Can I Keep My House in Bankruptcy?

How Bankruptcy Protects Your Home

Bankruptcy provides two main protections for homeowners: the homestead exemption and the automatic stay. Understanding both is crucial to keeping your house through bankruptcy.

The Homestead Exemption

The homestead exemption is a legal protection that allows you to shield a certain amount of equity in your primary residence from creditors. Every state has a homestead exemption, though the amounts vary dramatically:

• Unlimited Homestead States: Texas, Florida, Iowa, Kansas, Oklahoma, and South Dakota allow unlimited homestead protection (with acreage restrictions)
• High Exemption States: California ($600,000-$700,000), Massachusetts ($500,000), Nevada ($605,000), Minnesota ($450,000)
• Moderate Exemption States: Most states offer $20,000 to $200,000 in homestead protection
• Low Exemption States: Some states like Pennsylvania, Maryland, New Jersey, and Delaware offer no or very limited homestead exemptions

How Equity Affects Your Home in Bankruptcy

Your home equity is calculated as the current market value of your home minus what you owe on mortgages and liens. Here's how different equity scenarios work:

Keeping Your House in Chapter 7 Bankruptcy

In Chapter 7 bankruptcy, you can keep your house if:

1. Your equity is protected by the homestead exemption - If all your equity falls within the exemption limit, the trustee cannot sell your home
2. You're current on mortgage payments - You must continue making your regular mortgage payments to keep the house
3. You can reaffirm the debt (optional) - You may sign a reaffirmation agreement to remain personally liable for the mortgage, though this isn't always required

What Happens If You Have Too Much Equity?

If your equity exceeds your state's homestead exemption, the Chapter 7 trustee may sell your home, pay off the mortgage, give you your exemption amount, pay bankruptcy costs and creditors, and give you any remaining funds. However, this is relatively uncommon because:

• Many homeowners have little equity after mortgages
• Selling a house costs money (real estate commissions, closing costs)
• Trustees only sell if there's significant value for creditors after all costs
• You can often convert to Chapter 13 to keep the home

Keeping Your House in Chapter 13 Bankruptcy

Chapter 13 bankruptcy is specifically designed to help you keep your home, even if you have substantial equity or are behind on payments. Here's how it works:

Catch Up on Missed Payments

If you're behind on your mortgage, Chapter 13 allows you to catch up on arrears through your 3-5 year repayment plan while making current payments. This stops foreclosure immediately through the automatic stay.

Protect Excess Equity

Even if your home equity exceeds your homestead exemption, you can keep your house in Chapter 13. You'll need to pay unsecured creditors at least as much as they would have received if your home had been sold in Chapter 7, but you get to keep the property.

Strip Second Mortgages (in Some Cases)

If you have a second mortgage or home equity line of credit (HELOC) that is completely underwater (the first mortgage exceeds the home's value), you may be able to "strip" the second mortgage in Chapter 13, treating it as unsecured debt. This can significantly reduce your debt burden.

How the Automatic Stay Stops Foreclosure

The moment you file bankruptcy, the automatic stay immediately stops all collection activities, including foreclosure proceedings. This happens automatically - you don't need to ask the court for special permission.

What the Automatic Stay Does

• Stops foreclosure sales, even if scheduled for the next day
• Prevents new foreclosure proceedings from starting
• Halts eviction proceedings in some cases
• Stops collection calls and letters about the mortgage
• Gives you breathing room to reorganize your finances

How Long Does the Automatic Stay Last?

In Chapter 7, the automatic stay remains in effect throughout the bankruptcy (3-4 months). In Chapter 13, it lasts throughout your repayment plan (3-5 years) as long as you make your plan payments.

Important: The mortgage lender can ask the court to lift the automatic stay if you don't make post-filing payments or if you've filed multiple bankruptcies recently.

Steps to Keep Your House in Bankruptcy

Before Filing

1. Calculate your home equity - Get a realistic home value estimate and subtract all mortgage balances
2. Check your state's homestead exemption - Visit our state guides to find your exemption amount
3. Assess your ability to make payments - Determine if you can afford current mortgage payments going forward
4. Consult a bankruptcy attorney - Get professional advice on the best chapter and strategy
5. Gather documentation - Recent mortgage statements, property tax records, home value estimates

During Bankruptcy

1. Continue making payments - Make all current mortgage payments on time
2. Properly claim your homestead exemption - Ensure it's correctly listed on your bankruptcy schedules
3. Communicate with your attorney - Report any issues with the mortgage lender immediately
4. Complete required bankruptcy tasks - Attend 341 meeting, complete debtor education course
5. Make Chapter 13 plan payments - If in Chapter 13, make all plan payments on time

After Bankruptcy

1. Stay current on payments - Continue paying your mortgage on time
2. Maintain the property - Keep up with maintenance, insurance, and property taxes
3. Rebuild your credit - On-time mortgage payments help rebuild your credit score

Common Scenarios

I'm Current on Payments But Have Credit Card Debt

Chapter 7 bankruptcy can eliminate your credit card debt while allowing you to keep your house. As long as your equity is protected by the homestead exemption and you continue making mortgage payments, your home won't be affected by the bankruptcy.

I'm Behind on Mortgage Payments

Chapter 13 bankruptcy is specifically designed for this situation. It stops foreclosure immediately and allows you to catch up on missed payments over 3-5 years while making current payments. This is one of the most powerful tools to save a home from foreclosure.

I'm Facing Foreclosure Next Week

Filing bankruptcy, even the night before a foreclosure sale, will stop the sale through the automatic stay. However, you need to act quickly. Contact a bankruptcy attorney immediately - many can file an emergency petition to stop foreclosure.

I Have a Second Mortgage I Can't Afford

In Chapter 13, if your first mortgage exceeds your home's value, you may be able to strip the second mortgage and treat it as unsecured debt. This can save you hundreds per month and help you afford to keep your home.

I Want to Surrender My House

Bankruptcy also allows you to surrender your house without owing a deficiency balance. If you're underwater on your mortgage or simply can't afford the home, you can surrender it in bankruptcy and eliminate any remaining debt owed after the sale.

State-Specific Homestead Exemptions

Homestead exemptions vary dramatically by state. Here are some examples:

State	Homestead Exemption
Texas	Unlimited (10 acres urban, 200 acres rural)
Florida	Unlimited (0.5 acres urban, 160 acres rural)
California	$600,000 - $700,000
Massachusetts	$500,000
New York	$189,050 - $283,575 (varies by county)
Federal (if allowed)	$27,900 ($55,800 married)

View homestead exemptions for all 50 states →

Frequently Asked Questions

Will bankruptcy ruin my credit and prevent me from buying a house later?

Bankruptcy does impact your credit, but many people can qualify for a mortgage 2-4 years after bankruptcy discharge with proper credit rebuilding. FHA loans are available 2 years after Chapter 7 and 1 year into a Chapter 13 plan.

Do I have to reaffirm my mortgage in Chapter 7?

Not necessarily. Many courts allow "ride-through," where you keep the house by staying current on payments without signing a reaffirmation agreement. This protects you from personal liability if you later need to surrender the home. Consult your attorney about your options.

Can I modify my mortgage through bankruptcy?

Chapter 13 allows you to cure arrears, but generally cannot modify the terms of your primary residence mortgage. However, you can modify mortgages on investment properties and vacation homes, and you can strip wholly unsecured second mortgages.

What if I filed bankruptcy before and am facing foreclosure again?

You can file Chapter 13 bankruptcy even if you filed Chapter 7 within the past 8 years. While you won't receive a discharge, you can still use Chapter 13 to catch up on mortgage arrears and stop foreclosure.

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