The answer to this common bankruptcy question depends on how much your home and car are worth. More specifically, it depends on how much equity you own in the property.
When you file for Chapter 7 bankruptcy in Joliet or Will County, Illinois, nearly everything you own (i.e. your “assets”) becomes part of the bankruptcy estate, to be sold off to pay your creditors. This is, very briefly, how Chapter 7 bankruptcy works. A bankruptcy trustee is appointed to take charge of selling your assets and ensuring that your creditors receive as much of the amount owed as possible.
However, this doesn’t mean that you lose everything when filing for bankruptcy under Chapter 7. Certain property you get to keep. For one thing, property that is of little monetary value or equity won’t be worth the trustee’s time or effort to attempt to sell, so the trustee will likely “abandon” the property (meaning you get to keep it). Likewise, some property is “exempt” from the bankruptcy estate, so the trustee cannot sell it. Under certain circumstances, these exemptions make it possible for you to keep your home and/or vehicle in a Chapter 7 bankruptcy filed in Will County, Illinois.
There are three relevant property exemptions under Illinois bankruptcy law: the Illinois Homestead Exemption, the Illinois Motor Vehicle Exemption, and the Wildcard Exemption.
Illinois Homestead Exemption
This exemption can be used to protect up to $15,000 in your home (whether it be a house, condominium, mobile home, or cooperative). In other words, you are entitled to keep whatever equity you have in your home, up to $15K. (To understand the concept of “equity,” consider the following example: If your house is worth $100,000 and you have a $75,000 unpaid mortgage, the equity in your home is $25,000.)
If the equity in your home is substantially more than $15,000, it is unlikely that you will get to keep your home if you file for Chapter 7 bankruptcy. Using the example above, if the value of your house is $100,000 and you have $25,000 in equity, the house is worth $10,000 to the bankruptcy estate: $75,000 from the sale of the house would go straight to the bank to pay off the mortgage, and $15,000 would go to you pursuant to the Homestead Exemption, leaving the trustee with $10,000 that can be used to pay your creditors.
Conversely, if the equity in your home is less than or equal to $15,000, the trustee won’t bother selling your house because there would be little or no money left over once the mortgage is paid off and your exempted equity was allocated to you. In this scenario, you wouldn’t lose your house in the bankruptcy proceeding (but you could still lose your home via foreclosure if you are too far behind on your mortgage payments). The Homestead Exemption also applies to the money from the sale of residential property for up to one year.
Additional considerations come into play if you are married and own the home with your spouse. If you and your spouse are filing for bankruptcy jointly, the Homestead Exception doubles, meaning you and your spouse together may protect up to $30,000 in your home’s equity. In a different scenario, where you alone are filing for bankruptcy and you own your home with your spouse as a “tenancy by the entirety” (a common form of marital property in Illinois), your home is insulated from the bankruptcy process, regardless of how much equity you and your spouse own in the home. For this reason, a tenancy by the entirety is commonly referred to as a “super exemption” in Illinois bankruptcy law (though, technically, it isn’t an exemption at all—your home simply isn’t susceptible of becoming part of the bankruptcy estate). Tenancies by the entirety are powerful legal devices when it comes to protecting your real property if you or your spouse (but not both) are in significant debt. To find out whether your home may be protected by the Homestead Exemption or as a tenancy by the entirety in Illinois, contact an experienced Joliet bankruptcy attorney. At Hamilton & Antonsen, we will provide you with a free consultation.
Illinois Motor Vehicle Exemption
The Motor Vehicle Exemption in an Illinois bankruptcy proceeding works in much the same way as the Homestead Exemption. You may exempt up to $2,400 in the equity of a motor vehicle. If filing for joint bankruptcy with your spouse, you are each entitled to exempt $2,400 to save one vehicle (for a total of $4,800), provided you and your spouse both have title in the vehicle.
Illinois Wildcard Exemption
In addition to the Homestead and Motor Vehicle exemptions described above, Illinois bankruptcy law allows you to exempt an additional $4,000 in personal property from the bankruptcy estate. Many Illinois bankruptcy petitioners use the Wildcard Exemption to protect additional equity in their vehicle if the $2,400 Motor Vehicle Exemption is insufficient to cover the equity of the vehicle. (Remember, your equity in a piece of property is the value of the property minus any unpaid loans securing the property.)
To illustrate, say your car has $6,000 in equity. Clearly the Motor Vehicle Exemption alone will be insufficient to protect your car from being sold by the trustee, who can still get $3,600 from the sale ($6,000 – $2,400 = $3,600). But if you choose to apply your Wildcard Exemption to the remaining $3,600 equity in the car, you will have successfully exempted the entire equity value of the car and the trustee will not sell it. Furthermore, under these facts, you would still have $400 of your Wildcard Exemption left to apply to other personal property you would like to protect.
Keep in mind that the exemptions described in this article only protect your car or home within the bankruptcy process. You can still lose your home and/or your vehicle if you fail to make payments on your mortgage or car loan. The bank or lender may repossess your home or your car (via residential foreclosure or vehicle repossession, respectively) if you default on your loan payments. These processes occur entirely outside the bankruptcy system.
If you own a home and/or vehicle and are in significant debt in Illinois, consult an experienced, Will County bankruptcy attorney to discuss whether a Chapter 7 bankruptcy is right for you, and whether you may be able to save your property from becoming part of the bankruptcy estate. To set up a complimentary appointment to discuss your individual situation, contact Hamilton & Antonsen at 815.729.9220.