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Will you lose your home during Chapter 7 bankruptcy in Illinois?

On Behalf of | Sep 23, 2020 | Bankruptcy

Unsecured credit is easy to come by in the United States, which is beneficial for the economy overall. Unfortunately, during times of economic decline, people can quickly find themselves overwhelmed by debt that would have been manageable just a few months before.

Unsecured debts, like credit cards, can represent the thousands of dollars of financial liability for your household. If you also have other serious, unsecured debts, like medical debts, balancing your budget may be hard during times when your earnings drop.

If you can’t keep up with your bills and worry about collection activity or possibly foreclosure, bankruptcy may start to look appealing. If you qualify for Chapter 7 bankruptcy in Illinois, can you protect your house from Liquidation?

Illinois does allow a homestead exemption in bankruptcy

People call Chapter 7 bankruptcy liquidation bankruptcy because people filing may have to sell off some of their assets in order to repay creditors before they can get a discharge for their debt. That could include refinancing your home to use some of the accrued equity to repay creditors. However, the courts would not require someone to give up their home as part of their bankruptcy.

In Illinois, despite the relatively high cost of real estate near metropolitan areas, the homestead exemption remains surprisingly low. An individual filing bankruptcy on their own can only protect $15,000 worth of home equity, while a couple filing together can exempt up to $30,000 worth of equity. Unlike in some states, where people can also use federal exemptions, those who file in Illinois can only use state exemptions for their property.

There are other options for those with big debts but significant equity

If you have already accumulated a significant amount of debt but don’t want to lose the equity that you build in your home, Chapter 7 bankruptcy may not be the right solution for you. Chapter 13 bankruptcy involves the structured repayment plan and allows for the protection of all of your accumulated equity in most circumstances.

Discussing your situation both regarding your debts and your assets with an attorney familiar with bankruptcy in Illinois can give you a better idea of what might work for your situation.