Q: Can I file chapter 7 if I own my home and car (no mortgage or car payment)

A: If you own your home and your car with no loans or liens against them, you are likely to lose them in a Chapter 7, unless they are of very low value and lower than the Illinois exemptions. Your bankruptcy trustee would be entitled to sell your "non-exempt" property and distribute the proceeds to your creditors.

A Chapter 7 is appropriately referred to as Liquidation. You cannot have your cake and eat too, and you cannot discharge your debts and keep all your stuff. There are limited values for property that you can keep in a Chapter 7. My guess is that, at the very least, your home is worth substantially more than the homestead exemption. The auto may be exempt if it is older and of low value.

Given this scenario, if you can't budget your way out of debt, you may want to file a Chapter 13 case. A Chapter 13 would allow you up to 5 years to pay off your debt. Chapter 13 would also allow you to "adjust" your debts, so that you may not necessarily need to pay your creditors in full.

A: Yes.

A: Generally, the exemptions allowed by each state protect a specific amount of equity in your property. You will be able to protect the value of your house and car up to the amount allowed by the exemptions. If the house and car are worth more than the exemptions allow, you have the option of redeeming the property by paying the difference between what the exemptions protect and the actual value of the property. This is generally done where a debtor wants to keep a car. It becomes less practical when you are talking about a house, because you have to pay the redemption value in full before the case can be closed.

For this reason, a chapter 13 would be the better option to protect the house, since you can spread the payment over the 3-5 year life of the plan.