Will I Lose My Home If I File Bankruptcy?

As part of debt relief, anyone considering bankruptcy usually has this question: Will I lose my home? Generally, you can save your home if you file for Chapter 7 or Chapter 13 bankruptcy. However, how to handle your home during bankruptcy is a complex question, and every case is different. 

If you feel crushed by debt and are thinking about declaring bankruptcy, speak to an attorney immediately. With a Debt Pros bankruptcy attorney at your side from Wonais Law, filing for bankruptcy could be the solution to your financial problems. 

Contact us today to assist with your bankruptcy case and protect your home from creditors.

What Is Chapter 7 Bankruptcy? 

Chapter 7 bankruptcy is the most common type of bankruptcy. A Chapter 7 bankruptcy filing also may be referred to as a liquidation case. When you file for Chapter 7 bankruptcy, the petition creates an automatic stay that usually prevents debt collectors from making further collection efforts while the case proceeds. 

In Illinois, you are entitled to keep certain property that qualifies for various bankruptcy exemptions under state law. Some of the most commonly used bankruptcy exemptions in Illinois are: 

• Your personal home, with $15,000 in equity protected from creditors ($30,000 if your spouse is also filing). 
• $15,000 of compensation for a personal injury lawsuit. 
• Auto equity up to $2,400 for each owner
• Books and tools used in your profession up to $1,500
• $4,000 in additional personal property, such as cash in the bank

If you are on time with your mortgage payments, you can keep your home after a Chapter 7 bankruptcy. 

What Is Chapter 13 Bankruptcy? 

In a Chapter 13 bankruptcy, you don’t need to liquidate your assets to pay off creditors. Instead, you create a repayment plan to repay some or all of your debts over several years. This process may allow you to keep much of your property, including your home. 

The repayment plan period is three years if your family’s monthly income is under the Illinois median income for a family of your size. The repayment period is five years in other cases. 

Qualifying for Chapter 13 bankruptcy means having regular income and meeting debt limitation requirements. The limit is $383,175 for unsecured debt and $1,149,525 for secured debt. 

Filing Chapter 13 bankruptcy protection can be preferable because you may qualify for more of your home equity to be protected from creditors. You also may be able to create a repayment plan to catch up on your delinquent mortgage payments. 

Illinois Homestead Exemption 

The Illinois homestead exemption is the key when protecting your house in bankruptcy. The homestead exemption protects some of the equity of your home. In Illinois, you may be exempt as much as $15,000 of equity in your home. If you file bankruptcy with your spouse, up to $30,000 of equity is protected. 

The homestead exemption also protects the sale proceeds for up to a year. You could qualify for more equity being protected in bankruptcy if the residence is held as tenants by the entirety and only one spouse files for Chapter 7 or 13 bankruptcy. 

Unfortunately, despite the high cost of living in Chicago, the homestead exemption in Illinois is still low. You can only use the state exemption because the federal exemptions aren’t valid in Illinois. However, a bankruptcy attorney can work with you to increase the chances of keeping your home. 

Suppose your home is worth $100,000. Your mortgage is for $90,000, so you have $10,000 in equity. In this scenario, your equity would be exempt with the homestead exemption when you file bankruptcy. Creditors cannot seize your equity, and you can keep your house, assuming you make on-time payments and pay taxes. You don’t need to file a homestead application to use the exemption in bankruptcy.

Reaffirming Your Mortgage 

One strategy that can help you keep your house is to reaffirm your mortgage when declaring Chapter 7 and continuing to make every mortgage payment. You can reaffirm your mortgage if you are current on your payments and have less than $15,000 in equity ($30,000 if married). This means you agree to continue mortgage payments despite declaring bankruptcy. If you decide to reaffirm your mortgage, you are still obligated for the debt, even if financial circumstances change and later you can’t afford it. 

File Chapter 13 to Save Your House

Another option is to file Chapter 13 bankruptcy to protect your home. This may be the right choice if you must catch up on your home loan payments. Filing Chapter 13 allows you to avoid foreclosure and propose a repayment plan to catch up on your mortgage payments. You also could qualify to protect additional home equity. 

Even if the mortgage company has already started foreclosure proceedings, it isn’t necessarily too late to use Chapter 13 to save your home. The foreclosure process is suspended as soon as your bankruptcy attorney files your Chapter 13 bankruptcy petition. This is usually the best option if you are behind on your mortgage payments and want to keep the house. 

Generally, you can save your home when filing a bankruptcy case in Illinois. However, some of your home equity could be exposed to creditors, and you will need to create a payment plan if you are behind on your home loan. A bankruptcy attorney in Chicago can review your case and explain the legal strategies that could help keep your home after filing bankruptcy. 

Contact Our Chicago Bankruptcy Attorneys Today for Your Bankruptcy Case

If you are experiencing financial problems, you probably consider filing for bankruptcy. But losing your home in bankruptcy is a common concern, but you won’t necessarily lose it. You can often keep your home if you file for bankruptcy. Many debtors can also keep most of their possessions. 

You should have a free consultation with a bankruptcy attorney to get all your questions answered about unsecured creditors, mortgage debt, and more. The bankruptcy lawyers at Wonais Law Firm are here to help if you are facing debt problems or considering bankruptcy. Contact a Chapter 7 and Chapter 13 bankruptcy attorney today for more information. They can assist you with filing for Chapter 7 or 13 bankruptcy. 
Attorney John Wonais is an experienced bankruptcy attorney who has achieved a stellar 10.0 rating by Justia and has been named a Rising Star by Super Lawyers. For legal assistance, contact our Chicago bankruptcy attorney at (312) 883-5422.