The homestead exemption in Illinois is $15,000 for an individual and $30,000 when a married couple owns the home together. The $30,000 is available to same gender married couples. An individual must actually reside in the home to qualify for the exemption. The exemption does not apply to a rental building in which the individual does not reside. Included in the exemption are real property (so that includes a 2 or 3 flat); a home; condominium, mobile home, and a co-operative. It also would apply if the property were placed into Land Trust with the individual as the beneficiary. The exemption continues for the sale of the home for one year. That, however, can be dangerous. If an individual sells and nets an amount up to $15,000 then files a Chapter 7 the trustee can hold the case open, and if the individual does not buy a new property within a year the exemption can be taken and applied to the estate.
TAX DEBTS AND OTHER EXCEPTIONS TO THE EXEMPTION
The homestead exemption cannot be applied to properly recorded tax liens, domestic support obligations, or a judgment lien arising out of a divorce judgment. What if the market value minus mortgages and real estate taxes exceeds $15,000; will a trustee sell the property? It depends on how much more. If the market value is $110,000 and the liens total $85,000 it is very unlikely that a trustee could sell the property and net more than $15,000. Why? There is a cost to sell real estate: commission, trustee's fees, attorney's fees, etc. Also, if a trustee puts a house on the market the debtor will likely stop paying the mortgage and the balances will increase.
DEATH OF A HOMEOWNER
The Illinois Homestead exemption will continue for the surviving spouse and to dependent children under the age of 18. The main effect is that if one of the married couple dies, the widow(er) has an exemption of $30,000.
JUDGMENT LIENS AND THE HOMEOWNER EXEMPTIONS
Judgment liens are often avoided in Chapter 7 and Chapter 13. If the equity in the home is less than the equity the judgment lien can be avoided. The test is the market value of the home minus senior liens (mortgages and real estate taxes and, of course, more prior judgment liens). However, the hypothetical cost of sale cannot be considered.
ADDITIONAL HOMESTEAD EXEMPTION FOR MARRIED COUPLES
Is there a way to avoid the limited exemption? Yes. Illinois allows jointly owned property of a married couple to have the title to the property placed in TENANCY BY THE ENTIRETY. When a married couple owns their home in TENANCY BY THE ENTIRETY creditors cannot take the property for the debts of one of the married parties. For example, if Spouse A has had a bad business deal and owes a considerable amount of money and Spouse B is not liable on the debt a creditor cannot sell the house. So, in a Chapter 7 if the house is in TENANCY BY THE ENTIRETY and the debts of the married couple are separate a trustee cannot sell the house regardless of the equity. One caveat: if title of the property is transferred into TENANCY BY THE ENTIRETY recently or when there are significant debts, such a transfer could be undone. There are some exceptions to the protection afforded by having property held in TENANCY BY THE ENTIRETY: namely, tax debts, joint debts and most likely medical bills incurred during the marriage, as well as properly filed tax liens and domestic support liens. With the advent of legal same gender marriage such couples should consider transferring the title of their homes to TENANCY BY THE ENTIRETY.
THE HOMESTEAD EXEMPTION AND CHAPTER 13
If the home value falls within the exemption there is no effect to the dividend to unsecured creditors in the Chapter 13. However, if the equity exceeds the exemption it could affect the required dividend to unsecured creditors. In determining the dividend to unsecured creditors, the first step would to determine what the dividend would be to unsecured creditors in a hypothetical sale in a Chapter 7. What is the net balance after applying the exemption? For example, after the existing mortgage and all costs of sale are paid, if there would be a balance of $10,000 and the total of the general unsecured debts is $40,000 (and there are no priority tax claims) the minimum dividend to unsecured creditors in a Chapter 13 would be 25%.
Additional resources provided by the author
For a more in depth analysis of the Homestead Exemption and how it would affect a Chapter 7 or Chapter 13 you should consult with an experienced lawyer who concentrates in Consumer Bankruptcy.