Using Chapter 13 To Save Your Illinois Home
Nationwide, the home foreclosure rate has dropped significantly since the end of the Great Recession. As a result, many government-sponsored mortgage modification programs have ended.
But the home foreclosure rate has remained rather high in the Prairie State. Today, Illinois has the fourth-highest home foreclosure rate in the nation.
Since many government-backed relief programs are no longer available, many distressed homeowners may feel as though they have nowhere to turn. Fortunately, Chapter 13 bankruptcy has both short and long-term solutions to mortgage delinquency problems.
Stopping Foreclosure in Chicago
Since Illinois is a judicial foreclosure state, it is a bit easier to use the court process to stop foreclosure. However, these petitioners still usually need to prove fault or cause. But Section 362 of the Bankruptcy Code is different. The Automatic Stay halts all adverse creditor actions, including:
- – Foreclosure,
- – Repossession,
- – Lawsuits, and
- – Wage Garnishment.
Typically, the Automatic Stay goes into effect as soon as debtors file their petitions. It remains in effect until the judge closes the bankruptcy. So, Section 362 protects debtors from creditor actions throughout the entire protected repayment period, as outlined below.
Exempting Your Home in Illinois
Illinois has a rather small home equity exemption. Single files can exempt up to $15,000 in home equity. Fortunately, an experienced attorney knows how to maximize your homestead and other bankruptcy exemptions.
Assume Samir has $50,000 of equity in a $100,000 home. Based on the fair market value, the trustee (person who oversees the bankruptcy for the judge) could sell Samir’s home, give him the $50,000 in equity, and distribute the other $50,000 to his creditors.
But hold on a minute. According to the Bankruptcy Code, Samir must list his home’s as-is cash value on Schedule A. That value is arguably around 50 percent of the fair market value, because that’s how much a home investor would pay. So, based on these numbers, if the trustee forces a sale and pays Samir his equity share, there would be nothing to give to creditors, since the house is only worth $50,000.
Samir’s case for valuing the house so low would be stronger if he had a written $50,000 offer from a home investor.
Erasing Mortgage Arrearage in Chicago
Chapter 13’s protected repayment period lasts up to five years. At the beginning of the case, the debtor submits an income-based repayment plan to the trustee. As long as the plan satisfies all secured debt arrearage, the trustee almost always approves the plan.
Since the Automatic Stay remains in place, the bank must accept the plan, in most cases. The bank must also rescind any adverse action it already took, such as an acceleration notice, as long as the debtor remains in the house.
If the debtor cannot afford the monthly debt consolidation payment, the debtor can simply convert to Chapter 7.
Lowering Your UPB in Illinois
Bankruptcy does more than give homeowners time to make catch-up payments. In many cases, bankruptcy may also reduce the debtor’s Unpaid Principal Balance. Let’s return to Samir for a moment.
Assume Samir took out a $10,000 HELOC (Home Equity Line of Credit). So, he owes a total of $60,000 ($50,000 on the first mortgage and $10,000 on the second mortgage). But the house is only worth $50,000. Therefore, a judge might declare that the second mortgage is an unsecured debt. If that’s the case, the second mortgage is dischargeable and Samir does not have to pay it. That change could save Samir thousands of dollars a year.
Count on Dedicated Lawyers
Chapter 13 can save your house and make it easier to afford. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters in Illinois and Indiana.
Resource:
patch.com/illinois/tinleypark/illinois-foreclosure-rate-among-highest-us-2017-report
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