What is a homestead exemption?

Roy Dent

Roy Dent

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Each State has a list of property that cannot be taken by creditors to satisfy debts. In Illinois, a debtor may claim an exemption in the amount of $15,000.00. In a joint case filed by a married couple, the debtors can claim an exemption of $30,000.00 if both debtors are listed as owners on the deed. A widow may claim his or her deceased spouse’s homestead as well. Here are some examples to show how an exemption is treated in bankruptcy.
Example 1: Debtor 1 and Debtor 2 both own a house worth $100,000.00 that they use as their residence. Local Bank recorded a mortgage encumbering the home, and it is owed about $80,000.00. When calculating the liquidation value of a house, you can deduct 10% of the value of the house to cover the hypothetical transaction costs as real estate taxes, realtor commissions, and the closing costs.

  • $1000,000.00
  • -$10,000.00 Transaction Cost
  • -$80.000.00 Secured Claim by Local Bank
  • $10,000.00 Equity

The amount of equity is less than the homestead so the creditors cannot touch the house in a bankruptcy.

Example 2:

Debtor owns a house worth $200,000.00 that is his residence. Debtor still owes Huge National Bank approximately $170,000.00

  • $200,000.00
  • -$20,000.00 Transaction Cost
  • -$170,000.00 Mortgage
  • $10,000.00

The amount of equity, $10,000.00, is less than his homestead exemption of $15,000.00

Example 3:

Debtor owns a small house worth $40,000.00 that does not have any liens.

  • $40,000.00
  • -$4,000.00
  • $36,000.00
  • -$15,000.00
  • $11,000.00

Debtor cannot protect all of the equity in his home.  The Debtor can keep the house is he pays $11,000.00 the Chapter 7 Trustee.  That is not always feasible.  The best option may be for the Debtor to file a Chapter 13 and pay that $11,000.00 over a three to five-year period.

 

DISCLAIMER: This article is not intended to convey legal advice, but rather general information . If you wish to ask a question about your case or situation, please make an appointment to consult with one of the attorneys at Dent Law Offices, Ltd.

 

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  • PO BOX 1633
  • Effingham, IL. 62401
  • Phone: 217.330.5500
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