Exemptions of Chapter 7 Bankruptcy Code

Bankruptcy is a big decision and can provide the financial freedom you desperately need. However, it should not be entered into lightly. As such, bankruptcy does require planning before you file your case. It is a good idea to consult with a Chicago bankruptcy attorney before making any decisions.

Do not use your credit cards once you make the decision to file bankruptcy. Under the 2005 changes in bankruptcy law, incurring debt in the 90 days before filing for bankruptcy for the purchase of luxury goods or services is presumed non-dischargeable. Even if you use your credit card for non-luxury goods or services, you will face an uphill battle in proving to the credit card company that your purchases were not used for luxury purposes. Discontinuing credit card use also has a practical purpose; it prepares you for a life without the credit you have come to rely upon.
Do not repay family members. Many times family members are willing to loan you money in your time of need and naturally, you feel a moral obligation to pay them back. However, under the Bankruptcy Code, family members cannot be treated better than other creditors. Because you are more likely to payback a family member than a credit card company, the look-back period is one year before you file for bankruptcy. If you do repay a family member, the trustee could sue your family member to get the money back.
Do not transfer property out of your name. Bankruptcy is scary to think about, particularly when you hear a trustee could sell your property to pay your creditors. However, you will only make things worse if you transfer property to someone else before filing for bankruptcy. When you file for bankruptcy, you must disclose all transfers of property within 2 years before filing. If a trustee thinks that you transferred the property fraudulently, they could avoid the transfer.
Do not empty your retirement account. Many times when people are struggling with debt, they cash out an IRA or take a 401(k) loan to pay their creditors. However, retirement funds are fully exempt from the collection of creditors in Illinois. This means that if you are sued by a creditor, they cannot seize your retirement account. Furthermore, a trustee in bankruptcy cannot liquidate your retirement account.


These are just a few of the mistakes that you should avoid before filing for bankruptcy. If you are considering bankruptcy, you should consult with a Chicago bankruptcy attorney before making any decisions regarding your assets.

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