What is a homestead exemption?

 

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.

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

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.

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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