One of the most worrisome parts of filing for bankruptcy is doing so while you own a home. Threats of foreclosure and an inability to keep your family in your beloved home can paralyze you into indecision.
It’s essential to investigate your legal and financial options before your home falls into foreclosure and you have no options for retaining your house. Here’s what you need to know about bankruptcy and keeping your home.
Having Zero Equity in Your Home
One of the problems many homeowners face today is the prospect of zero equity in the home despite years of mortgage payments. Changes in housing values, refinancing the mortgage, and taking out home equity loans can eliminate any existing equity in a home.
When you file for Chapter 7 bankruptcy (which is a liquidation of your assets to pay your bills), the bankruptcy trustee who oversees that liquidation will add your house to your list of assets. However, if there is no equity in the house, the trustee won’t sell the house to pay off debts since, technically, no unsecured creditors would get paid after the sale.
The mortgage lender for your house would probably already have a lien on the house due to your bankruptcy filing, so the bankruptcy trustee wouldn’t be able to satisfy any of your unsecured debts by selling the house (which would be grouped under your secured debts). However, even if your house has some equity, there is a chance you can still save it.
Using the Homestead Exemption
If your home has some equity in it, the trustee can sell it and use the equity to pay off your unsecured debts, as well as satisfy the mortgage lender. However, having some equity in your house doesn’t guarantee that the trustee will sell the home. There are some bankruptcy exemptions you may be able to use, depending on your circumstances.
If you live in Illinois, the homestead exemption ensures you can protect your home if you have $15,000 or less in equity. However, this amount increases to $30,000 when you file a joint bankruptcy as a married couple.
There are some additional requirements that you must meet if you wish to take advantage of the Illinois Homestead Exemption:
“In Illinois, the homestead exemption applies to real and personal property, including your home, condominium, mobile home, and co-op. The homestead exemption also applies to sale proceeds from the sale of any real or personal property for up to one year from the date you sell the property.”
Your bankruptcy lawyer doesn’t need to file a homestead declaration in Illinois to take advantage of this exemption since it’s automatic in Illinois. There are some additional guidelines for homestead exemptions that you will want to discuss with your lawyer.
The Idea of a “Fresh Start” and Bankruptcy
People in significant debt often approach bankruptcy as a way to get out from under those debts, but it’s important to realize that the process won’t leave you without anything but the shoes on your feet. Bankruptcy is designed to offer debtors a “fresh start,” and sometimes, selling a home isn’t the best way to accomplish that.
Some debtors can indeed maintain payments on their mortgage, and the exemptions provided during the bankruptcy process ensure that people aren’t as destitute when they exit bankruptcy as they were when they entered into the process.
Find Law reveals:
“The federal government assumes that everyone tries to pay off their debt, and that if someone has excessive property they should sell it to pay off their debt. However, bankruptcy is designed to give you a fresh start, not to leave you impoverished, and the federal and state governments often have exemptions.”
Worry over losing your house shouldn’t prevent you from inquiring about bankruptcy. Visiting a lawyer to discuss your options doesn’t necessarily mean you must file.
Do You Need Advice on Foreclosure, Home Ownership, or Bankruptcy?
Are you terrified that you might lose your home? Are you worried about foreclosure and bankruptcy? Would you like to know how the legal team at Suburban Legal Group PC can help? Request a Free No Obligation Legal Evaluation today, and we’ll let you know your options and whether bankruptcy is the right step for you.
DISCLAIMER: All information on this website is provided for informational purposes only and are not intended to be construed as legal advice. Suburban Legal Group PC shall not be liable for any errors or inaccuracies contained herein, or any actions taken in reliance thereon.