What Will I Lose If I File a Personal Chapter 7 Bankruptcy?
Theodore M. McGinn • May 8, 2020
Those who file a personal Chapter 7 bankruptcy may potentially be forced to give up assets. Generally, upon the filing of a bankruptcy, the US Bankruptcy Court appoints a trustee, who has the obligation to liquidate certain assets of the debtor and distribute those proceeds to the creditors. However, a debtor will not lose all of their assets. Under bankruptcy procedures, a debtor will be entitled to keep assets that are exempt. Moreover, a US bankruptcy trustee may have subordinate rights to assets, which are encumbered by a lien.
The key phrase is exemption. What assets would be exempt from a US trustee? The answer depends on the jurisdiction in which the bankruptcy is filed. Many states have different exemptions. Where the debtor files the bankruptcy petition will determine which state law exemption would be applicable.
In Illinois, there are a number of applicable exemptions. The most popular is the homestead exemption. In Illinois, the amount of your exemption equals $15,000 (or $30,000, if filing the petition with a spouse). In addition, the debtor is able to exempt personal property (clothing, books, and other personal assets) up to $4,000. There is also a “tools of trade” exemption, which would protect assets valued up to $1,500. Debtors would also be able to protect a vehicle up to $2,400. Finally, a debtor would be able to exempt up to 85% of gross earnings, or forty-five times the federal hourly minimum wage.
As stated above, a lien may also protect an asset from a trustee upon the filing of a bankruptcy petition. If the lien was filed prior to the filing of the bankruptcy petition (beyond any applicable preference timeframe), the US trustee would have inferior rights to such lien holder. Assets that a debtor typically would have encumbered by a lien would be their car or their home. Accordingly, often as a result of the exemption and lien, a debtor is able to protect its two largest assets (car and home).
Prior to filing any bankruptcy petition, an exemption, or lien analysis, of the debtor’s assets should be performed by an attorney. A debtor may find that it may not have to surrender any assets upon the filing of a bankruptcy.
If you have any questions about this article, please contact attorney Theodore M. McGinn at (847) 705-7555 or tmcginn@lavellelaw.com. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
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