Geneva Lawyer Blog

Filing bankruptcy while owning a home

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Many people have voiced concerns over whether filing for protection under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code will cause them to lose their homes.  I found myself thinking recently about filing bankruptcy while owning a home, that this is a likely a concern about which many are worrying as they find themselves considering a bankruptcy filing.

When evaluating this issue, one should first determine the value of the home and the amount owed on any mortgages or other liens.  The difference between these figures is the equity that you have in your home.

A debtor filing for bankruptcy protection may exempt the first $15,000 in equity, so a married couple filing jointly could exempt the first $30,000 of equity.  Plus, you should factor in the transaction costs for selling the home (8-10% of the value of the home).  If these figures do not exceed the amount of your equity, there is a chance that the U.S. Trustee might elect to sell the home and distribute the additional amount to unsecured creditors, so a Chapter 13 might be the better option.

To make this easier to understand, I will provide an example:

Mary and Jeff are filing for Chapter 7 bankruptcy protection, having recently gotten back on their feet after a long, difficult period of unemployment.  They own a home that they could sell for $220,000, amd they owe $177,000 on their mortgage.  They are worried that they will have to give up their home if they file for bankruptcy.  Understanding that in the event of a sale of the home, the U.S. Trustee will incur around 8% in expenses (title charges, tax credits, realtor fees), the Trustee will only realize around $202,400 from the sale.  After paying the mortgage lender, there will be $25,400 remaining, less than the $30,000 in exemptions that may be asserted by Mary and Jeff.  Thus, the Trustee is unlikely to sell the home, since no funds would remain to distribute to creditors by a comfortable margin.

After the real estate downturn, most homeowners are able to retain their homes after filing for bankruptcy.

I’ve found that some of the happiest clients I’ve had are those that have taken advantage of the fresh start that the Bankruptcy Code provides.  For free initial consultation regarding your particular circumstances, call The Law Office of Matthew Robinson in Geneva, IL at (630) 402-0850.

What Bankruptcy Can and Cannot Do

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This is a great article that explains what Bankruptcy can and cannot do. Give it a read and then give the Law Office of Matthew Robinson a call for a free consultation.

“Although bankruptcy eliminates some debt, it doesn’t eliminate all types of debt. Before you file for bankruptcy, make sure you know which debts will be wiped out and which will remain. For the most part, you can get rid of credit card debt through Chapter 7 and Chapter 13 bankruptcy. But you may not be able to eliminate other types of debt, including child support, alimony, most tax debts, student loans, and secured debts. In some situations, Chapter 13 can help, whereas Chapter 7 cannot.”

via Bankruptcy Basics. What Bankruptcy Can and Cannot Do | Nolo.com.

Bankruptcy timeline: Rebuilding credit

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I’m often asked how bad someone’s credit is after a bankruptcy filing.  The link below leads to a great article on rebuilding credit after filing Chapter 7 and Chapter 13 Bankruptcy, and how many lenders will view a post-bankruptcy candidate in a positive light after getting the fresh start afforded by bankruptcy.

“when a person files Chapter 7 liquidation bankruptcy, the debtor immediately and dramatically reduces his or her debt-to-income ratio.”  via Bankruptcy timeline: Rebuilding credit.

When Should I Hire an Attorney?

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Real Estate transactions have become increasingly complex.  In order to make sure that everything is done right and that you are protected from liability down the road, I recommend engaging an attorney to assist you with your purchase or sale of real estate.

My recommendation is to hire an attorney either before or at the same time that you sign a contract for the purchase or sale.  Be careful with this — most real estate agents use a form contract that includes an opportunity for attorneys to approve or make changes to the contract within five days of its signing, but if this normal form contract is not being used, I would ask why it is not and get an attorney to protect you even earlier.

Typically, residential real estate transactions are done on a flat-fee basis, so you will have every opportunity to ask all questions and have a full understanding of everything you are signing at the closing.  In my practice, I pride myself on returning calls quickly and making sure that my clients are clear on everything they are doing – after all, they’re spending hundreds of thousands of dollars!