As you know, people can experience life-changing events over which they have no control. A person can lose his or her job, go through a divorce, or become ill. These events can have financially-devastating consequences, and they are just some of the many reasons why people file for bankruptcy. If a person decides that he or she is no longer able to pay bills, then bankruptcy can be a way out from under the burden of debt
But filing for bankruptcy can be a complex and confusing process. There are many factors and issues to consider. For example, people going into bankruptcy often fear that they will lose all or most of their personal possessions. They might have some possessions that they may keep and some that will have to be turned over to creditors.
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While every bankruptcy case needs to be individually analyzed, in most cases a debtor will not have to give up all or any of his or her personal property. This is because the law gives each debtor what are called "property exemptions."
During and after a bankruptcy proceeding, exempted property is protected from the reach of creditors. The exemptions permitted by the bankruptcy laws permit you to keep not only the property in your possession but also the equity that you might have in such property. Equity is the dollar difference between the fair market value of exempted property and the amount of debt that is owed on such property. The most common examples of equity involve a debtor's home or automobile. Under federal bankruptcy law, each state's laws determine the amount of the exemption granted to the debtor for various classes of real or personal property. Here is a short list of bankruptcy exemptions in Illinois:
Exemptions that are limited and have a dollarcap:
Homestead (equity in residence) - $15,000 in value (double if married)
Automobile - $2,400 in value in one motor vehicle (double if married)
Tools of the trade - $1,500 in value
Wildcard (for any other personal property except wages) -$4,000 in value
Exemptions that are unlimited and have no dollarcap:
Health aids
Insurance and disability benefits
Pensions, IRAs, ERISA qualified benefits, public employee retirement benefits
Unemployment benefits
Workers compensation payments
Public aid benefits
Social security benefits
Veteran's benefits
Household items such as family pictures, school supplies, clothes, etc.
Alimony and child support
Money deposits in pre-paid tuition trust funds like Bright Start
Going through bankruptcy involves significant legal consequences. A debtor needs to make sure that he or she is doing the right things. Whatever decision a person makes regarding a bankruptcy, that person needs to act on the advice of experienced legal counsel. In order to correctly use the different types of property exemptions for personal possessions, it is important that one seek the counsel and advice of a qualified bankruptcy lawyer.
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