Chicago Bankruptcy
City violations in Chicago, incurred after filing for a Chicago bankruptcy are not eliminated. One such example is where someone who surrenders a home in foreclosure yet owes city violations and then files chapter 7, the debt to the city is not wiped out. You would think that once you give up a home in foreclosure, that you would no longer be responsible for any debt associated with the property. However, in a case where the city has to demolish the property post-filing, there is a cost to the city for handling the demolition. Since the demolition technically occurs after the case is filed, the debtor is still on the hook for the cost of the demolition.
I refer to this as the insult to injury scenario. Not only does the debtor lose the property, file for a Chicago bankruptcy, but also is on the hook for city violations until the property is demolished. It is for this reason, that many homeowners would rather do a deed in lieu of foreclosure and tender the property back to the bank. However, many banks are not interested in offering a deed in lieu of foreclosure. The lender knows that if they take a deed in lieu, then the lender is on the hook for the real estate taxes, the insurance, the upkeep of the property, and importantly preventing any city violations.
The lender often prefers to complete the foreclosure process. That way, they have eliminated any liens from unknown owners or unknown lien claimants, and they are in a better position to resell the property at that point. Now in a case of the demolition of property, the lender is simply left with vacant land. It is the homeowner or the prior homeowner who files for chapter 7 bankruptcy who bears the cost of the demolition. It is not common that a debtor finds himself in a position where he is on the hook for demolition expenses in excess of $10,000. The more common scenario is where a homeowner is on the hook to maintain the property. City violations can occur if the grass is too long, if the porch is not maintained, or if other structural defects remain on the property which causes it to be in disrepair. It is the extreme case where property is actually demolished and the debtor is on the hook for those expenses.
Recent Case
In a recent case, I advised my clients to wait until the City of Chicago actually pursues collection aggressively. It is one thing for a debtor to receive a collection letter, and quite another for collection efforts to accelerate to the point where wages can be garnished or bank accounts can be seized. If you are a former homeowner who has filed for a Chicago bankruptcy, make sure that you do not incur any violations to the city based on ordinances or other laws. If you do, you may be on the hook for those and if the city aggressively pursues it in certain circumstances
