Homes are at the top of the list of concerns related to bankruptcy. How will filing for bankruptcy affect my home? Illinois bankruptcy laws are fairly straightforward when it comes to the homestead. Debtors may protect up to $15,000 of home equity, married couples filing jointly can double this exemption to protect up to $30,000 of equity in their home. Proceeds from the sale of a home are exempt for one (1) year. Understand that exempting home equity will not relieve the obligation to stay current on your mortgage.
How does the Illinois homestead exemption work in a chapter 7 bankruptcy case? Let’s say that John owns a home in Springfield worth $200,000 with a mortgage of $150,000. Under Illinois bankruptcy laws, John cannot protect all of his $50,000 of home equity. Remember Illinois exemptions only allow $15,000 of home equity to be shielded from creditors. As such, John has $35,000 of value in his home that will be considered non-exempt. The bankruptcy trustee will be within his rights to list the home for sale with the proceeds going to pay back some of John’s creditors. In the event that John’s home was sold, he would be entitled to a check for $15,000 (the amount of home equity exempt in Illinois).
It is important to keep in mind that trustees don’t really want to sell your home. There are large costs associated with selling real estate, in many cases the trustee will be open to a cash offer to “buy out” the non-exempt portion of equity in a home. If you are considering going this route, discuss your options with an attorney.
Also be aware that a recent move may impact what exemption laws apply to your bankruptcy case. If you have moved within the last two years or are considering moving please read: A recent move may impact your ability to protect property in bankruptcy.