Will I lose everything if I file for Chapter 7 bankruptcy?

On Behalf of | Nov 3, 2021 | personal bankruptcy |

Many people in Will County who are struggling with financial hardships may be afraid to file for bankruptcy, because they think they will lose everything if they do. This is not true. When a person files for Chapter 7 bankruptcy, there are “exemptions,” that is, property they can keep while still taking advantage of the protections and relief bankruptcy offers.

What is Chapter 7 bankruptcy?

Chapter 7 bankruptcy is also referred to as “liquidation bankruptcy.” This means your non-exempt assets will be collected by the bankruptcy trustee and sold. The proceeds from the sale will be used to pay back your creditors. After that some (but not necessarily all) of your debts will be discharged, leaving you free to move forward on fresh financial footing.

What property is exempt from Chapter 7 bankruptcy?

You may think that this means a Chapter 7 bankruptcy filing will cause you to lose all your property. This is not true. Illinois law provides exemptions for certain types of property. Exempt property will not be liquidated. Some exemptions under Illinois law include:

  • Your home (equity of $15,000 for an individual, $30,000 for spouses filing jointly)
  • An automobile (equity of $2,400 for each individual owner)
  • Tools or books used for your job ($1,500)
  • Family photos
  • Necessary clothing
  • Certain retirement plans
  • Life insurance
  • $4,000 in equity for any other personal property, including cash or funds in a bank account

As this shows, Illinois exempts many types of assets. This is only a short list of some of those assets. Moreover, Illinois exemptions include a “catch-all” that allows you to apply equity to other types of personal property not listed that are important to you.

Filing for bankruptcy may seem overwhelming but it does not have to be. It is simply a series of steps that you follow to reach financial solvency, and you can seek help along the way. In the end, it may be better to shed debt you have no means of paying back so you can move into the future on a clean financial slate.

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