Bankruptcy a Very Real Option for Struggling Illinois Consumers 

 

Economic problems in the United States have caught up with us in a big way. As much as people tried to do more with less, consumer bankruptcy filings across the country in 2009 rose by nearly one-third over 2008 numbers, from just over one million to about 1.4 million. Illinois was in the top ten states per capita in filings in 2009, coming in ninth at 5.75 bankruptcy filings per 1,000 residents, over 70,000 filings last year alone.

 

Given the breadth and depth of our economic problems, bankruptcy as a solution for personal financial disaster currently cuts across all spectrums and income levels in our society.

 

Samuel Gerdano of the American Bankruptcy Institute predicts that the rate and number of bankruptcy filings will continue to grow through 2010. Commentators speculate about many reasons for the current increase in filings:

• High personal debt

• Job loss

• Unrealistic mortgages

• Falling home and other real estate values

• High medical expenses

• Fixed senior incomes not keeping pace with inflation and growing needs

• Tighter credit availability

• Low personal savings, including lack of emergency funds

• Inadequate financial management skills

 

Bankruptcy Basics

Bankruptcy is a legal action for debt relief filed in the United States Bankruptcy Court. Consumers usually file so-called Chapter 7 or Chapter 13 bankruptcies. The chapter numbers refer to the corresponding chapter of the United States Code laying out the specific requirements of each type. For the most part federal law governs bankruptcy, but state law also can play a significant role.

The most common filing is the Chapter 7 bankruptcy, which in 2009 accounted for almost three-quarters of consumer filings; the other quarter were mostly filed under Chapter 13. In very simplified terms:

 

• A Chapter 7 bankruptcy, often called a liquidation, straight or fresh-start bankruptcy, allows the debtor to keep a limited amount of certain kinds of property exempt from creditors' reach, with the sales proceeds of the remaining nonexempt property, if any, divided among most of the creditors to satisfy debt. Remaining unsecured debt is discharged and must not be repaid.

• A Chapter 13 bankruptcy, also referred to as a wage-earner bankruptcy, allows a debtor with regular wages to set up a three-to-five-year repayment plan for at least part of his or her debt. Generally, most assets can be kept if the repayment play is successfully completed under the supervision of the court. If the debtor is unable to make the scheduled payments, his or her nonexempt property may become available to satisfy debt.

 

Exempt Assets

A debtor in bankruptcy is allowed to keep certain assets that are shielded from creditors; exempt assets are protected from being used to satisfy the debtor's unsecured debts. Federal law provides a schedule of exempt property, but also allows each state to determine whether state exemptions should apply instead of or as an alternative to the federal exemptions.

Only about a quarter of the states allow the debtor to choose whether to use the federal exemptions or those articulated by state law. Most states require debtors to use their own states' property exemptions in bankruptcy. One of those states is Illinois.

 

Illinois Exemptions

The major property exemptions in Illinois include:

• Homestead interest up to $15,000

• Most life insurance proceeds and policy face value payable to a spouse; or to a dependent child or parent, or to another dependant

• Most retirement plans and pensions

• Certain annuities

• Many government benefits, including social security, unemployment compensation, public assistance and veterans' benefits

• Alimony or spousal maintenance to "extent reasonably necessary for the support of the debtor and any dependent of the debtor"

• Necessary clothes of the debtor and his or her dependents, and certain other personal property of nominal value, including family pictures

• Any other property worth up to $4,000

• Money received as a crime victim

• Personal injury damages up to $15,000

• Vocational tools up to $1,500 in value

• A portion of weekly wages, the percentage of which depends on the income level

• Most contributions to the Illinois College Savings Pool

• Certain property traceable to or owing from the sale of other exempt property

 

The exempt property categories in this list may be subject to certain exceptions and legal nuances depending on the details of a particular case. Anyone contemplating bankruptcy should get specific, up-to-date legal advice about property exemptions.

 

Consult a Knowledgeable Illinois Bankruptcy Attorney

If you are sliding into financial trouble gradually or you find yourself in a sudden financial crisis because of job loss or major medical emergency, bankruptcy may be a good solution. It is important to get the advice of a skilled bankruptcy lawyer with knowledge of all of your legal options for debt relief. If bankruptcy is ultimately your choice, your attorney can help you make an informed decision about which type of bankruptcy to file.

 

At Illini Legal Services, we offer a free, no-obligation consultation to each of our clients. During your consultation, we will take the time to listen to your financial concerns and assess your case and individual situation. We have five locations to serve you. Contact us today for help!

 

Illini Legal Services is engaged in the private practice of law and is not a public legal aid agency. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.