What is the Illinois Homestead Exemption?
Many people who consider filing for bankruptcy are concerned that they will lose their vehicle, home, or other personal items. Fortunately, the state of Illinois offers legal protection for most (if not all) of your assets. This protection is enacted through “bankruptcy exemptions,” which allow many people to keep their homes and offer protection for some of the equity in their houses.
What is the Homestead Exemption in Illinois?
The Illinois homestead exemption protects up to $15,000 of equity in your home. For example, if you own a home with an original mortgage of $100,000, and you now only owe $85,000, the $15,000 in equity will receive protection if you file.
You can apply this protection to a house, condo, mobile home, co-op, or any property that you utilize as your primary residence. It also applies to money you make from the sale of your primary residence.
This protection can be particularly important when a homeowner files for Chapter 7, as a major concern is being allowed to keep the house and not having to sell it to pay off creditors.
Illinois also has exemptions for property taxes, but they are entirely unrelated to bankruptcy laws.
How Does the Homestead Exemption Work in Chapters 7 and 13?
While exemptions are relevant no matter which type of bankruptcy you file, they are especially critical in Chapter 7. Still, it’s important to understand how the chapter you choose will affect the outcome.
Homestead Exemption in Chapter 7
When you file for Chapter 7, your nonexempt property is sold by a court-appointed trustee, and the proceeds are then distributed to your creditors to pay debts. Most people who file for Chapter 7 are able to keep their home, as long as they’re current on mortgage payments and don’t have much equity.
Unfortunately, if you have a lot of equity in your home while filing for Ch. 7, you will likely be forced to sell the house to pay off your creditors with the proceeds. If this is the case, Chapter 13 may offer better protection.
Homestead Exemption in Chapter 13
Unlike Chapter 7, the Ch. 13 bankruptcy process allows you to keep both keep your nonexempt and exempt property. This means that regardless of how much equity you have in your home, you will be able to keep it.
This is particularly helpful if you have a regular income but are behind on your mortgage payments, as it will allow you to create a plan for paying off your past-due obligations.
How Do You Qualify For a Homestead Exemption in Illinois?
You must meet certain requirements to receive bankruptcy exemptions. First, you must live in Illinois for more than 180 days before you can file for bankruptcy there.
To qualify for the Illinois homestead exemption, you must live in the state for at least 730 days. If you haven’t lived in the state for at least this long, you will be required to use the exemptions from the state where you previously lived.
Married Couples and the Homestead Exemption
If you are married and filing jointly, $30,000 of equity in your primary residence will be covered, doubling the standard protection. This only applies if both spouses have an ownership interest in the property.
Filing for bankruptcy is never an easy decision, especially if you’re worried about losing your home. Fortunately, the laws offer several options that you can use to stay in your house.
Financial freedom doesn’t mean you have to give up the roof over your head! Schedule a free case evaluation with one DebtStoppers’ skilled Illinois bankruptcy lawyers and get the help you deserve.