Will I Lose My House When I File for Bankruptcy?

What happens to your family’s home if you decide to file for bankruptcy? This is among the most commonly asked questions when Oak Park residents are considering personal bankruptcy. According to a recent article in The Washington Post, while some forms of consumer bankruptcy can result in the loss of property, including your home and your vehicle, some forms of bankruptcy protection might actually be able to help you save your home. What do you need to know about how bankruptcy will affect your home?
Determining the Value of Your Home in Chapter 7 Bankruptcy
If you decide to file for Chapter 7 bankruptcy—what the article describes as “the most common form of consumer bankruptcy—you are telling the court that you do not have enough money to pay your debts and that you are willing to liquidate your assets in order to have your debts discharged. Keep in mind that Chapter 7 bankruptcy does not readily permit the discharge of all debts. For instance, student loan debts are very difficult to discharge, and any debts owed for child support simply are not dischargeable. But you can discharge many other debts, including credit card debts and medical bills. When you decide to file for liquidation bankruptcy, however, you should know that you may lose your house in the process.
An Oak Park consumer who files for Chapter 7 bankruptcy will be permitted certain “exemptions.” Under Illinois law, exemptions are assets that you can keep—that will not be “counted,” so to speak—when your other assets are liquidated to pay your creditors. In other words, the law essentially believes that there are certain assets a debtor should be able to keep even though she needs to repay creditors. One exemption that becomes very important for homeowners who file for bankruptcy is the “homestead exemption.” In Illinois, an individual who files for bankruptcy can exempt up to $15,000 of equity in her house, condominium, or mobile home. For married couples filing for bankruptcy, that amount doubles to $30,000.
As such, if your home has more than $15,000 equity (or $30,000 if you are filing for bankruptcy as a married couple), then your property may be seized in order for you to have your debts discharged.
Differences in Chapter 13 Bankruptcy Filings
Unlike Chapter 7 bankruptcy, Chapter 13 bankruptcy can actually allow you to save your house. Since Chapter 13 bankruptcy involves the creation of a repayment plan—rather than a liquidation of the debtor’s assets—this form of bankruptcy can actually give you a chance to make up missed payments on your mortgage. Moreover, Chapter 13 bankruptcy comes with an “automatic stay” that can prevent your home from going into foreclosure if you have missed a number of payments.
In short, if your house has equity of more than $15,000 (or $30,000 if you are filing for bankruptcy as a married couple), you should learn more about how the different forms of bankruptcy are likely to impact your home. And keep in mind that, if you are going into foreclosure, Chapter 13 may be your best option.
If you have questions about which form of bankruptcy is right for you and how each form of bankruptcy is likely to affect your homeownership, an experienced Oak Park bankruptcy lawyer can help. Contact the Emerson Law Firm today for more information.
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