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Chicago Bankruptcy Basics: Real Property in a Chapter 7 bankruptcy.

Chicago Bankruptcy Basics: Topic: Real Property in a Chapter 7 bankruptcy.  Owning real property, in it's most simple definition, is holding a legal interest in a piece of real estate.  For most people filing for Chapter 7 bankruptcy in Chicago, this is limited to their home.  It does include, however, an investment property, vacant lot, time-share, cemetary plot, etc.  As we say, owning any chunk of dirt anywhere in the world qualifies as owning real property.

In a Chapter 7 bankruptcy, real property is an asset of the debtor and must be disclosed in your bankruptcy petition, along with the current value of the property and any liens (mortgages, home equity loans, etc.) against the property.  Once your bankruptcy petition is filed, this property becomes property of the bankruptcy estate and is subject to being liquidated (sold) by the bankruptcy trustee.  Simply put, the trustee will take the current value of the property, estimate closing costs from a sale, determine what liens will have to be paid off, determine what exemptions are in place for the debtor and estimate their own fees for liquidating the asset.  If, after all of the expenses, the trustee believes that there will be funds left over for creditors, then they may sell the property. 

In this real estate market, most people who file for Chapter 7 bankruptcy in Chicago are able to keep their homes, assuming that they want to and are current on their mortgage payments.  With values as low as they are and with debtors entitled to a $15,000 homestead exemption for each person living in the residence who is on title to the residence, there usually is not any excess equity available for creditors.  Chapter 7 bankruptcy does not allow for mortgages to be removed from a residence, even wholly unsecured junior mortgages, so if a debtor wants to keep their residence, they are going to keep their mortgages.  Residences can be surrendered in a Chapter 7 bankruptcy, which eliminates the liability of the bankruptcy filer(s) on the mortgages but allows the mortgage company to then foreclose on the property. 

For real property that is not the primary residence of the bankruptcy filer, the basic analysis is the same except that the bankruptcy filer is usually not entitled to any exemptions on these properties.  Investment properties can be kept by the debtor(s) if there is no excess equity, the mortgage payments are current and the court believes it is reasonable to do so (usually requiring that the property is generating enough rental income to pay the majority of the expenses for the property).  Investment properties can also be surrendered in a Chapter 7.

If you own real estate and are considering filing for Chapter 7 bankruptcy protection in Chicago, you need the representation of an experienced bankruptcy attorney to ensure that you do not lose any property that you are trying to keep.  A good bankruptcy lawyer will prepare your schedules and gather the supporting documentation to ensure that the trustee does not try and liquidate the property.  If there is an equity issue, they will be able to advise you on the risks and of other options available to you, such as Chapter 13 bankruptcy.  At Ledford & Wu, bankruptcy and consumer rights is all that we do.  We have years of experience protecting homes and will work hard to protect yours.  Call for a free consultation today.

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