Bankruptcy can allow you to start over again financially, but you may lose some of your property in the process, particularly if you file under Chapter 7. Some property is exempt under Illinois law, but other types of property are not. If you own property with someone else, you may be concerned that your bankruptcy case could hurt their property rights.
Tenants in Common
When multiple people own the same property at the same time, they are “tenants in common.” This doesn’t necessarily mean the owners have equal shares of the property. For example, you could own two-thirds of a piece of real estate and someone else could own one-third, but you still own the property as tenants in common.
Property you use as your residence may be exempt from sale during your bankruptcy case under a “homestead exemption.” If your property is exempt, it can't be sold to pay your creditors. In Illinois, the maximum amount for this exemption is $15,000, and the exemption applies to farms, lots, personal property or condominiums, as long as the property is used as your residence. If you own the property as a tenant in common, the total exemption allowed for the property jumps to $30,000, but one owner cannot take the entire $30,000 exemption. Rather, your exemption cannot exceed your proportion of $30,000, based on your share of ownership in the property. For example, if your share of the property is 25 percent, your maximum exemption is $7,500, but if your share is 50 percent, your maximum exemption is $15,000.
Debts Against Property
A creditor can file a lien against property held as a tenancy in common, like other types of property. If the lien is property-related, such as a mortgage, the owners may be equally responsible for the debt. However, if the debt belongs to just one owner, the lien will still attach, but the debtor owner may be liable to the other owners for the amount of the lien. For example, if you owe a tax debt and the IRS attaches a lien to property you own with another tenant-in-common, you owe the other co-owner for the lien amount if the property is sold to satisfy the lien.
A court-appointed bankruptcy trustee can force the sale of property you own, even if the other tenants in common did not file for bankruptcy. The trustee will then use your share of the proceeds to satisfy your creditors. The other tenants in common are entitled to their share of the proceeds from the sale, proportionate to their ownership interest in the property. The trustee can also allow the other tenants to purchase your share of the property so that the other tenants can keep the property but your share can still be used to pay your creditors. However, in many cases, the bankruptcy trustee will not pursue a sale of property held by tenants in common because of the hardship it causes to the other owners and the difficulty of selling a partial share of property.