Peoria, IL then and the local office of the united states’ Trustee (Sort of a Bankruptcy Prosecutor) did motions to dismiss Bankruptcies where they felt a debtor (person petitioning for Bankruptcy) could afford to pay at least 10% over a three (3) year period under a Chapter 13 reorganization plan Bankruptcy. That eventually became our current means test.

The Trustee; separate from the US trustee’s office, is usually a local private attorney who contracts with the U.S. Government to review each case and liquidate (sell) non-exempt assets of a debtor to share among the creditors. When I started the percentage kept by the Trustees was less than Five percent (5%) of the value of an asset so not a lot of seizures happened due to the low level of profit available to the Trustee for the effort involved. That all changed in 1995; the Trustees were then and now able to retain Twenty Five percent (25%) of the first Five Thousand dollars ($5,000.00) from a seized asset and then Ten percent (10%) on any assets above Five Thousand dollars ($5,000.00) up to Fifty Thousand dollars ($50,000.00). This turned your friendly neighborhood Trustees into wolves attacking all assets of the debtors.

I practice in Illinois and Illinois has its own exemption statutes. Some states use a set of exemption which are part of the United States Code (Federal Statutes) but as each state was allowed to choose to use the exemptions from the United States Code or their own statutes, Illinis chose to use its own. The statute in Illinois providing for exemption (protection) of a debtor’s equity (value) in personal property is found in the Illinois Compiled Statutes at Chapter 735 Section 5/10-1001 (735 ILCS 5/12-1001).

The personal property exemptions cover pretty much everything you have that isn’t nailed down. Your necessary clothes, bible, school books, and family pictures are completely exempt. Your exemption in one motor vehicle is Two Thousand Four Hundred dollars ($2,400.00, when I started it was only One Thousand two Hundred dollars, $1,200.00) for a single debtor. Your work tools, books, and special equipment come in at One Thousand Five Hundred dollars ($1,500.00 up from Seven Hundred and Fifty dollars, $750.00). And there is also a general catchall exemption for your house hold goods and furnishings of Four Thousand dollars ($4,000.00). There are a lot of specific exemptions for distinctive items which would be better covered at an office consultation.

This sounds simple on its face but there are a lot of pitfalls that lie for the unwary. If you have more than the exempt amount in equity in your vehicle as a sole debtor it is ripe for liquidation by the trustee and you get a check for the exempt amount unless you buy your car back. There’s a benefit of the trustee and you get a check for the exempt amount unless you buy your car back. There’s a benefit of being married here; Joint debtors can combine their motor vehicle exemptions to protect a vehicle worth more than Two Thousand Four Hundred dollars ($2,400.00) but you can’t “stck” (add to the amount) your general catchall exemption of Four Thousand dollars ($4,000) to protect the car according to the Court’s Opinion in INRE Johns: (1984) 39 B.R. 488. In the Late 1990’s I had a client who I had to convince to go for a Chapter 13 Repayment plan because he had a 1957 Chevrolet Bel Air Sedan which was worth Twenty Thousand dollars (20,000.00) to prevent his car from being seized.

If you hope to get Bankruptcy Relief and keep your “stuff”, carefully checking values and making sure only your “stuff: fits into one of the exemption categories is a thorny issue. Consulting an attorney on any matter where the Courts or the Government is involved is you best move.

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