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Keeping Your Property

Will I lose my home, car or other assets by filing bankruptcy?

People who file bankruptcy lose their debts --- not their homes or cars. In a chapter 13 case, no home or car will be lost if the filer has the desire and ability to continue making payments. There is no obligation to surrender any property. In a chapter 7 case, no home or car will be lost if the bankruptcy filer has the ability to continue making payments and the equity in the asset is "exempt" property. Of course, bankruptcy filers have the right to surrender their homes or cars if they no longer want them or they simply cannot afford to make the payments. Read below for more information.

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For a free consultation, contact Attorney Robert Schaller by completing the Contact Us form on this web site or calling at 630-655-1233.

How Much of My Property is Exempt Property?

Illinois law identifies the amount property that is exempt and thus protected from creditors. The most important exemption for homeowners is the exemption relating to the home. Illinois allows for an exemption of up to $30,000 in equity for a family's principal residence. You are entitled to $15,000 exemption for you and another $15,000 exemption for your spouse if you file a joint bankrutpcy petition. In addition, you would be allowed to retain all of your 401(k), IRA, and pension assets. You also receive an $8,000 exemption ($4,000 for each of you and your spouse) known as the "wild-card" exemption, that can be used to protect any type of personal property for which there is no other exemption, or for which the exemption is insufficient to cover the entire value of the asset. Plus, you are afforded up to $4,800 in the amount of equity you cna keep in one vehicle. Illiois allows for an exemption of up to $2,400 in equity for your vehicle and another $2,400 in equity for your spouse if filig bankruptcy together.

Recent Court Cases

Below are some interesting legal cases involving a debtor's attempt to maximize the property "exempted"in a Chapter 7 bankruptcy. These cases typically involve a challenge to the claimed exemption by a trustee or creditor. The cases offered on this website are removed and replaced periodically with newer cases. So I urge you to check back to this website periodically for the latest developments. However, prior cases are transferred from this webpage to my bankruptcy blog for you to retrieve. You are encouraged to view my bankruptcy blog to discover more information about eliminating or discharging debts. Visit Your Bankruptcy Advisor Blog or contact me to talk to an experienced bankruptcy attorney.

  1. In re Booth, 410 B.R. 672 (Bankr. E.D. Wash 2009). A chapter 7 bankruptcy debtor brought an adversary complaint against a student loan creditor seeking discharge of the student loan debt pursuant to Section 523(a)(8) of the Bankruptcy Code alleging that an “undue hardship” would result if the debtor had to repay the student loan debt. Prior to filing bankruptcy, the debtor had participated in a student loan deferral payment program. As a result of the program and debtor’s deteriorating financial position, the student loan creditor established a zero dollar per month short-term repayment plan with the balance to be paid much later. Nevertheless, debtor filed for bankruptcy and sought a complete discharge of all the student loan debt.

    The student loan creditor opposed the complete discharge of the student loan debt. In fact, the creditor filed a motion for summary judgment seeking an order finding the student loan debtor NOT eligible for a bankruptcy discharge AS A MATTER OF LAW because the deferral payment program had granted debtor a zero dollar per month short-term repayment plan. In short, the student loan creditor believed that the debtor could not establish “undue hardship” as a matter of law since debtor had agreed to a zero dollar short-term repayment plan and therefore no hardship existed, much less “undue” hardship.

    The Court rejected the student loan creditor’s argument and denied the motion for summary judgment. The court noted the difference in relief granted by both options: (a) the bankruptcy discharge offered permanent relief by eliminating the student loan debt forever, whereas (b) the deferral payment program only offered short-term relief with the balance coming due later. Next, the court focused on the factual review given by both options: (a) the bankruptcy court would review the facts of each case on a case-by-case basis to determine if the repayment of the student loan debt would result in an undue hardship upon the debtor, whereas, (b) the deferral payment program gave no individual review, instead relying upon a formula to determine loan payments.

    The conclusion is that the student loan debtor was allowed to go forward with the bankruptcy case and will be offered an opportunity to prove that the payment of the student loan debt would be an undue hardship on the debtor and debtor’s dependents.

  2. In re Knecht, 410 B.R. 650 (Bankr. D. Montana 2009). A bankruptcy debtor filed chapter 13 bankruptcy and proposed a repayment plan that would cause the student loan creditor to be the only unsecured creditor to receive any money. Specifically, the debtor sought confirmation of the repayment plan which proposed to pay more than $36,000 to the student loan creditor while paying nothing to the other unsecured creditors. The trustee objected asserting that the proposed plan unreasonably “discriminated” among unsecured creditors.

    The bankruptcy court sustained the trustee’s objection and denied confirmation, holding that the student loan debtor had failed to satisfy the burden of proving that the repayment plan’s separate classification of student loan debt did not unfairly discriminate against the other unsecured creditors.

    The court believed that a student loan creditor cannot create a chapter 13 plan that allows a student loan debtor to repay student loans "out of the hide" of other unsecured creditors. Instead, the other unsecured creditors must be paid their pro rata share. For example, let’s assume a debtor owes both $36,000 in student loan debt and another $36,000 in credit card debt. Now, if that debtor would file a plan calling for unsecured creditors to receive $36,000, then the student loan creditor would only be receiving $18,000 while the credit card creditors would also be receiving the other $18,000. Clearly this result is not as beneficial to a debtor because the $18,000 paid to the credit card creditor would be wasted since any unpaid credit card debt would be discharged---whether $18,000 is still owed or the full $36,000 is still owed; moreover, this result is not as beneficial because the $18,000 of unpaid student loan debt would survive the bankruptcy and have to be repaid--- absent a separate adversary complaint proving undue hardship.

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Free Bankruptcy Consultation

For a free consultation, contact Attorney Robert Schaller by completing the Contact Us form on this web site or calling at 630-655-1233.