Illinois Bankruptcy Laws: Can You Keep Your Car?

When facing financial difficulties, many individuals in Illinois consider filing for bankruptcy as a viable solution to regain control over their debts. One of the most pressing concerns for those contemplating bankruptcy is whether they can keep their car. Understanding Illinois bankruptcy laws can provide clarity on this critical issue.

In Illinois, individuals may file for either Chapter 7 or Chapter 13 bankruptcy. Each chapter has different implications regarding asset retention, including vehicles.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is designed for individuals with limited income who wish to eliminate most of their unsecured debts. In Illinois, when you file for Chapter 7, your assets may be subject to liquidation. However, there are exemptions that can protect certain properties, including your car.

Illinois law allows individuals to exempt a certain amount of equity in their vehicle. As of 2023, the exemption limit for a motor vehicle in Illinois is $2,400 for an individual filing. If your car's equity (the value of the car minus any loans against it) is less than this limit, you can keep your vehicle.

For example, if your car is worth $10,000 and you owe $8,000, your equity is $2,000. Since this amount is below the exemption limit, you can keep your car after filing for Chapter 7 bankruptcy.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy, on the other hand, is a reorganization plan that allows individuals to keep their assets while repaying some or all of their debts over a period of three to five years. In this scenario, car retention is typically less of a concern since you can include your vehicle in your repayment plan.

Under Chapter 13, you will need to stay current on your monthly payments to keep your car. If you can maintain those payments, there's a good chance you can keep your vehicle throughout the bankruptcy process.

Considerations for Car Loans

If you are financing your vehicle through a loan, how you handle the car loan in bankruptcy can affect your ability to keep the car. In Chapter 7, if you wish to keep the car and are current on your payments, you would often need to reaffirm the loan, which means you agree to remain responsible for the debt, even after bankruptcy.

In Chapter 13, you may be able to lower your monthly car loan payments through the reorganization plan, possibly even reducing the principal balance if certain criteria are met, such as if you purchased the vehicle more than 910 days prior to filing.

Conclusion

In conclusion, under Illinois bankruptcy laws, it is generally possible to keep your car, whether you file for Chapter 7 or Chapter 13, as long as you adhere to exemption limits and make required payments on any loans. It’s crucial to consult with a qualified bankruptcy attorney who can provide personalized guidance based on your financial situation and help you navigate the complexities of bankruptcy laws. Making informed choices can pave the way towards a successful financial recovery.