Thousands of people with disabilities in Illinois will be able to move out of institutions and into community living environments under an agreement filed Monday in federal court.

The agreement is a resolution to a class action lawsuit filed in 2005 by two Chicago residents who had no choice but to live in a nursing home. The plan laid out in the settlement would dramatically reshape Illinois’ long troubled care system for those with developmental disabilities and mental illness.

Under the plan, about 4,500 residents would be given the choice to leave large institutions known as “institutions for mental diseases,” or IMDs, in favor of small, community based residences with supports. The plan would be implemented over the next five years.

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“This is a momentous day,” said Benjamin Wolf, associate legal director for the American Civil Liberties Union of Illinois, one of the organizations that brought the case. “This agreement moves us from antiquated, failed policies that forced people into these large institutions and embraces the current best practice across the nation of permitting persons with mental illness to live in the most independent setting possible.”

If the agreement is approved by a judge, advocates say Illinois will spend less money to house those already in the state’s care and the community-based approach will enable the state to qualify for increased federal funds.