In most bankruptcy cases, people keep their house and their car. Whether you can keep your house and car if you file bankruptcy depends on three things: how much equity you have in each, which exemption laws you can claim, and whether you can stay current on any loan attached to the property. The chapter you file under also matters, because Chapter 7 and Chapter 13 handle non-exempt equity and missed payments very differently.
Filing Freezes Collection Immediately
The moment your bankruptcy petition is filed, an automatic stay takes effect and bars almost every kind of collection action against you.1Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay A foreclosure sale scheduled for next week has to stop. A repossession agent on the way to your car has to stand down. Wage garnishments and collection lawsuits freeze.
The stay isn’t permanent. A creditor can ask the court to lift it, and courts will do so if the creditor shows cause, such as a debtor with no equity and no realistic path to reorganize. If you’ve had a prior case dismissed within the past year, the stay may last only 30 days, or may not apply at all. Even so, the pause is often what makes the difference between keeping a house and losing it.
How Exemptions Protect What You Own
Exemptions are the legal tool that keeps your property out of the trustee’s reach. The trustee is the court-appointed official who looks for assets that could be sold to pay creditors.2Office of the Law Revision Counsel. 11 USC 522 – Exemptions Anything you properly claim as exempt is off-limits.
Exemptions protect equity, not the full value of the property. If your home is worth $300,000 and you still owe $250,000 on the mortgage, the exemption only needs to cover the $50,000 in equity. Same idea with a car: value minus loan balance equals what the exemption has to shield.
Which list of exemptions applies depends on your state. Roughly 20 states and the District of Columbia let you choose between the state list and the federal bankruptcy exemptions. The other 30 or so require you to use the state list. You can’t mix and match — pick one system and use it in full. When the choice is available, compare both against your actual property, because one system will almost always protect more for your situation than the other.
Married couples filing jointly can each claim a full set of exemptions, effectively doubling the protection available for jointly owned property.3Legal Information Institute. Doubling For a couple with significant home equity, doubling can be what saves the house.
Protecting Home Equity With the Homestead Exemption
The homestead exemption shields equity in your primary residence. For cases filed on or after April 1, 2025, the federal homestead exemption is $31,575 per person, so a couple filing jointly can protect up to $63,150 using the federal exemption alone.4National Consumer Law Center. April 1 Increase of Federal Bankruptcy Exemptions, Other Dollar Amounts
State homestead exemptions vary widely. Some states protect only a modest amount. Others are far more generous than the federal number, and a handful offer unlimited homestead protection, though even those may impose acreage limits. Compare your state’s number with the federal one before deciding which system to use.
Residency and Recent Purchase Rules
Two timing rules can trim your homestead exemption. First, to use a state’s exemptions at all, you generally have to have been living in that state for the 730 days (roughly two years) before filing. Move recently, and you may be locked into the exemptions of the state you left.
Second, if you acquired your interest in the home within 1,215 days (about three years and four months) before filing, the homestead exemption is capped at $214,000 no matter what your state allows.5Office of the Law Revision Counsel. 11 US Code 522 – Exemptions Equity you rolled over from a previous home in the same state doesn’t count against the cap.
Protecting Your Car With the Vehicle and Wildcard Exemptions
The federal motor vehicle exemption protects $5,025 in equity per person for cases filed on or after April 1, 2025.2Office of the Law Revision Counsel. 11 USC 522 – Exemptions A car worth $12,000 with a $9,000 loan has $3,000 in equity, well within that number. A paid-off car worth $15,000 doesn’t fit, and you may need to look at your state exemption, which often protects more.
When the motor vehicle exemption falls short, the federal wildcard fills the gap. The wildcard protects up to $1,675 in any property, plus up to $15,800 of any homestead exemption amount you didn’t use.2Office of the Law Revision Counsel. 11 USC 522 – Exemptions Renters benefit the most. If you don’t own a home, the entire homestead exemption goes unused, and stacking up to $15,800 of it onto the wildcard gives you as much as $17,475 to apply toward a car, bank account, or other property. Homeowners with leftover homestead room can do the same, up to the $15,800 cap on that rollover.
Chapter 7 or Chapter 13 Changes the Math
Choosing the right chapter is often the single most important decision for keeping a house or car.
Chapter 7
In Chapter 7, the trustee can sell any asset with non-exempt equity. If your car has $8,000 in equity and your exemptions only cover $5,025, the trustee may sell it, pay you the exempt portion, pay off the loan, and distribute the rest to unsecured creditors.6United States Courts. Chapter 7 – Bankruptcy Basics The same principle applies to a home with equity above the homestead exemption.
In practice, most Chapter 7 cases are “no-asset” cases. Exemptions cover everything, and the trustee finds nothing worth selling. But when equity clearly exceeds available exemptions, Chapter 7 puts that asset at risk.
Chapter 13
Chapter 13 lets you keep all your property, exempt or not, in exchange for a three-to-five-year repayment plan.7United States Courts. Chapter 13 – Bankruptcy Basics The catch is that unsecured creditors must receive at least as much through your plan as they would have if your non-exempt assets had been liquidated under Chapter 7. If you have $20,000 in non-exempt home equity, your plan needs to pay unsecured creditors at least $20,000 over its term.
Chapter 13’s biggest advantage for homeowners and car owners is that it can cure arrears. If you’re behind on a mortgage or car payment, the plan spreads the missed payments over its term while you resume regular monthly payments. That makes Chapter 13 the usual choice when foreclosure or repossession is already in motion and you have steady income to fund a plan. Chapter 13 does have debt limits, so filers with very high total debts may not qualify.
Keeping a Home or Car That Still Has a Loan
Exemptions protect your equity from the trustee and unsecured creditors. They do nothing against the mortgage lender or auto lender holding a lien. To keep a financed home or car, you have to deal with the secured lender directly, and the tools differ by chapter.
Reaffirmation in Chapter 7
A reaffirmation agreement is a new contract with your lender that survives your bankruptcy discharge. You agree to keep paying the debt as if you never filed; the lender agrees not to repossess as long as you stay current. The agreement has to be filed with the court before discharge, and you have 60 days after filing it to rescind.8Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge If the court finds the deal creates undue hardship and you don’t have an attorney, the court can refuse to approve it.
Reaffirmation has a real downside. If you fall behind later, the lender can repossess and pursue you for any remaining balance, exactly as if bankruptcy never happened. If the payment isn’t comfortably affordable, reaffirmation puts you back on the hook for a debt bankruptcy would otherwise erase.
Redemption in Chapter 7
For a car or other tangible personal property, redemption is another option. You pay the lender the property’s current value in a single lump sum and the lien is released.9Office of the Law Revision Counsel. 11 USC 722 – Redemption If you owe $14,000 on a car worth $8,000, you can redeem for $8,000 and walk away clean. The obstacle is having the money. Some specialty lenders offer redemption financing, but rates tend to be steep. Redemption doesn’t apply to real estate.
Ride-Through
In some jurisdictions you can simply keep making payments on a secured loan without reaffirming. The bankruptcy discharges your personal liability, so the lender can repossess if you stop paying but can’t sue you for any shortfall. As long as payments continue, you keep the property. Not every lender accepts this and not every court permits it, so this depends on where you file and who your lender is.
Curing Arrears in Chapter 13
In Chapter 13, secured loans are handled inside the repayment plan rather than through a reaffirmation agreement. Missed mortgage payments can be spread across the plan’s three to five years while regular payments continue. Complete the plan and the lender can’t foreclose.7United States Courts. Chapter 13 – Bankruptcy Basics
Car loans get an extra tool in Chapter 13. If you bought the vehicle more than 910 days (about two and a half years) before filing, you may be able to reduce the loan’s secured amount to the car’s current market value. This is sometimes called a cramdown. You still repay the reduced amount through your plan, but you’re no longer paying off the full original balance on a depreciating car. Loans taken out within the 910-day window can’t be crammed down.
Chapter 7 Assumes You Are Current
Chapter 7 has no mechanism to catch up on missed payments. If you’re already behind on your mortgage or car loan, the lender can ask the court to lift the automatic stay and proceed with foreclosure or repossession. To keep a financed asset in Chapter 7, you need to be current when you file and stay current afterward.
Do Not Move Property Before You File
Trying to shield property by transferring it to a friend or relative before filing almost always makes things worse. A trustee can undo any transfer made within two years of filing if the purpose was to put assets beyond creditors’ reach or you received less than fair value while insolvent.10Office of the Law Revision Counsel. 11 US Code 548 – Fraudulent Transfers and Obligations For certain transfers to trusts where you remain a beneficiary, the lookback runs ten years.
Paying off a family member or business partner right before filing has its own trap. The trustee can claw back payments to “insiders” — relatives, partners, close business associates — made within a year before filing.11Office of the Law Revision Counsel. 11 US Code 547 – Preferences For ordinary creditors, the lookback is 90 days. The trustee recovers the payment and distributes it evenly to all creditors, and the person you paid ends up with an unsecured claim. The instinct to make loved ones whole before filing tends to create problems for exactly the people you’re trying to protect.