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Category: Bankruptcy Law
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Experience:  14 years exp., CH 7 AND 13 Bankruptcy cases, AFL-CIO UNION PLUS, UFT NYSID AND ALL MAJOR UNIONS
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Cannot afford mortgage and how to protect personal asset The

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Cannot afford mortgage and how to protect personal asset

The person is a freelance musician. She cannot afford mortgage even if she is working on a minimum paid job to help income. She still has some savings but do not want to pay all this liquid asset to the house. What option does she have?

If she declare bankruptcy will her personal asset be protected? She wants to downsize to a small apartment to save money. Will the creditor go after her to garnish her salary or her bank account? It seems she cannot make good arrangement with the mortgage lender anymore (i.e. lower interest or short sale etc).


Hello I am a licensed attorney here to help you with your question, please review my response and do not hesitate to ask for clarificati on


What personal assets does she have?


Perhaps cash in bank or mutual fund. But I don't think that is IRA thing. I can double check though.


An IRA would be protected 100%, as other retirement accounts,


in terms of a chapter 7 bankruptcy if they have limited income, she can file, and discharge the mortgage, and even consider living in the home,


mortgage free, until the lender forecloses, which takes several months or years,


Illinois Bankruptcy Exemptions

Unless otherwise noted, all law references are to the Illinois Compiled Statutes Annotated.


735-5/12-901 - Real or personal property, including farms, lots, builidings, condos, co-ops or mobile homes up to $15,000. Spouse or child of deceased owner can claim homestead (735-5/12-902). Sale proceeds up to 1 year (735-5/12-906). With some limitations, Illinois recognizes tenancy by the entirety (750-65/22).

Personal Property

110-979/45(g) - Prepaid tuition trust funds.

235-5/6-1 - Pre-need cemetery sales funds, care funds, and trust funds.

735-5/12-1001 - Motor vehicle up to $2,400; clothing needed; health aids; school books; family pictures; bible; personal injury recoveries up to $15,000; wrongful death recoveries; proceeds from sale of exempt property; Illinois College Savings Pool accounts that were invested more than 1 year before filing if below federal gift tax limit, or 2 years before filing if above the federal gift tax limit.


735-5/12-803 - Either a minimum 85% of earned but unpaid wages or 45 timest the higher of the state and federal minimum hourly wage, whichever is greater. Judge may approve more for low income debtor. Some judges may not allow the wage exemption. (See note at beginning of article).


11 U.S.C. § 522 - Tax exempt retirement accounts (including 401(k)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and defined benefit plans).

11 U.S.C. § 522(b)(3)(C)(n) - IRAS and Roth IRAs to $1,171,150.

40-5/2-154 - General assembly members.

40-5/3-144.1 & 40-5/5-218 - Police officers.

40-5/4-135 & 40-5/6-213 - Firefighters.

40-5/7-217 & 40-5/8-244 - Municipal employees.

40-5/9-228 - County employees.

40-5/11-223 - Civil service employees.

40-5/12-190 - Park employees.

40-5/13-805 - Sanitation district employees.

40-5/14-147 - State employees.

50-5/15-185 - State university employees.

50-5/16-190 & 40-5/17-151 Teachers.

40-5/18-161 - Judges.

40-5/19-117 - House of correction employees.

40-5/19-218 - Public library employees.

40-5/22-230 - Disabled firefighters, and widows and children of firefighters.

735-5/12-1006 - ERISA-qualified benefits and IRAs. As well as public employees.

Public Benefits

305-5/11-3 - Aid to blind, aged, and disabled; public assistance.

735-5/12-1001 - Veterans' benefits; Social Security; unemployment compensation; crime victims' compensation; restitution payments for World War II relocation of Japanese Americans and Aleuts.

820-305-21 - Workers' compensation.

820-310/21 - Workers' occupational disease compensation.

Tools of Trade

735-5/12-1001 - Tools, books, and implements of trade up to $1,500.

Alimony and Child Support

735-5/12-1001 - Alimony and child support needed for support.


215-5/238 - Life insurance, annuity, or cash value if beneficiary is spouse, child, parent, or other dependent of the beneficiary.

215-5/299.1a - Fraternal benefit society benefits.

735-5/12-907 - Homeowners' insurance proceeds for destroyed home, up to $15,000.

735-5/12-1001 - Health and disability benefits; life insurance proceeds needed for support if beneficiary is spouse or child.


805-205/25 - Business partnership property.


Any other personal property up to $4,000 (not including wages).


You can look at the above exemptions, that is what is protected if she files a bankruptcy in ILL


But will her bank saving be taken? Her thinking is to walk away to keep her saving and start a new life(without mortgage) with affordable expense. She got into this situation because of separation from her husband a few years ago.




If she has over $4000


her savings can be taken,


so a bankruptcy may not be the best,


unless the $4000 is in a retirement account such as an IRA


I guess the drawback is that she cannot get credit like credit card or buy a car on loan within 7 years. The issue is whether she needs to trade in her bank saving for credit score.


her credit would improve in a few years,


so she would be able to obtain credit within a year,


If she has a significant amount in savings, she could delay the bankruptcy until her savings run out,


or if garnishments start,


If she walks away without filing for bankruptcy, the creditor will size the house first and then check her bank account with court order, right? I do not know how much saving there is. But I guess it is more than $4000 for sure.


if she walks away the lender would foreclose, and eventually try to collect on a judgment,


that will take time, and they can freeze her savings account,

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