Veterans Benefits Are Exempt in Bankruptcy and Illinois

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Veterans Benefits Are Exempt in Bankruptcy and Illinois.  These benefits are exempt under the Illinois Statutory Exemptions found at 735 ILCS 5/12 1001(g) (2).  The Federal Exemptions at 11 U.S.C. 522(d) are prohibited in Illinois pursuant to 11 U.S.C. 522(b) which authorizes the state prohibition and Illinois Statute 735 ILCS 5/12-1201 which prohibits the Federal Exemptions in Bankruptcy and provides exemptions under 735 ILCS 5/12 1001.

There are some significant limitations to this exemption:  Only current and future payments are exempt.  Saved benefits are not exempt.  Case law construes this by stating that the benefit is to provide some minimal level of income and not be a windfall to the debtor.  Even saved benefits that segregated and ONLY veterans’ benefits proceeds and are traceable to those Veterans’ Benefits Payments are not exempt under 1001(g).   In other words any accumulation of benefits more than one month of payments is going to become property of the bankruptcy estate and would be subject to seizure by the trustee if not exempt under another exemption.

This is contrasted with the exemption provided under 735 ILCS 5/12 1001(h) which talks about the debtor’s right to receive, or property that is traceable to:  (1-5 – personal injury, wrongful death, life insurance and other claims very different from Veteran’s Benefits)

Statutes:  735 ILCS 5/12 – 1001(g) (2) (Illinois Veteran’s Benefit Bankruptcy Exemption)

Statutes:  735 ILCS 5/12-1201 (11 U.S.C 522(b) authorizes State of Illinois to prohibit use of Federal Bankruptcy Exemptions under 11 U.S.C. 522(f))

Case Law:  Fayette County Hospital v. Reavis, 169 Ill.App.3d 246, 119 Ill. Dec. 937; N.E.2d 693 (Ill.Ap. 5 Dist., 1988); In Re Marriage of Pope-Clifton, 355 Ill.App.3d 478, 291 Ill.Dec. 315, 823 N.E.2d 607 (Ill. App., 2005); In Re Schoonover, 331 F.3d 575 (7th Cir. 2003); In re Russell (Bankr. C.D. Ill., 2013)

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Veterans Benefits Exemption Research

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