Can I Keep My House if I File Bankruptcy? Can I Keep my Car if I File Bankruptcy?
June 14, 2021
When considering Bankruptcy, people ask questions. What about things I own? Will I lose my house or my car? Will I lose my furniture?
This article discusses only one thing. What is the impact for Illinois residents on assets-the things I own?
Chapter 7 trustees want to sell assets. Trustees do so when they can. Also, they get paid for doing it.
What stops them?
The assets have little or no value; or
Illinois exemptions prevent them.
The law is very plain. If an asset is worth less than any secured debt plus allowed Exemption, it leaves the bankruptcy estate and is once again yours.
LITTLE OR NO VALUE.
Chapter 7 trustees don’t go after your household goods. The resale value of most furniture, TVs, etc., is very low. You can go to a garage sale. You can pick up things for pennies on the dollar.
Then there are items you own, but you still owe money on. For example, your car is worth $15,000, but you own the finance company $16,000. A Chapter 7 can’t sell the car because he/she couldn’t get enough to pay the finance company.
WHAT ARE EXEMPTIONS?
Illinois law says even if you file Chapter 7, you get to keep stuff. It applies the Exemption in the law.
There are three (3) exemptions that cover all but a few Chapter 7 case:
Personal Property Exemptions (also called the Wild Car)
The Homeowner’s Exemption in Illinois is $15,000. This doubles to $30,000 when a married couple owns the home together. A widowed individual’s exemption can be $30,000 if the deceased spouse was a joint owner.
Some examples of using the Homeowner’s Exemption. The following are for a single person. The exemption is $15,000.
The house is worth $200,000; the mortgage balance is $210,000. The trustee can’t sell the house, and the exemption doesn’t have to be used;
The house is worth $200,000; the mortgage balance is $185,000. After deducting the $15,000 exemption, a Chapter 7 trustee can’t sell the house.
The house is worth $200,000; the mortgage balance is $130,000. If the person files Chapter 7, the trustee will sell the house.
The above examples are pretty straightforward. .But what if: The house is worth $200,000; the mortgage balance is $170,000? Can a Chapter 7 trustee sell the house? No. Why? There is the cost of selling a home. When selling a house, there are costs. To name a few: real estate commission, prorated real estate taxes, title insurance, State of Illinois taxes, etc.
WHAT ABOUT MY CAR?
Illinois has two (2) car exemptions:
$2,400 in one car; this is double to $4,800 for a married couple if both names are on the title; plus
The unused part of the $4,000 personal property exemption; this becomes the unused part of $8,000 if both names are on the title.
So, it is the value of the car minus the balance car note minus the exemptions.
What if I own two cars? The automobile exemption can only be used to one car. The personal property exemption can be used to the 2nd car.
WHAT IF I HAVE ASSETS A TRUSTEE CAN SELL?
Chapter 13 is still an option. It is a question of what will be dividend to unsecured creditors.
How will the dividend be determined?
It is a calculation. How much will a Chapter 7 trustee be able to disburse to unsecured creditors? Then it is a simple division.
Experienced lawyers show the amount that would go to unsecured creditors is as small as possible.
My firm, for instance, has an Excel worksheet that inputs all likely costs in selling assets. Frequently the dividend is surprising very small.
Our firm has clients who file Chapter 13 because they have assets. Yet some of our clients pay as little as ten cents on the dollar to unsecured creditors.
SOME OTHER ASSETS AND EXEMPTIONS
Retirement Accounts such 401(k), pensions, and Individual Retirement Accounts (IRA) are fully exempt
Likewise, Social Security benefits are fully exempt.
Tools of the Trade
Pending Personal Injury claims. There is only a $15,000 exemption plus the unused portion of the $4,000 Personal Property Exemption.
If you are a sole proprietor is there a resalable value to the business.