Property Exemptions and the Trustee

In a Chapter 7 bankruptcy case, all non-exempt property can be sold to satisfy creditors. The question that arises is just what is non-exempt property? This question cannot be answered in generalities. Instead, the answer depends upon which jurisdiction the case is filed and which exemptions are available to a debtor. In some cases, the Federal exemptions will apply. In other cases, the State exemptions will apply. Finally, in other cases, either the Federal or State exemptions can apply.

For example, in the State of Wisconsin, the debtor can choose which exemption statute to invoke. Depending upon the asset in question, the Federal exemptions may provide more protection to the debtor. In other situations, the State exemptions may provide the greatest amount of protection. In States such as Illinois, the Federal exemptions are not used. The debtor from the State of Illinois can only use the State exemptions.

A brief look at the Illinois State exemptions is as follows: $15,000.00 in real property per debtor; $2,400.00 in one motor vehicle per debtor; $4,000.00 in miscellaneous property per debtor; All of a debtor's necessary clothing; All of a debtor's Erisa Qualified retirement benefits; All of a debtor's alimony, maintenance and child support receipts.

Thus, you can see that there are fairly high protection amounts provided in the State of Illinois. It is only property in excess of the exemptions amounts that can be taken by the Chapter 7 trustee, sold and used to pay creditors in accordance with the payout schedule provided under the bankruptcy code. Additionally, just crossing past the exemption amount does not mean that a trustee will attempt to administer the asset. The trustee has a cost involved in administering assets. He or she will want to be assured that there will be a decent return paid to the unsecured creditors. Otherwise, the entire exercise is simply a waste of time and burden on the debtor.

Each trustee is different and each case is different. One should never assume that property will be taken or not taken. One should consult with an experienced bankruptcy attorney to get a better understanding of the exemptions allowed in each category. A special note for all bankruptcy practitioners: If you know that an asset is potentially at risk and you have advised your client of such, have your client sign a potential asset acknowledgement statement.

This way, the client cannot state that he was unaware that the property could be taken by the trustee.

David M. Siegel is the author of Chapter 7 Success: The Complete Guide to Surviving Personal Bankruptcy. He is a member of the American Bankruptcy Institute and currently practices bankruptcy law in Chicago and its surrounding suburbs. Additional information is available at Chapter 7 Bankruptcy.