How Bankruptcy Exemptions Work

• Bankruptcy exemptions are federal and state laws that stipulate the amount of property you can keep if you file chapter 7 bankruptcy. While some states use federal exemption laws, Illinois and many other states create their own exemptions. The basic rule in a chapter 7 bankruptcy is that if your state offers an exemption, you may claim it when you file your bankruptcy petition and save that specific property from liquidation. Any assets that do not qualify for exemption are known as "non-exempt" assets. Your bankruptcy trustee may take your non-exempt assets and liquidate them.
  
  

Illinois Bankruptcy Exemptions

• Illinois offers both all-encompassing bankruptcy exemptions and those that are limited to a certain dollar amount. For example, in 2011, if you are trying to exempt a car in an Illinois chapter 7 case, the value of your car cannot exceed the $2,400 motor vehicle exemption limit. For traditional and Roth IRAs, the dollar value limit is $1.095 million. If your IRA is worth more than this limit, you may lose the excess portion of your IRA.
  
  

Disposition of Non-Exempt Assets in Illinois

• The broad categories of Illinois bankruptcy exemptions are wages, insurance, personal property, pensions, tools of trade, homestead, alimony and child support, public benefits and miscellaneous. Any assets you have outside of these categories, including those worth more than the allowable dollar amounts within these categories, are "non-exempt." If your trustee is willing, you may be able to buy back your non-exempt property before the trustee liquidates it. In other cases, the trustee may simply abandon your property, particularly if there is little value to recover. In all other cases, your creditors will generally receive cash payments for the liquidated value of your non-exempt property.
  
  

Illinois Chapter 13 Bankruptcy

• Filing chapter 13 bankruptcy in Illinois is a way to avoid dealing with exemptions entirely. Bankruptcy exemptions apply only to chapter 7 cases, which are known as "liquidation" bankruptcies due to the trustee's ability to sell your non-exempt property. However, there is no liquidation of property in a chapter 13 bankruptcy, so you do not need to exempt your assets.