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What Happens to My House in Bankruptcy?

Grayslake Attorneys for Residential Real Estate in Bankruptcy

Chapter 7 and Chapter 13 Bankruptcy Lawyers in Lake County

For many people, bankruptcy is an option to delay or prevent foreclosure on a home that is in default. In other situations, however, a person may be up to date on their mortgage but be facing an insurmountable mountain of other debts. If you are a homeowner who is considering filing for bankruptcy, you are probably concerned about what will happen to your home. Will you need to sell it, even though you are not behind on your payments? Is there anything you can do to keep your home and still obtain bankruptcy protection?

At Newland & Newland, LLP, we know that the answers to questions like these depend on your unique circumstances. With more than 60 years of combined experience, our skilled bankruptcy attorneys will help you understand your options and work hard to keep you in your home if at all possible.

Chapter 13 Considerations

If you will be filing for Chapter 13 bankruptcy, your home will most likely not be affected. You will need to show the bankruptcy court and your mortgage holder that you can afford to remain current on your home loan, along with your other obligations. Chapter 13 proceedings do not usually require you to give up your assets unless you choose to do so. Our team will assist you in analyzing your financial situation to determine the viability of staying in your home before filing for Chapter 13 bankruptcy.

Chapter 7 Bankruptcy Is Different

Compared to Chapter 13, Chapter 7 bankruptcy is an entirely different situation. Under Chapter 7, your ability to stay in your home will depend on the amount of equity that is currently in the home. Equity is calculated by taking the value of the home and subtracting the amount that is still outstanding in mortgages or any other loans against the property. If your home, for example, has an appraised value of $150,000 and there is $125,000 remaining on your mortgage, there is $25,000 of equity in your home.

Illinois law provides a bankruptcy exemption for the filer's home in Chapter 7 proceedings. If your home's equity is below the exemption threshold, your home cannot be sold by the bankruptcy trustee. The current exemption for residents in Illinois is $15,000. Your home can only be sold if there is more than $15,000 in equity in your home when you file for Chapter 7 bankruptcy.

It is important to keep in mind that the exemption amount doubles if you and your spouse own the property jointly and you are filing jointly for Chapter 7 bankruptcy. You should also understand that if your home's equity is just at or slightly above the exemption line, the trustee could allow you to keep your property as well. The hassle of assuming possession, selling the property, and getting the proceeds to creditors might not be worth the amount that is gained.

Reaffirmation Agreements in Illinois

If you own your home outright, without a mortgage or outstanding equity loans, there is a good possibility that it will be sold by the trustee in bankruptcy to pay off creditors. If you meet the exemption requirements, however, or the trustee decides not to sell a home secured by a loan, you will need to complete a reaffirmation agreement with your lender or lenders in order to keep the property. In the reaffirmation agreement, you must agree that your obligations will not be discharged in bankruptcy and that you will continue to make payments on the loan. If a reaffirmation agreement is not completed, your loan can be discharged, but the lender—usually a bank—can take your home. The team at Newland & Newland, LLP will help you draft a reaffirmation agreement that protects your rights and keeps you in your home for as long as you wish to stay there.

Call 847-549-0000 Today

For more information about how your bankruptcy might affect your home, contact our office. Call 847-549-0000 for a free phone consultation today. We serve clients throughout Lake County and Northern Illinois.

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