Bankruptcy Laws

Bankruptcy Laws

Bankruptcy laws help people who can no longer pay their creditors get a fresh start – by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation.

Most cases are filed under the two main chapters of the Bankruptcy Code – Chapter 7 and Chapter 13. Federal courts have exclusive jurisdiction over bankruptcy cases. This means that a bankruptcy case cannot be filed in a state court.

 

1. Chapter 7

A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 13. Instead, the bankruptcy trustee gathers and sells the debtor’s nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor’s property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain “exempt” property; but a trustee will liquidate the debtor’s remaining assets. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.

 

2. Chapter 13

A chapter 13 bankruptcy is also called a wage earner’s plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years. If the debtor’s current monthly income is less than the applicable state median, the plan will be for three years unless the court approves a longer period “for cause.” (1) If the debtor’s current monthly income is greater than the applicable state median, the plan generally must be for five years. In no case may a plan provide for payments over a period longer than five years. During this time the law forbids creditors from starting or continuing collection efforts.

This chapter discusses six aspects of a chapter 13 proceeding: the advantages of choosing chapter 13, the chapter 13 eligibility requirements, how a chapter 13 proceeding works, making the plan work, and the special chapter 13 discharge.

 

3. Illinois Bankruptcy Exemptions

 
     

Assets

Exemption

State Statute

Homestead

Real or personal property that is the residence of the debtor, including a lot, farm, building, condo, co-op, or mobile home: up to $15,000.

735-5/12-901

Proceeds from sale of homestead: all for 1 year after sale.

735-5/12-906

Property held by married couple as tenancy in the entirety: up to $15,000 (with limitations).

750-65/22; 765-1005/1c

Spouse or children of a deceased owner of a homestead may claim the exemption.

735-5/12-902

Insurance

Life insurance annuity/proceeds/cash value: all if beneficiary is the child, spouse, parent, or other dependent of the insured.

215-5/238; 735-5/12-1001(f)

Fraternal benefit society benefits: all.

215-5/299.1a

Proceeds if home is destroyed: up to $15,000.

735-5/12-907

Life insurance proceeds to debtor’s dependents: all necessary for support.

735-5/12-1001(f), (g)(3)

Disability or health benefits: all.

735-5/12-1001(g)(3)

Miscellaneous

Child support and alimony payments: all.

735-5/12-1001(g)(4)

Property owned by business partnership: all.

805-205/25

Pensions

Federal pension exemptions.

 

Pension for general assembly members: all.

40-5/2-154

Police officer pensions: all.

40-5/3-144.1; 40-5/5-218

Firefighter pensions: all.

40-5/4-135; 40-5/6-213

Municipal employee pensions: all.

40-5/7-217(a); 40-5/8-244

County employee pensions: all.

40-5/9-228

Civil service employee pensions: all.

40-5/11-223

Park employee pensions: all.

40-5/12-190

Sanitation district employee pensions: all.

40-5/13-805

State employee pensions: all.

40-5/14-147

State university employee pensions: all.

40-5/15-185

Teacher pensions: all.

40-5/16-190; 40-5/17-151

Judge pensions: all.

40-5/18-161

House of correction employee pensions: all.

40-519-117

Public library employee pensions: all.

40-5/19-218

Disabled firefighter pensions and benefits for widows and children: all.

40-5/22-230

ERISA-qualified benefits and IRAs: all.

735-5/12-1006

Public employee pensions: all.

735-5/12-1006

Personal Property

Deposits in pre-paid tuition trust fund: all.

110-979/45(g)

Pre-need cemetery sales, care, and trust funds: all.

235-5/6-1; 760-100/4; 815-390/16

Proceeds from sale of exempt property: all.

735-5/12-1001

Clothing, family pictures, Bible, schoolbooks: all.

735-5/12-1001(a)

Motor vehicle: up to $2,400.

735-5/12-1001(c)

Health aids: all.

735-5/12-1001(e)

Recoveries for wrongful death: all.

735-5/12-1001(h)(2)

Recoveries for personal injury: up to $15,000.

735-5/12-1001(h)(4)

Public Benefits

Disability, age, or blind aid benefits: all.

305-5/11-3

Public assistance benefits: all

305-5/11-3

Social Security benefits: all.

735-5/12-1001(g)(1)

Unemployment compensation benefits: all.

735-5/12-1001(g)(1), (3)

Veterans’ benefits: all.

735-5/12-1001(g)(2)

Crime victim compensation benefits: all.

735-5/12-1001(h)(1)

Restitution benefits for the relocation of Aleuts and Japanese Americans during WWII: all.

735-5/12-1001(12)(h)(5)

Workers’ compensation benefits: all.

820-305/21

Worker’s occupational disease compensation benefits: all.

820-310/21

Tools of Your Trade

Tools, implements, and books used in trade: up to $1,500 total.

735-5/12-1001(d)

Wages

Wages, earned but not yet paid: at least 85% of weekly wages or 45 times the state or federal minimum hourly wage, whichever is higher. The bankruptcy judge may allow a higher exemption for low-income debtors.

740-170/4

Wildcard

Any personal property except wages: up to $4,000 total.

735-5/12-1001(b)