Seventh Circuit Limits Illinois Homestead Exemption

by Jay Fleischman, Esq.

January 3, 2009

The US Court of Appeals for the Seventh Circuit has just decided that Illinois residents cannot claim a homestead exemption on a house in which they live unless they have some record title interest in the property. In re Belcher, (7th Cir. 07- 2174, December 31, 2008). Often, one spouse may hold title to a house while the other spouse has lived there for some time, secure in the knowledge that he or she has a marital interest in the house in the event of divorce or the expectation of inheriting the house in the event of death. Unfortunately, in the event that the couple is forced to seek bankruptcy relief, these potential interests in the house don’t rise to the level of homestead exemption protection.

In Illinois, a homestead exemption is available in the amount of $15,000 up to a limit of $30,000 per household. However, the homestead exemption has been construed to require more than simply being in possession of the house. One actually must have some ownership interest in the house to qualify.

Much more effective than the homestead exemption for Illinois residents is the concept of tenancy by the entireties. This device allows a husband and wife to own a parcel of real estate together in such a way that the real estate can be sold only to satisfy the debts for which the husband and wife are both jointly liable.

These days, many people find that they don’t have equity in a house at all – so homestead exemptions don’t seem so important. However, the time to think about these protective rights is before you need them, not when it is too late.

So, married couples in Illinois should consider taking advantage of holding title to real estate in tenancy by the entireties. They also should know that holding title in the name of only one spouse will result in loss of both the tenancy by the entireties exemption but also loss of an additional $15,000 homestead exemption in the event of bankruptcy.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.

Last modified: December 30, 2012