Bankruptcy to Avoid Foreclosure in Illinois
Most people are aware that bankruptcy has a substantial negative impact on a credit score. However, homeowners on the verge of foreclosure may need to decide which has more severe consequences. Illinois foreclosure law allows homeowners to file bankruptcy as a method to save the home or delay the foreclosure. Bankruptcy should be considered only after exhausting all foreclosure prevention options.
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Chapter 7
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Chapter 7 bankruptcy is best for homeowners who are not trying to keep the home. In this type of bankruptcy, your debt will be canceled. While the bankruptcy gets rid of your liability, it does not remove the lien. Chapter 7 bankruptcy is used to delay foreclosure for several months, but it will not be prevented. Once the petition for bankruptcy is filed, an automatic stay is issued requiring the lender and other creditors to stop collection activity until the bankruptcy is finalized.
Chapter 13
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Chapter 13 is the type of bankruptcy that allows you to keep your home. You must be able to afford your current mortgage payment. Within 20 to 50 days of filing the bankruptcy petition, the trustee will hold a meeting of creditors. You will need to establish a repayment plan through the court. As long as you remain current on your mortgage and repayment plan, you will avoid foreclosure.
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Requirements
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A pre-bankruptcy credit counseling course must be completed at least 180 prior to filing bankruptcy. Since the foreclosure process typically takes one year, it is best to take the course at the first sign of a struggle to make your mortgage payment. There is also a debtor education course that you will need to take after filing the petition. If you cannot afford the counseling fees, the organization is required to offer services free of charge. To file Chapter 7 bankruptcy, homeowners must meet certain income requirements. Your income must be less than the median income in Illinois. If not, certain debt will be subtracted from your income to determine your disposable income. The disposable income cannot exceed $100 to $150, in most cases.
Considerations
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In Illinois, there are several U.S. bankruptcy court districts. Your petition must be filed at the district near you. Even though bankruptcy can be filed pro se, it is not advised. Bankruptcy is a complex and complicated process best left to an attorney. If you cannot afford an attorney, legal aid is available. Visit the HUD website to find a local legal aid agency. You can also visit Illinoislegalaid.org for useful information and resources.
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