Bankruptcy exemptions protect the equity in your property from creditors and the bankruptcy court—preventing the equity from being used to pay your creditors. Equity is the value of property after you subtract the amount of any liens against the property from its fair market value.

The equity in your home is one such asset in bankruptcy. And bankruptcy exemptions—including the homestead exemption—allow you to protect the property you will need to maintain a home and employment after bankruptcy.

Bankruptcy exemption amounts vary by state, so the amount you will be able to protect will depend on where you live and the type of bankruptcy you file (Chapter 7 or Chapter 13).

In Illinois, bankruptcy exemptions allow individuals to protect certain property from creditors when they file for bankruptcy. The Illinois homestead exemption, for instance, enables debtors to exempt up to $15,000 of equity in their residence ($30,000 for a married couple filing jointly) from being used to pay creditors in a bankruptcy case. This exemption applies whether filing under Chapter 7 or Chapter 13 bankruptcy. In a Chapter 7 bankruptcy, this means that if the equity in the home does not exceed the exemption amount, the home may not be sold to pay off unsecured creditors. In a Chapter 13 bankruptcy, the exemption can affect the amount that must be paid to unsecured creditors through the repayment plan. It's important to note that these exemptions are specific to Illinois and can differ from federal bankruptcy exemptions, which Illinois residents may choose instead of state exemptions. Additionally, the exemption amounts are subject to change, so it's advisable to consult with an attorney for the most current information.