Keeping your home is possible in both Chapter 7 and Chapter 13, but the mechanisms are different.
Chapter 7: Homestead Exemption
In Chapter 7, your state's homestead exemption protects a specified amount of home equity. If your equity (home value minus mortgage balance) falls within the exemption, you keep the house. You must stay current on mortgage payments -- Chapter 7 does not help with arrears.
Chapter 13: Arrears Cure + Exemption
Chapter 13 is the stronger option for homeowners because it allows you to cure mortgage arrears over your 3-5 year plan. If you are 6 months behind on your mortgage, those missed payments are spread across your plan. As long as you make plan payments and stay current going forward, the lender cannot foreclose.
Lien Stripping
In Chapter 13, if your home is worth less than your first mortgage, any junior liens (second mortgage, HELOC) can be "stripped" -- treated as unsecured debt and potentially discharged. This is not available in Chapter 7.
The Decision Framework
- Current on mortgage, equity within exemption: Either chapter works
- Behind on mortgage: Chapter 13 is usually necessary
- Underwater with second mortgage: Chapter 13 lien stripping is powerful
- Significant non-exempt equity: Chapter 13 lets you keep the home by paying non-exempt equity to unsecured creditors through the plan