Chapter 7 housing allowance

Joliet Illinois Bankruptcy Lawyers & Attorneys

Jesse Barrientes: Well, you know � how about this? What happens if you know I�ve got a house? I own a home. And I still want to file a Chapter 7 bankruptcy. Am I going to be able to do it?

Dave Siegel: It depends. The state of Illinois allows you to keep a certain amount of equity or ownership in property, free and clear from creditors.

Jesse Barrientes: Okay. So hang on � back up one second. I�m a little bit confused here, alright? And that is if you�re talking about the state of Illinois, I thought bankruptcy was federal?

Dave Siegel: Bankruptcy is federal but the amount of property that you�re allowed to keep in this state is concerning Illinois law. So Illinois law actually kind of sneaks in there just in terms of how much property you can keep.

Jesse Barrientes: So it varies from state to state, then.

Dave Siegel: That�s correct.

Jesse Barrientes: So if Illinois has x amount of dollars. I could go to another state if I live there and they might have some more.

Dave Siegel: You could go to another state but you would have to establish residency there. For example, if you wanted to move to either Florida or Texas and you can wait out three point three years, you can protect every single bit of equity in real estate. But you must cross that three point three year threshold. But we�re talking about Illinois here. And the laws are not that lenient in Illinois. For example, a person in your situation, if you lived by yourself, would be able to protect up to $15 thousand dollars of equity in your house. That�s not a lot.

Jesse Barrientes: That�s just for one person.

Dave Siegel: One person.

Jesse Barrientes: If I was married, so �

Dave Siegel: That would be $30 thousand.

Jesse Barrientes: Okay, and so on. If there were � if it was joint tenancy with four people?

Dave Siegel: Well, you�d still get your exemption of $15 thousand but then the court would have to give up the additional equity � you know, prorate share to the other owners, so you�d be in good shape under that situation unless there was a significant amount of equity.

Jesse Barrientes: What if I had a little bit extra in my equity. So it�s $15 thousand for one person. And I have maybe $20 thousand. Are they going to sell my home?

Dave Siegel: Probably not, and the reason being is that a trustee, who�s appointed by the bankruptcy court, would look to see what kind of equity there was. They�d have to take into consideration what it would take to sell that property. You�ve got real estate taxes. You�ve got broker�s commissions. You have to pay your exemption of 15 or 30 thousand if it�s joint. And then if there�s not a whole left to administer to your unsecured creditors, the trustee is not going to find it worth his time or worth the creditor�s time to administer that asset.

Jesse Barrientes: Okay, very good. Well, so what you�re saying is, or what I�m hearing is I can do a Chapter 7 if I have a house, but if I�m under that threshold with respect to my income and with respect to the amount of equity I might have in my home. Is that correct?

Dave Siegel: That�s right. There�s kind of a simple rule of thumb here. If you have a lot of equity in property, whether it be in your house, whether you have an expensive vehicle that�s paid for, whether you have significant money in the bank and you�re just not paying your creditors, Chapter 7 is not likely going to be successful for you.

Jesse Barrientes: Okay, well, so I can save my house with a Chapter 7. So does that mean that before I come in to see you I stop paying my mortgage?

Dave Siegel: If your intention is to keep your property, you�re going to continue to make your mortgage payment right through the bankruptcy case and beyond.

Jesse Barrientes: What if I�m behind when I come to see you?

Dave Siegel: Well, there�s a couple of things you can do. You can try and catch up on your own and still eliminate your unsecured debt. Or you can surrender the property, live there until it goes through a complete foreclosure process, and then walk away from it.

Jesse Barrientes: So that�s the only way if I�m behind on my mortgage to be able to do a Chapter 7 bankruptcy. Is if I�m behind I can either catch it up or surrender it. Those are the only two options?

Dave Siegel: Yes. And catching it up could be refinancing, getting a second mortgage. A family member could help you out. You could actually sell it.

Jesse Barrientes: Dave, they wouldn�t let me. They wouldn�t let me with my credit now because I can�t afford to pay what I�m behind so nobody�s going to give me a loan.

Dave Siegel: Well, it�s possible that you can refinance after a bankruptcy if you get a co-signer. If you have a family member helping you. Or maybe you�ll be able to catch up now that you don�t have to pay the high interest payments on the credit cards, or the high utilities, or the high personal loan payments. So you might be able to manage and bring your mortgage current if you don�t have all your other debt.

Jesse Barrientes: Okay, so � but again, that�s the only two avenues for me with respect to keeping my house. And that�s it.

Dave Siegel: Yes. Most people are able to keep their house because they don�t have significant equity. And recently we�ve seen real estate values drop so significantly that people who did have equity in the past don�t have much any more. So most people can still file and keep their house as long as they continue to to make those payments.

Jesse Barrientes: Well what happens if we go the other route and I decide for example � you know what, I�m behind. I can�t catch it up. I�m just going to stay as long as I can and ride it out. But I have equity in my house. I�ve got at least $16 thousand dollars of equity. What�s going to happen when they sell it? Am I going to get that money back? Are they going to keep it? Or am I just out of luck all the way around?

Dave Siegel: You�re going to get your exemption of $15 thousand if the trustee sells your property. You�re going to get that off the top.

Jesse Barrientes: No matter what. So if they sell it, I�ll get my $15 thousand � I�ll get that exemption.

Dave Siegel: You�re going to get a check for $15 thousand that you can put anywhere you want when you want.

Jesse Barrientes: When they sell it?

Dave Siegel: When they sell it.

Jesse Barrientes: No matter what?

Dave Siegel: No matter what. But that�s not a lot of money, Jesse.

Jesse Barrientes: Well how long is it going to take for them to sell it?

Dave Siegel: Depends on the market. It used to be houses could sell in two to four months. Now, trustees are not that eager to sell a house because it�s just difficult. There are not a lot of buyers.

Back to Joliet Illinois Bankruptcy Lawyers & Attorneys

Chapter 7

What is Chapter 7?

Qualifying for a Chaper 7

What’s needed to file a Chapter 7 case?

Chapter 7 housing allowance

Chapter 7 & autos

Stay on creditors during a Chapter 7 case

Mistakes made in a Chapter 7 case

Chapter 7 & second mortgages

Listing creditors in a Chapter 7 case

Credit counseling classes in a Chapter 7 case