Illinois Bankruptcy Laws

For the purpose of filing Illinois bankruptcy, property is considered to be of two general classes: real estate and personal. Within the RE class, sub-classification is based upon "homestead" status. Personal items are sub-classified based upon the state legislatures assessment of necessity and are subject to value limitations. If equity value exceeds the statutory limit by a significant amount, trustees routinely require forfeiture of assets.

Property retained in Illinois bankruptcies depend on the chapter under which relief is sought. Chapter 7 liquidation of debts requires strict compliance with statutory values. Chapter 13 takes a less direct approach requiring, as a condition for plan confirmation, that the court determine creditors receive more favorable treatment under the plan than would be available if the debtor filed Chapter 7. Most valid liens are unaffected by filing. Creditors remain free to foreclose liens (with court approval) in the event of non-payment whether in Ch. 7 or under the terms of a Ch. 13 plan. In addition to purchase money security interests, other liens may be created automatically by operation of law to insure payment of child support, taxes, and emergency hospital treatments. These statutory interests also remain largely unaffected.

Illinois Bankruptcy Laws - Real Property

State law determines a debtor's title, right and interest in real estate. Primary residences receive special protection out of necessity, while secondary homes, invest property, and non-possessory interests are subject to forfeiture. For more information, see homestead : value allowed, limitations, and release, waiver & conveyance.

Illinois Bankruptcy Laws - Personal Assets

All assets owned must be reported to a trustee appointed by Illinois bankruptcy courts. The definition of property ownership is construed broadly to include not only physical assets, but also intangible, contingent and mixed. Contractual rights and options, potential causes of action against others, and legal entitlements may represent a bona fide value and must be reported. Only specific assets may be retained under Illinois bankruptcy statutes, including:

• Household goods, vehicles, tools of trade
• Insurance, social security, alimony
• Personal injury awards, crime victims compensation
• Retirement plans

Creditors are subject to state law provisions incorporated into Illinois bankruptcy cases. If an Illinois bankruptcy court lifts the automatic stay and permits a specific creditor to seize and liquidate property subject to a lien, creditors must obey all state law limitations on collection practices. For more information, see legal assistance for debtors. Also, all statutory provisions depend on conformity with the prohibition against fraudulent conversions creating exempt property.