Skip to content
(312) 883-5422

Blog

Should I File for Bankruptcy If I Have Equity in My Home?

Posted in: Bankruptcy Law

Chapter 7 bankruptcy, commonly known as “liquidation bankruptcy,” is a legal process that allows individuals to discharge most of their unsecured debts, such as credit card debt, medical bills, personal loans, and other past-due payments. This type of bankruptcy is designed for people who have limited income and cannot repay their debts. Filing for Chapter 7 can provide a fresh financial start, but it also involves the potential liquidation of non-exempt assets to repay creditors.

To qualify for Chapter 7 bankruptcy, a person must pass the means test, which compares their income to the median income for a household of similar size in their state. If the individual’s income is below the median, they automatically qualify for Chapter 7. If it exceeds the median, the means test will assess their disposable income after deducting allowable expenses. If the disposable income is insufficient to pay off debts, they may still qualify.

Bankruptcy Book

What Is Home Equity?

Home equity represents the difference between the current market value of your home and the outstanding balance on your mortgage monthly payments. It’s essentially the portion of your property that you truly own, as opposed to what is owed to the lender. For example, if your home is worth $300,000 and you owe $200,000 on your mortgage payments, you have $100,000 in home equity.

How to Calculate Home Equity

To calculate your home equity, follow these steps:

  • Determine your home’s current market value: This can be done by reviewing recent sales of similar homes in your area, getting a professional appraisal, or using online valuation tools.
  • Subtract the outstanding mortgage balance: Contact your mortgage lender or check your most recent mortgage statement to find out how much you still owe.
  • Subtract any other liens: If there are additional liens, such as a second mortgage or home equity line of credit (HELOC), these should be subtracted from the market value.

Home Equity and Chapter 7 Bankruptcy Exemptions

Home equity plays a key role in filing bankruptcy Chapter 7. The Chapter 7 bankruptcy home equity limit you can have depends on the exemptions available to you. Exemptions are legal protections that allow you to keep certain property from being seized and sold by the bankruptcy trustee to pay off your debts.

If your substantial equity exceeds the exempted amount, the trustee may choose to sell your home to pay off secured or unsecured creditors, although they must first pay you the exempted amount. In this case, you may risk losing your home, but the laws vary from one state to another. 

State-Specific Exemption Laws

Bankruptcy laws on exemption vary widely from state to state. This means the amount of home equity you can protect under Chapter 7 bankruptcy differs depending on where you live. Some states have generous exemptions that protect a significant equity amount, while others have more limited protections in case of bankruptcy filing.

Federal vs. State Exemptions

In some states, debtors can choose between federal homestead exemption and state-specific exemptions, depending on which offers better asset protection. It’s important to note that Illinois does not allow you to choose between state and federal exemptions, meaning you must use the state’s exemptions when filing for Chapter 7 bankruptcy in Illinois. 

This limitation underscores the importance of careful planning and guidance from an experienced bankruptcy attorney in Chicago to maximize the protection of your assets under Illinois law (and not federal laws) for bankruptcy proceedings.

Illinois Homestead Exemption Limits

The homestead exemption protects a certain amount of equity in your home from being seized by the bankruptcy trustee. In Illinois, the state’s homestead exemption allows you to protect up to $15,000 in home equity if you are a single homeowner and up to $30,000 if you are a married couple filing jointly. 

This means that if your home equity is below these amounts, it’s fully protected when filing for bankruptcy Chapter 7, and the trustee cannot force the sale of your home to pay creditors. However, if your equity exceeds these limits, the excess amount could be at risk.

Strategies a Chicago Bankruptcy Lawyer Will Use for Protecting Home Equity in Bankruptcy

A skilled bankruptcy lawyer in Chicago can employ several strategies to help protect your equity and mitigate the risk of losing your home if you are considering Chapter 7 bankruptcy to deal with secured or unsecured debt:

  • Fair Market Value of Your Home: A bankruptcy exemption lawyer can help ensure that your home is accurately valued, potentially reducing the amount of equity that is considered in the bankruptcy process.
  • Exemption Maximization: If solutions such as debt relief, loan modification, or a repayment plan are not feasible, and bankruptcy proceeding is required, your lawyer will help you maximize the bankruptcy exemptions available to you under the law.
  • Timing the Filing: If your home equity is close to the exemption limit, your lawyer may recommend waiting until you have paid down your mortgage further or until market conditions change, reducing your equity.
  • Conversion to Chapter 13: If it appears that your home equity exceeds the allowable exemption, your lawyer may advise converting your case to a Chapter 13 bankruptcy. Chapter 13 allows you to keep your home while repaying creditors over time, rather than liquidating assets.
  • Negotiating with the Trustee: In some cases, your lawyer can negotiate with the trustee to allow you to keep your home in exchange for paying the non-exempt equity amount over time.
  • Using Wildcard Exemptions: If available, your lawyer may also utilize wildcard exemptions, which can be applied to any property, including home equity, to further protect your assets.

How Much Equity Can I Have in My Home and Still File Chapter 7? Schedule a Free Consultation 

At DebtPros, we understand the stress and uncertainty of overwhelming debt. Our experienced Chicago bankruptcy attorneys are here to help you take control of your financial future. If you have concerns related to home equity and Chapter 7 bankruptcy, we can guide you through the legal process to find the most effective solution. 
Reach out to a dedicated Chicago bankruptcy lawyer at DebtPros today, and let us help you achieve the fresh start you deserve. Call 24/7 at (312) 313-3643 or contact us online to schedule your free consultation.

Client Testimonials

What Our Clients Say

I want to start by saying THANK YOU! John was patient, prompt, informative and easy to work with. In our time of need, he helped my parents file for bankruptcy successfully and at a great price. If you are ever in the need of any services concerning your debt and potential bankruptcy litigation, I give my word and experience that John is the BEST in the Chicagoland area.

- Eric McDowell

John was outstanding in the process of my chapter 7. Not only did he keep me abreast of every step and matter that involved my BK but he was reasonable with the price and the time I had to pay him. He sent me places that accepted my Bk when it came to getting a new car as well and his communication was an A+. There was never a time I couldn’t reach him and if he missed my call he would proceed to call back before the day over or early the next day. I recommend him to any and everyone!

- Lamar Johnson

John is a great lawyer to work with. It’s easy to be honest and share things with him. It felt good to communicate with him. When I reach out to him, he is very good at answering the phone or responding when he can. I recommend his work as well. He’s very organized and gets things done. Thank you John.

- JP W

This guy made my experience so smooth I would recommend him to anyone who is thinking about filing for bankruptcy. He is very patient with his clients and Is very informative. Every question I had he answered even if I asked it twice. Highly recommend!!!!!!

- Nikita Nichols

John is very patient, he’s worked with me from start to finish. Always answer my questions and never made me feel like I’m a bother. Never made me feel like I’m a number in his book. He’s very helpful and caring which is why I’d recommend him over any bankruptcy lawyer. Thanks John for all you do.

- Corey Ross

Thank you team DebtPros! The choice to file was not easy, but it was the best decision for my family. John, I appreciate your kindness, thoroughness, and professionalism. I feel like you’ve guided me through this process in a very personable way. Thank you for always being available to chat, and making the experience so efficient and understanding. I can see the silver lining toward a fresh start! Thank you again & Have a wonderful summer. Sincerely, SB.

- Shelly Boyki

I am honored to provide such a financial relief feedback for this amazing blessing whose name is Atty. Wonais. There is so much I could share endlessly about his superb knowledge and service that he offered me as his client. However, I will share what I found to be essential in my financial issues that Atty. Wonais selflessly provided to me as his client; his expertise, his ability of trustworthiness was "everything" oh my goodness he is truly trusting thru the entire process.

- Val B.

I was referred to them, and this has been the best decision I have ever made. I never been this confident in a person like I am with John. He heard my needs and wants, he made it possible to give me that. Excellent customer service. He put all my options on table to fit my needs. He never sugarcoat he gives it to you like it is meaning he’s not rude or unprofessional. He’s that person that tells you what you need and bot what you want. I have referred all my friends and family to his service.

- Nicole Murray

So one night I went online looking for advice on google and John came up and I called him on the weekend late evening and he happened to answered which was awesome. John helped me out with my situation he gave me amazing advice and options on how to take on my problems the right way. John is super easy to talk to Very informative and he answered all my questions.

- Freddy

This office and staff was amazing. I was referred to John from my best friend and as soon as I reached out he was very prompt on getting back to me and helping. From start to finish the process was amazing stress free and straight forward. He stayed in communication no matter what time of the day. If I had a question he had the answer. His tips and tricks and knowledge helped me a lot and made me more comfortable and excited about starting over.

- Kierra Smith

John took me on as a client with no problem. He was very understanding, passionate, helpful and available every step of the way. Trust me I am a very happy client, I definitely recommend John.

- Jessica Burton

John did a wonderful and seamless job with my case-he handled everything properly and was very timely in all of his communication. He is professional and reliable. I would highly recommend him to anyone who may have to deal with a bankruptcy. Five stars!

- Ashley I.

I had a great experience with Wonais Law, LLC. John is very patient and replies right away to any questions or concerns that you have. I would recommend his services to anyone.

- Erika Sing

If I can leave more stars I will. Wonaia Law is highly recommended. John is great with making sure I understand everything that was going on, I really appreciate how he’s always there to answer any questions I have ... My chapter 7 is just about over and I have 2nd chance with living life debt free.

- Tiffany Austin

John Wonais is responsive, professional, and cares for his clients. He is extremely experienced in civil litigation and has answered all of my questions in a way that I can understand as someone with zero experience in law. He has gone above and beyond and has always made sure to follow up with me when I’ve needed it. I truly feel that he has my best interest at heart.

- Ariana Khosravani

I really wanna give a big thanks to John he helped me out a lot. He walked me through everything to make sure I understand, good quality. I don’t think I could of did it without him ?

- Twona Gibson

He gave an expert and advise and a great service. He went all out to be sure I got a solution to the issue I had.

- Betty Salami

I want to thank John for helping me win my case he was very helpful throughout the process and very professional, thanks again.

- Diana M.

I was very impressed on how quickly I was responded to, and how my lawyer John made everything so easy for me to understand. I have never had to hire a lawyer before, and I'm really glad that I met such a professional, and honest person. I would highly recommended.

- Angela Mata

DebtPros is a law firm that specializes in consumer bankruptcy. John has years of valuable experience and is dedicated to helping clients file for bankruptcy. John is responsive and provides a free consultation to prospective clients. I recommend this firm to anyone who is considering filing for bankruptcy.

- Taylor Kosla

John Wonais provided me with timely and beneficial legal counsel. I would trust his firm to represent me in any creditor-related case. John's professionalism and expertise are second-to-none; highly recommend his services.

- Richard Young

Very helpful, professional and they’re reasonably priced.

- Anthony Brown

Great Professional Service- I have been working with Wonais Law the past couple weeks and I have been blown away from their attention to detail and professionalism. They get work done quickly and are extremely responsive. I would recommend this firm to everyone needing legal services.

- Andres Jara

Free Consultation - Call 24/7

Fill out the contact form or call us at (312) 883-5422 to schedule your free consultation.

Send Us A Message

Visit with an experienced bankruptcy attorney in your area or call now for a virtual consultation.