Can You File Bankruptcy and Keep Your House?
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Filing bankruptcy does not mean you will automatically lose your house. Often Chapter 7 and Chapter 13 bankruptcy help filers protect their homes. The best option depends on your unique financial situation, your home's equity, and available exemptions.
Chapter 7 can be a good choice if you are current on your mortgage payments and your home equity is protected by bankruptcy exemptions. Chapter 13 can be helpful if you are behind on your mortgage payments, possibly facing foreclosure, or have more equity than your local homestead exemption covers.
At a Glance: Filing Bankruptcy and Keeping Your House
- Filing bankruptcy does not automatically mean you will lose your house.
- Your homestead exemption helps determine whether your home equity may be protected.
- Use the free Homestead Exemption Estimator on this page to estimate whether your home equity may be protected based on your state’s homestead exemption information.
- Timing rules may affect which exemption system you can use, especially if you recently moved, recently bought your home, or moved equity from one home into another.
- Chapter 7 may work if you are current on your mortgage and your home equity is protected, but it usually does not help you catch up on missed mortgage payments.
- Chapter 13 may help you catch up on mortgage arrears, address nonexempt equity, or deal with certain unsecured junior liens through a repayment plan.
- Special issues like second mortgages, selling a house during bankruptcy, and HOA liens can affect the strategy.
- Before filing, review the homeowner bankruptcy checklist so you know your home value, mortgage payoff amount, liens, arrears, foreclosure timeline, and budget.
- Avoid common homeowner bankruptcy mistakes, like waiting too long, guessing at home value, or assuming bankruptcy fixes every mortgage problem.
Keeping Your House in Bankruptcy
It is understandable that for many homeowners, the biggest fear of filing bankruptcy is losing their home. For many a house isn't just an asset, it is your fortress of solitude, your family's safe place, and a space of emotional attachment.
What Is a Homestead Exemption in Bankruptcy?
In bankruptcy, a homestead exemption is a law that protects equity in your home from creditors. Home equity is the value of your home minus the balance of your mortgage and any other liens on the property.
Here is an example of how to calculate your home's equity. Assume that Sally has a home with a fair market value of $500,000.00 and a first mortgage with a balance of $300,000.00. Sally does not have any other liens on this property. In this case, Sally has $200,000.00 of equity in her home.
Homestead exemptions help determine whether your home equity is protected if you file bankruptcy. The application of your homestead exemption is different in chapter 7 and chapter 13. We will discuss this below in greater detail.
The homestead exemption you're able to use usually depends on the exemption system that applies to your bankruptcy case. Most states have their own homestead exemption, and there is also a federal homestead exemption. Some states require filers to use state exemptions, while other states allow eligible filers to choose between state and federal exemptions. The federal homestead exemption is not available in all 50 states. Some states opt out of using the federal homestead exemption, some states allow it, and some states allow filers a choice between their state exemption and the federal exemption.
Pro Tip: There are generally residency requirements in each state to be able to use that state's homestead exemption scheme. Make sure you understand the rules in your state. Also, make sure you understand what your state's homestead exemption is, and if you are able to use the federal homestead exemption.
Estimate Whether Your Home Equity May Be Protected
Once you know your home value, mortgage balance, and liens, the next question is whether your equity may be protected by a homestead exemption.
You can use the free Homestead Exemption Estimator below to estimate whether your home equity may be protected if you file bankruptcy. The tool is available for all 50 states and compares your estimated equity against state homestead exemption information.
Why Timing Matters for Homestead Exemptions
Timing rules can determine which homestead exemption you may use when you file for bankruptcy.
If you recently moved states, the 730-day rule may apply. If you have not lived in your current state for at least 730 days before filing bankruptcy, you may not be able to use that state’s exemption scheme. Instead, the law generally looks to where you lived for the greater part of the 180 days before that two-year period.
Example. Assume you moved from Michigan to Alabama less than two years before filing bankruptcy. Even though you live in Alabama when the bankruptcy case is filed, you may still have to use Michigan's exemption rules if that is where you lived during the relevant lookback period.
The 40-month homestead exemption cap may also apply. A separate federal rule can limit the amount of homestead equity protected if you acquired your home, or certain equity in the home, within 1,215 days before filing your bankruptcy (approximately 40 months). For bankruptcy cases filed from April 1, 2025, through March 31, 2028, the cap is $214,000. This rule is especially important in states with large or unlimited homestead exemptions.
Pro Tip: If you recently moved, recently bought your home, or moved equity from one home into another, do not assume the regular homestead exemption amount automatically applies. The timing rules can change the result.
Keeping Your Home in Chapter 7
Many filers do not have a problem keeping their home when they file chapter 7, as long as their mortgage payments are current, and their home equity is protected by their local homestead exemption.
Filers and potential filers of chapter 7 should note that unlike chapter 13, chapter 7 does not create a payment plan to catch up on mortgage arrears. Chapter 7 also does not let you keep nonexempt home equity by paying the trustee over time the way a Chapter 13 plan might. If you are behind on your mortgage payments, or if you have more equity than your local homestead exemption allows, chapter 7 may not be the best option for keeping your home.
To Keep Your Home in Chapter 7, You Generally Need:
- To be current on your mortgage payments.
- To have home equity that is at or below the amount protected by your homestead exemption.
What You Cannot Accomplish in Chapter 7 if You Want to Keep Your Home:
- Catch up on past-due mortgage payments through a structured payment plan.
- Pay the trustee over time for any home equity that exceeds your homestead exemption amount.
Keeping Your House in Chapter 13
Chapter 13 provides more options for keeping a home than chapter 7. Chapter 13 allows filers to pay for nonexempt equity through their chapter 13 plan payments. Chapter 13 also allows filers to catch up on mortgage arrears through their chapter 13 plan.
How Chapter 13 Can Help You Keep Your Home:
- Catch up on past-due mortgage payments through the chapter 13 plan.
- Keep a home with nonexempt equity by paying the required amount through your Chapter 13 plan.
Example: Paying for nonexempt home equity. Assume a filer has $200,000 of equity in a home, but their state's homestead exemption only protects $150,000, leaving $50,000 of equity that is not exempt. In Chapter 13, the filer may be able to keep the home by paying the required amount to unsecured creditors through the Chapter 13 plan, instead of losing the property.
Example 2: Catching up on missed mortgage payments. Assume a filer is $20,000 behind on mortgage payments and received a foreclosure notice. Chapter 13 may allow the filer to stop the foreclosure and repay the mortgage arrears through the chapter 13 plan, while continuing to make regular mortgage payments going forward.
Frequently Asked Questions About Keeping Your Home in Bankruptcy
Can I Remove a Second Mortgage in Chapter 13?
It is possible to remove a junior lien, second mortgage, or home equity line of credit (HELOC) on your home in chapter 13 through lien stripping. This is only possible when the home is worth less than the balance owed on the first mortgage.
If the junior lien is stripped, it is treated as unsecured debt in the Chapter 13 plan instead of a secured mortgage against the home.
For example, assume your home is worth $250,000 and you owe $350,000 on the first mortgage. If you also have a $75,000 second mortgage, the second mortgage is completely unsecured because the home value is not high enough to cover any part of it after the first mortgage. In this situation, Chapter 13 may allow the second mortgage lien to be stripped and treated as unsecured debt.
Lien stripping is generally a Chapter 13 issue and is not typically available in Chapter 7 for a principal residence.
Can I Sell My House While I Am in Bankruptcy?
You may be able to sell your house while you are in bankruptcy, but you usually should not do it without court approval or guidance from your bankruptcy attorney. Once a bankruptcy case is filed, your home may become part of the bankruptcy estate, which means there can be rules about selling, refinancing, or transferring the property.
In Chapter 7, the trustee may have an interest in the home if there is nonexempt equity. If the home is fully protected by your homestead exemption, selling may be less complicated, but you still need to be careful before signing a contract or closing a sale.
In Chapter 13, you may be able to sell your home during the case, but the sale often requires court approval. The court may need to know the sale price, mortgage payoff amount, closing costs, exemption claim, and how any remaining proceeds will be handled.
How Does Bankruptcy Handle HOA Liens?
HOA dues can become secured debt against your property and operate like a mortgage lien. This depends on whether or not the debt becomes properly secured.
In Chapter 7 a homeowner's liability for HOA dues that came due before the bankruptcy filing can be discharged, but a properly recorded HOA lien may survive against the property. That means the lien may still need to be paid if you sell or refinance the home, and the HOA may still have rights against the property under state law.
Whether or not the HOA debt is secured is also a factor to consider in chapter 13. If the HOA debt is secured by a valid lien, the lien may need to be addressed through the chapter 13 plan or otherwise resolved if you want to keep, sell, or refinance the home. If the HOA isn't secured, it can be discharged with other unsecured debt.
HOA dues that come due after the bankruptcy case is filed are usually treated differently. If you keep the property, or if it remains titled in your name, ongoing HOA dues may continue to be your responsibility.
Before You File Bankruptcy: A Homeowner’s Bankruptcy Checklist
If keeping your house truly is a priority, it is important to have accurate information before you file. Having the right numbers can make a big difference in your bankruptcy analysis, and you'll have a better idea of what you are in for from the beginning.
- Estimate your home’s current value.
Use recent comparable sales, a broker price opinion, or another reasonable valuation method. Avoid relying on outdated purchase prices. - Request mortgage payoff statements.
Confirm the full balance owed on your first mortgage and any junior liens, including second mortgages or home equity loans. - Determine how far behind you are.
Identify the total arrears, including missed payments, late fees, escrow shortages, and advances. - Review applicable homestead exemptions.
Confirm whether state or federal exemptions apply to you and how much equity may be protected. - Check for HOA dues or other property liens.
Unpaid HOA dues, tax liens, judgment liens, or other recorded liens can affect your equity and the strategy for keeping the home. - Assess your monthly budget honestly.
Determine whether you can afford ongoing mortgage payments in addition to any repayment plan obligations. - Confirm the foreclosure timeline, if applicable.
Know whether a sale date has been scheduled and how much time remains under your state’s procedures.
Completing this checklist does not commit you to filing bankruptcy. It simply ensures that if you do file, the decision is based on accurate information rather than assumptions. For homeowners, small numerical differences can meaningfully change the analysis.
Common Mistakes Homeowners Make When Filing Bankruptcy
Bankruptcy can help protect a home, but the details matter. The biggest problems usually come from waiting too long, guessing at home value, misunderstanding exemptions, or assuming bankruptcy will solve every mortgage problem automatically.
- Waiting too long to act.
If a foreclosure sale is already scheduled, there may be less time to review exemptions, compare Chapter 7 and Chapter 13, gather documents, or fix problems before filing. - Misunderstanding home equity.
Home equity is not just the estimated value of the home. You also need accurate mortgage payoff amounts, junior lien balances, tax liens, HOA liens, and other recorded liens that may affect the calculation. - Assuming the automatic stay is permanent.
Bankruptcy can temporarily pause foreclosure, but it does not permanently stop a lender from enforcing its rights if mortgage payments are not maintained or arrears are not addressed. - Choosing the wrong chapter for the situation.
Chapter 7 may work well if you are current on the mortgage and your equity is protected. Chapter 13 may be a better fit if you need time to catch up on missed payments or deal with nonexempt equity. - Filing without a realistic post-bankruptcy budget.
Keeping the home only works if the mortgage remains affordable after filing. If the payment is still too high, bankruptcy may reduce other debts but not fix the long-term housing problem.
Most of these mistakes are preventable. Before filing, it is important to know your home value, mortgage balance, exemption amount, arrears, and monthly budget. For homeowners, small timing or calculation errors can change the bankruptcy strategy.
Explore Bankruptcy Help by State
Browse our state guides to learn exemptions, means test rules, costs, and local procedures. Use these links to jump between states and compare your options.
- Arizona
- California
- Colorado
- Florida
- Georgia
- Illinois
- Indiana
- Maryland
- Michigan
- New York
- Ohio
- Oregon
- Pennsylvania
- Tennessee
- Texas
- Virginia
- Wisconsin