This is the case of Barb from Chicago, Illinois. Barb comes to my office with medical bills, credit card bills and most importantly, a home that she really cannot afford. She has an equity loan on her home which matures in approximately 2 years. She is considering Chapter 7 bankruptcy to eliminate her debt but also for some long-term planning. By that I mean she is thinking of surrendering the house at some point down the road in exchange for her fresh start under Chapter 7.
She has medical issues which she feels might lead her to possibly not surviving in the next 4 to 5 years. Her thinking is she can stay in her house, make the utility payments, food, clothing, entertainment, gas, transportation and not pay the outstanding equity line in her home. What’s going to happen is approximately 3 to 6 months once she defaults, the mortgage company will file a foreclosure action. The foreclosure action in Illinois can last anywhere from one year if it goes undefended to up to two years or longer if she hires an attorney to defend her in the foreclosure action. By defending the foreclosure after she filed for Chapter 7 bankruptcy, she will be able to maintain her residence in terms of having a place to live at a very low cost for the maximum amount of time possible.
The beauty of filing a Chapter 7 and then engaging in a foreclosure defense is that there will be no deficiency awarded at the time of confirmation of sale. What I mean by that is the mortgage company will be able to take the house back at the conclusion of the foreclosure process but they will not be able to look to the homeowner for any monetary damages known as a deficiency.
So Barb can file Chapter 7, eliminate her medical bills and her credit card debt including the mortgage debt, maintain the property for approximately 2 to 2 ½ years with a foreclosure defense and then relocate with plenty of money hopefully saved up during that time period. That is the story of Barb from Chicago. My recommendation it to her is to file a Chapter 7 and get a fresh start.
