You Can Protect Most Property
You can file bankruptcy and protect a certain amount of personal property. If you are filing a chapter 7 bankruptcy, then you have certain exemption amounts under Illinois law that allows you to protect a certain amount of property. For example, you can protect up to $15,000 worth of equity in real estate. You can also protect up to $2400 worth of equity in a motor vehicle. You can also protect $4000 of miscellaneous personal property that can be put over any type of personal property that you may have. If you are above and beyond the exemption amount, your attorney will advise you that some of your property might be at risk in exchange for your fresh start. If your property is way over the exemption amount, then your attorney will likely advise you to not file a chapter 7 but rather file under different chapter of the bankruptcy code.
Under chapter 13 bankruptcy law, you get to keep all of your property while you are in your reorganization plan. One of the main reasons to file a chapter 13 is to protect assets that would otherwise be taken and liquidated in a chapter 7. Under chapter 13, you have to pay back to your creditors at least the amount that they would get in a chapter 7 liquidation case. Thus, your attorney is still going to need to know what you own and who you owe in terms of assets and liabilities. However, the attorney will conduct a liquidation analysis to determine what the creditors are required to receive back under a chapter 13 filing.
How Your Property Is Protected
There are certain cases where equity can be protected prior to a case being filed. For example, if you have a 401(k), IRA, pension, or other retirement account, those assets are protected under Illinois law so that when you file a chapter 7 they cannot be touched by the chapter 7 trustee. If you are married by filing individually, then your non-filing spouse has a marital interest in your property. Thus, if you have $50,000 worth of equity in your home and you are married, then your non-filing spouse is entitled for one half interest or $25,000. You then can deduct your exemption of $15,000 from your $25,000 in equity, to determine what is available to the creditors. Your attorney will also figure in the cost of sale and any other costs associated with liquidating the property to come up with the final figure as to what is available. In my experience, unless the exemption amount is completely exhausted and there is non-exempt property of significant value, a chapter 7 trustee will not bother to liquidate the property. On the other hand, if there is significant equity in a piece of property or several items of property, then you have to be aware that you are likely going to have to buy out the trustee’s interest in exchange for your fresh start.
The Trustee Makes Money
The trustee is paid a percentage on the amount of property that he or she can liquidate for the benefit of unsecured creditors. This is in addition to the trustee’s fees by having himself appointed as the attorney for the trustee. Thus, you have a trustee who is making money not only for his trustee percentage but also for his attorney’s fees in representing the trustee. So you can see, there is quite an incentive for a bankruptcy trustee to find an asset and administer that asset to the creditors.
If you are thinking of filing either a chapter 7 or chapter 13 bankruptcy, and you are concerned about your property and whether or not you can protect it through the process, consult with an experienced, bankruptcy attorney in your local area to get the answers that you need. Do not try to file a bankruptcy case without adequate counsel. The decision that you make it hiring your attorney is the most important decision that you’re going to make in your process. If you get off to a good start with sound advice and quality representation, then you are likely going to have a successful chapter 7 or chapter 13 bankruptcy.
