Your home is an asset, and Chapter 7 bankruptcy works by liquidating your assets to pay off your debt. However, this does not inevitably mean you will lose your house if you file for bankruptcy. As with most things in law, the fate of your home in a Chapter 7 bankruptcy depends on various factors.
Specifically, it depends on the amount of equity in your home. If your home has no equity, the trustee will not bother selling it. Consider what happens to the funds when a house is sold in a Chapter 7 bankruptcy proceeding: First, the realtor is paid for selling the house, the trustee receives a commission on the sale, and you as the debtor receive a certain amount set by statute (the “homestead exemption”). The rest of the money is used to pay off the mortgage and lien holders, and whatever is left after that goes toward paying off your debts. Notice that your creditors are the very last ones to see any of the profit, which may seem odd considering the only reason your house was sold in the first place was to help pay off your debt. But the reality is it costs money to sell a house, and your mortgage doesn’t suddenly disappear just because you filed for bankruptcy. Consequently, even if your house sells for several hundred thousand dollars, it is possible your creditors will receive a mere fraction of that price.
Now consider this process in light of your own Joliet or Will County home. If your mortgage is more than the market price of your house, it is clear your home has no equity and the trustee will “abandon” it (meaning you get to keep the house). Of course, you could still lose your home through foreclosure if you are behind on your mortgage payments, but this process is entirely separate from bankruptcy.
Even if you have some equity in your home, the trustee will still abandon your house if that equity is “exempt.” Every state has a “homestead exemption” that allows debtors to retain a certain amount of the equity in their home. In Illinois, homeowners may exempt up to $15,000. To illustrate this point, say the market value of your house is $315,000 and you have a $300,000 mortgage securing the property. This means you have $15,000 of equity in your home. Since the Illinois homestead exemption covers up to $15,000 of your home’s value, all of the equity in your home is exempt and the trustee will not sell it.
But what if the equity in your home is greater than $15,000? To use a variation of the above example, say your Will County, Illinois home is worth $325,000 and your mortgage is $300,000. Since you can only exempt up to $15,000, you would have $10,000 of nonexempt equity in your home. Ten thousand dollars could go a long way in paying off your creditors, but as mentioned above, other parties have to be paid first. The realtor who the trustee hired to sell the property charges a five-percent commission—say $16,000—and the trustee himself gets a small percentage of the sale. Since the amount of nonexempt equity is only $10,000, there is not even enough to pay the realtor’s fee let alone the trustee’s as well. In this instance, therefore, the trustee would not bother selling your home.
Only if there is a significant amount of nonexempt equity in your home—enough to satisfy the realtor’s fee and the trustee’s commission with money left over—is there any risk of losing your home in a Chapter 7 bankruptcy filed in Will County, Illinois. If the circumstances of your case create such a risk, a Chapter 13 bankruptcy might be a better route if you would like to keep your home. But as with all Will County bankruptcy matters, only an experienced local bankruptcy attorney can accurately appraise your situation and advise you accordingly.
To discuss your individual situation with an experienced and affordable Will County bankruptcy attorney, Hamilton & Antonsen at 815.729.9220.
Written by: Sarah Hanneken