Expert: Terry Leeders - 11/15/2008

Question
Hi, I have several questions about bankruptcy in the state of IL.

We are well below the means test for IL (We are family of 7 making $45,000 a year.)Our first question is about our taxes will they take them? We usually get several thousand dollars back when we file because of the child tax credit (not the earned income credit) and some of it is from overpayment too. So will they take the whole amount or do they only take a portion--like they just take the overpayment part but leave the child tax credit part? Does it matter when we file for bankruptcy in relation to our taxes being filed? Or will they take it no matter what even if we wait to file?

We desperately  need to keep our house because we have no idea where else we could move to with 5 kids and now bad credit. We are one month behind on the payment and finding it hard to get make a double payment plus late fees to get caught up right now. That's why we asked about the tax money and was hoping we could use that to get us caught back up and even ahead because even after the bankruptcy we will still have new medical bills to pay and the tax money would be nice to have as a cushion. Will being behind one month on our mortgage effect if we are allowed to keep the house? Can they (court or mortgage co) not allow us to reaffirm? We are currently upside down on the house by $20,000 and are mortgage co. said we could fill out the papers for a loan mod request if we wanted to but siad it wouldn't be likely to get approved since we have a fixed rate and only one month behind. We didn't mention that we were going to file for bankruptcy to them because we didn't know if we should or not.

Alos, what is the exemption for IL married couple in regards to cash/money and value of items.

Thank you for your time.  

Answer
A tax refund is an asset in the bankruptcy case, and you can only use a wildcard exemption to protect it. In Illinois, each filer has a $4000 wildcard to use. In the northern district, the courts will allow you to exempt the earned income credit portion (not the child tax credit).
You can file after you get the refund. You should be careful how you spend it down, speak to your attorney.  Normal necessities that are reasonable should be ok.

For the home, if there is no equity, and you stay current, you can reaffirm the debt, to keep it after bankruptcy.

Your total wildcard exemption to protect your household items, cash etc. for a married couple filing is $8000.

I practice bankruptcy exclusively in Illinois, so visit my profile and I'd be happy to set you up for a free consultation to go over your options.