Quick Answer
The vast majority of bankruptcy filers keep their house. In Chapter 7, your home is safe if the equity is within your state's homestead exemption and you stay current on the mortgage. In Chapter 13, you can catch up on missed payments over 3-5 years and may be able to strip off an underwater second mortgage.
How Chapter 7 Protects Your Home
In Chapter 7 bankruptcy, a trustee reviews your assets to determine if anything can be sold to pay creditors. Your home is protected if two conditions are met:
- Your equity is within the homestead exemption. Every state has a homestead exemption that protects a certain amount of equity in your primary residence. If your equity (home value minus mortgage balance) is less than or equal to the exemption, the trustee cannot sell your home.
- You are current on mortgage payments. Chapter 7 does not provide a way to catch up on missed payments. If you are behind on your mortgage, the lender can seek relief from the automatic stay and proceed with foreclosure after the bankruptcy case ends.
11 U.S.C. § 522(d)(1): The federal homestead exemption protects up to $27,900 (2024 amount, adjusted every 3 years) of equity in the debtor's residence. However, most states have opted out and use their own exemption amounts, which vary enormously.
If your equity exceeds the exemption, the trustee may sell the home, pay you the exempt amount, pay the mortgage, and distribute the remaining proceeds to creditors. In practice, this happens relatively rarely because most homeowners either have modest equity or live in states with generous exemptions.
How Chapter 13 Protects Your Home
Chapter 13 offers stronger home protection than Chapter 7 in several ways:
- Cure mortgage arrears: Under 11 U.S.C. § 1322(b)(5), your Chapter 13 plan can cure a mortgage default over 3 to 5 years while you make current payments going forward. This is the most common reason homeowners choose Chapter 13.
- Stop foreclosure: The automatic stay under 11 U.S.C. § 362 halts foreclosure proceedings the moment you file. As long as you make plan payments and stay current on the mortgage, the stay remains in effect.
- Lien stripping: Under 11 U.S.C. § 506(a), if your first mortgage balance exceeds the home's current market value, a second mortgage or home equity line of credit can be "stripped off" -- reclassified as unsecured debt and eliminated through the plan. See lienstripping.org for a detailed guide.
- Keep non-exempt equity: Unlike Chapter 7, Chapter 13 does not require you to surrender non-exempt property. Instead, you must pay unsecured creditors at least as much as they would have received in a Chapter 7 liquidation (the "best interests" test under 11 U.S.C. § 1325(a)(4)).
Homestead Exemptions by State
The homestead exemption is the single most important factor in determining whether you keep your house in Chapter 7. Exemption amounts vary dramatically:
- Unlimited exemption states: Texas, Florida, Kansas, Iowa, South Dakota, and a few others allow you to protect an unlimited amount of home equity (subject to acreage limits in some states).
- High exemption states: Many states protect $100,000 or more -- Massachusetts, Minnesota, Nevada, and others.
- Low exemption states: Some states protect less than $25,000 per person -- including Alabama, Kentucky, and Maryland.
- Federal exemption: $27,900 per person (2024), available in states that allow the federal option. Married couples filing jointly can double this amount.
See bankruptcyexemptionsbystate.com for a state-by-state breakdown.
The 730-day rule: Under 11 U.S.C. § 522(b)(3)(A), if you have not lived in your current state for at least 730 days (approximately 2 years), you may have to use the exemptions of the state where you lived for the majority of that 730-day period. This is especially important if you moved from a high-exemption state to a low-exemption state or vice versa.
When You Might Lose Your House
While most filers keep their homes, there are situations where your house may be at risk:
- Non-exempt equity in Chapter 7: If your equity exceeds the homestead exemption, the trustee has the right to sell the home.
- Inability to make mortgage payments: In both chapters, if you cannot make ongoing mortgage payments, the lender can eventually foreclose.
- Chapter 13 plan failure: If your Chapter 13 case is dismissed because you cannot make plan payments, the mortgage arrears become due immediately and foreclosure can resume.
- BAPCPA homestead cap: Under 11 U.S.C. § 522(p), if you acquired your home within 1,215 days before filing, the homestead exemption may be capped at $189,050 (2024 amount) regardless of your state's exemption, unless the equity came from a prior homestead in the same state.
If foreclosure is imminent, act quickly. The automatic stay stops a foreclosure sale the moment you file, but if the sale has already occurred, it may be too late. Consult a bankruptcy attorney before the scheduled sale date. Many offer free initial consultations.
Frequently Asked Questions
How do I keep my house if I file bankruptcy?
In Chapter 7, make sure your equity is within the homestead exemption and stay current on mortgage payments. In Chapter 13, you can catch up on missed payments over 3-5 years through your repayment plan while making current payments going forward.
What is a homestead exemption and how does it protect my house?
A homestead exemption under 11 U.S.C. § 522 protects a specific dollar amount of equity in your primary residence. If your equity is within the exemption, the trustee cannot sell your home. Amounts vary by state -- from a few thousand dollars to unlimited in Texas, Florida, and others.
Can Chapter 13 stop a foreclosure on my house?
Yes. Filing triggers the automatic stay under Section 362, which immediately halts foreclosure. Your plan allows you to cure the default over 3-5 years. This is one of the most powerful tools for saving a home from foreclosure.
What is lien stripping and how does it work?
Under 11 U.S.C. § 506(a), if your first mortgage exceeds the home's value, a second mortgage can be "stripped off" in Chapter 13 -- treated as unsecured debt and eliminated through the plan. This only works in Chapter 13, not Chapter 7. See lienstripping.org for details.