As a business owner, if you fail to fulfill your financial obligations to make payment to a creditor, the last resort that you have to solve debt problems is to declare bankruptcy. This is defined as a legal proceeding that helps a bankrupt person who is struggling with debt. Filing bankruptcy will allow you to reorganize your finances, pursue debt settlement, and repay or pay off your creditors.
Bankruptcy does not automatically imply that you will lose everything that you own. It depends on the bankruptcy chapter that must be filed. You need to know the difference between Chapter 7 and Chapter 13. Liquidation of assets is more common in Chapter 7 bankruptcy.
As the debtor, your assets and properties will be evaluated by the designated assessor, and the assessed value will be used to pay back a portion or all of the money you owed. Before you file for bankruptcy, it is important to know which of your assets can be protected from liquidation. In this case, a property assessment will be conducted and your assets will be categorized as exempt property or non-exempt property.
Bankruptcy Exemption Laws
Bankruptcy exemptions are laws that protect your tangible property. Assets that are considered “exempted” cannot be seized and liquidated. Federal law and state law protect properties including a motor vehicle, personal property, real estate (used as a primary residence), social security benefits, unemployment benefits, and other exemptions. One of the common exemptions is the homestead exemption.
The homestead exemption protects the equity in your home. Equity is the difference between the value of your property and the amount owed on your mortgage. It shields a portion of a home’s value from property taxes. Property owners are qualified to apply for this benefit.
Although most states have homestead exemptions, the general rules and protection limitations vary depending on your state of residency. In Illinois, a bankrupt individual is automatically entitled to exemption. As the legal owner of the real property, you can claim the homestead exemption in bankruptcy. It is a legal provision that provides a maximum of $15,000 home equity to the homeowner. A qualified Skokie bankruptcy attorney can help you file an exemption application.
This exemption will allow you to keep and protect some of your qualifying assets. It applies to the personal and real estate properties considered as your dwelling place or permanent residences such as your house or condominium. It is also applicable to the proceeds from the sale of personal property for one calendar year from the selling date.
The homestead exemption limits are not for the value of the home, but the homeowner’s equity. It is computed as the value of the homestead property minus the balance of the mortgage and other financial claims on that property. For instance, if your house has a property value of $100,000 and your mortgage amount is $90,000, then you will have home equity worth $10,000. When you decide to file for bankruptcy, this equity amount will be fully exempted under the homestead exemption of Illinois. This equity is safe from creditors and your place of residence will be saved.
Spouses who decide to jointly file bankruptcy are qualified for a doubled amount of homestead exemption for up to $30,000. To qualify for an exemption, both the husband and the wife must have an ownership interest in their personal or residential property.
A personal property owned by both husband and wife as a single marital entity is considered as a property held as a tenancy in the entirety. It means that the creditors cannot seize that property to repay the debts of only one property owner. Illinois allows tenancies by the entirety, or also known as “super exemption”, making it possible for the debtors to declare bankruptcy and receive a higher amount of homestead exemption. However, the protection by a tenancy in the entirety is limited only to the homestead exemption and does not cover other debts (tax debt, medical debt, or joint credit card debt).
In the event of the death of your spouse, pursuant to Illinois laws, you are provided special conditions that allow you, as the surviving spouse or the widower, to continue protecting the home equity as long as you permanently reside in the same home. Furthermore, in case of your death, your children below 18 years old can protect the home equity until they turn age 18. The homestead tax exemption can also provide ongoing property tax relief to a widow of the deceased spouse, which is done on a graduated scale so that homes with lower assessed values benefit the most. A homestead tax or property tax is usually applicable to homes based on the assessed value of property by the local government tax assessor’s office.
It is important to check the updates for adjustments of exemption laws with a credible Skokie bankruptcy lawyer because the exemption amount may change from time to time. Eligibility for the homestead exemption varies by state. You can be eligible for the exemption if you have a low income, and if you are a disabled person, disabled veteran, or a senior citizen. Exemptions can be combined if you qualify for more than one category.
Bankrupt individuals aim to have a debt-free life and be honorably discharged from bankruptcy. You need to know the guidelines on how to qualify for an exemption. Property tax exemptions help reduce the burden of real estate taxes for homeowners. And if you qualify for one, it could reduce the property tax rate that needs to be paid. For legal help to receive an exemption, do not hesitate to consult our experienced Skokie bankruptcy attorneys at Cutler Bankruptcy. We will help you understand how the homestead exemption works and how to obtain exempt status.