On Monday, we discussed Illinois having the highest foreclosure rate in the nation in August and talked about some of the benefits that a Chapter 13 bankruptcy offers for homeowners needing foreclosure help . As we said on Monday, Chapter 13 certainly has its perks for individuals who have a reliable source of income and are determined to save their homes, but what about people who do not have the necessary income for a repayment plan or understand that they can no longer afford their homes?
Chapter 7 bankruptcy is another option for these homeowners. While a Chapter 7 filing will not save an individual’s house, it does allow people to:
- Live rent-free for a few months – While most Chapter 7 cases do not take more than four months to complete, individuals filing Chapter 7 can stay in their homes during this time. This gives people filing Chapter 7 the time they need to find somewhere else to live, but it also lets them save the money they may need for the transition. This aspect is especially important nowadays because last month, Crain’s Chicago Business reported that average apartment rents per square foot both downtown and in the suburbs had hit all-time highs.
- Cancel most or all of their debt – Chapter 7 wipes out unsecured debts, such as credit card bills and medical bills. While it cannot erase certain debts such as child support or student loans, Chapter 7 can be beneficial for homeowners facing foreclosure because it eliminates their responsiblity for the deficiency balance (the difference between what the homeowner owed and what the house sold for at foreclosure).
- Eliminate tax liability – The Internal Revenue Service (IRS) cannot tax an individual on a discharged deficiency balance. Filing Chapter 7 exempts that individual from tax liability for the discharge of his or her home loan, and we will further discuss tax issues facing struggling homeowners in our next blog post.
Again, Chapter 7 bankruptcy has a lot of upsides for individuals who are ready to give up their homes because of foreclosures. You need to pass the bankruptcy means test before you can file Chapter 7, and our Chicago bankruptcy lawyers can help you get started when you complete the form on this page or contact our firm at (866) 930-7482.
Benjamin Brand Services – Chicago bankruptcy lawyers