Each state has a series of exemptions (laws that provide protection for your property, like vehicles) that you will use to protect your stuff in bankruptcy. In Illinois, you have a $2,400 exemption for your vehicle. This means that if the value of your vehicle is less than $2,400, you get to keep it. Additionally, each debtor is given a $4,000 "wildcard" exemption in Illinois. This means that you can allocate $4,000 to protect miscellaneous property, except you cannot use it to protect real estate. If you have a lot of your wildcard left over (the wildcard has to be used to protect your household goods like furniture, appliances, and TV's) you can use what is left over as additional protection for your vehicle. Let me provide an example:
Say for example you have a vehicle worth about $3,500. You have no loan on the vehicle (I will discuss the impact loans have later on in this post). Say all of your household goods are valued at about $2,000. We would use $2,000 of the wildcard exemption to protect your household goods, which would leave us with $2,000 of the wildcard to use wherever else we want. If there was no other property for us to protect with the wildcard we would apply it towards your vehicle. We would first use the vehicle exemption of $2,400 on your vehicle, which would leave $1,100 exposed equity (exposed equity is the value left after we apply the exemption). We would therefore use $1,100 from the left over wildcard to protect the remaining equity in the vehicle. Your vehicle would therefore be completely protected, and you would still have $900 of wildcard exemption to use for other property. If you had absolutely no other property, we would throw the rest of the wildcard on the vehicle, just to protect it if for some reason the Trustee thinks the vehicle is worth more than $3,500
What if I have a loan on my vehicle?
In bankruptcy, having a loan on your vehicle can be a good thing. First, the amount of the loan is taken into account when determining how much equity we need to protect. For example, if your car is valued at $10,000, but you have a loan for $9,000 on your car, then we only have to protect the $1,000 difference. If your car is worth less than the amount of the loan then we don't have to protect anything. However, having a loan on your vehicle makes your bankruptcy a little more complex, as we will need to reaffirm your loan. I will discuss Reaffirmation in a later post. I know this can be confusing so feel free to visit Springer Law Firm's Website and contact me with any questions.
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