Most homeowners who file bankruptcy can keep their house, but whether you actually will depends on three things working in your favor: the chapter you file under, how much equity you have in the home, and whether you can stay current on the mortgage going forward. Chapter 13 is generally the stronger tool if you are behind on payments, because it lets you catch up missed payments through a court-approved plan. Chapter 7 can also let you keep the home, but only if your equity fits inside the homestead exemption and you are not in arrears. Get any one of those pieces wrong and the house is at risk.
Which Chapter Fits Your Situation
Chapter 7 is a liquidation. A court-appointed trustee reviews your assets, sells anything that is not protected by an exemption, and uses the proceeds to pay creditors.1United States Courts. Chapter 7 – Bankruptcy Basics If your home equity is fully protected by an exemption, the trustee has no reason to sell the house. If it is not, the trustee can. Chapter 7 does nothing about missed mortgage payments, though. You either stay current or the lender eventually forecloses after the case ends.
Chapter 13 works differently. You propose a repayment plan lasting three to five years.2United States Courts. Chapter 13 Bankruptcy Basics The plan can fold in your overdue mortgage payments and spread them across the life of the plan while you keep making your regular monthly payments. That is the mechanism that actually stops a foreclosure in progress and gives you time to become whole again.
Not everyone qualifies for both. Chapter 7 requires passing a means test that compares your household income to the median income in your state. Below the median, you qualify. Above it, you may still qualify after allowed expense deductions, or you may be pushed into Chapter 13 instead.3Office of the Law Revision Counsel. 11 USC 707 – Dismissal of a Case or Conversion to a Case Under Chapter 11 or 13 Chapter 13 requires regular income sufficient to fund a plan. The median income thresholds change periodically and vary by state and family size.4U.S. Trustee Program / Dept. of Justice. Census Bureau Median Family Income By Family Size
Is Your Home Equity Protected
The homestead exemption is the single most important protection for a homeowner in bankruptcy. It shields a specific dollar amount of equity in your primary residence from the trustee. If your equity is fully covered, the trustee has no financial reason to sell, because after paying off the mortgage and honoring the exemption there is nothing left for creditors.
Federal Exemption Amounts
The federal homestead exemption protects up to $31,575 of equity in your primary residence for cases filed between April 1, 2025, and March 31, 2028. Married couples filing jointly can double that to $63,150.5Office of the Law Revision Counsel. 11 US Code 522 – Exemptions A federal wildcard exemption lets you protect an additional $1,675 in any property, plus up to $15,800 of unused homestead exemption redirected to other assets.
State Versus Federal Exemptions
Not every state lets you use the federal set. Federal law allows states to opt out and require residents to use only the state’s own system, and a majority of states have done that.5Office of the Law Revision Counsel. 11 US Code 522 – Exemptions Some state homestead exemptions are far more generous than the federal amount, some are smaller, and a handful of states offer unlimited homestead protection. Where a choice is available, an attorney will compare both systems and use whichever protects more of your property.
Residency and Recent-Purchase Caps
If you moved to a new state within the two years before filing, you probably cannot use that new state’s exemptions. The bankruptcy code requires 730 days of domicile in a state before filing to use its exemptions. Fall short of that and you use the exemptions from the state where you lived during the 180 days before the 730-day window.5Office of the Law Revision Counsel. 11 US Code 522 – Exemptions The rule exists to stop people from relocating to a generous state right before filing.
A related rule caps the homestead exemption at $214,000 if you acquired your home interest within 1,215 days (roughly three years and four months) before filing.5Office of the Law Revision Counsel. 11 US Code 522 – Exemptions Even in a state with unlimited homestead protection, this federal cap overrides for recently acquired homes.
Filing Stops a Foreclosure in Progress
The moment you file a bankruptcy petition under any chapter, a court order called the automatic stay takes effect. It immediately stops most collection activity, including foreclosure proceedings, lawsuits, wage garnishments, and creditor calls.6Office of the Law Revision Counsel. 11 US Code 362 – Automatic Stay A foreclosure sale scheduled for next week is halted by filing today.
The stay is temporary. In Chapter 7, it lasts only while the case is open, which is typically three to four months. If you are behind on the mortgage when the case closes, the lender can resume foreclosure. In Chapter 13, the stay effectively lasts the entire three-to-five-year plan period, as long as you keep making payments.
One boundary worth knowing: if you had a bankruptcy case dismissed within the past year and file again, the automatic stay expires after 30 days unless the court extends it. If two or more of your cases were dismissed in the past year, no automatic stay takes effect at all when you file the new case.6Office of the Law Revision Counsel. 11 US Code 362 – Automatic Stay Repeat filings to stall a foreclosure eventually stop working.
Keeping the House in Chapter 7
If your equity is covered by the homestead exemption, the trustee will not sell. That resolves the trustee’s interest but not the lender’s. You still have to deal with the mortgage, and there are three basic paths.
Reaffirmation
A reaffirmation agreement is a new contract in which you agree to remain personally liable for the mortgage debt despite the bankruptcy discharge. You keep paying, and the mortgage continues as if the bankruptcy never happened. The agreement must be filed with the court before your discharge, and you can rescind it within 60 days after filing.7Office of the Law Revision Counsel. 11 US Code 524 – Effect of Discharge
For most secured debts, the court must approve a reaffirmation as being in your best interest and not creating an undue hardship. Mortgage debt secured by real property is different. The statute exempts consumer debt secured by real estate from court approval, even if you do not have an attorney.7Office of the Law Revision Counsel. 11 US Code 524 – Effect of Discharge Think carefully before reaffirming: if you later default, the lender can foreclose and sue you for any remaining balance, just as if you had never filed.
Paying Without Reaffirming
Many homeowners simply continue making mortgage payments without signing a reaffirmation. Some courts explicitly permit this ride-through approach. The lender keeps receiving payments and has no reason to foreclose, and you avoid personal liability if things go wrong later. The trade-off is that mortgage payments may not be reported to credit bureaus, which slows credit recovery. Local practice varies.
Surrender
If keeping the home does not make financial sense, you can surrender it. Chapter 7 discharges your personal obligation on the mortgage debt, so you walk away without owing a deficiency. The lender’s lien on the property survives, so they can still foreclose, but they cannot pursue you personally for the money.1United States Courts. Chapter 7 – Bankruptcy Basics For homeowners who are deeply underwater, surrender can be the cleanest exit.
Keeping the House in Chapter 13
Chapter 13 is built for homeowners in trouble. It offers tools Chapter 7 does not.
Curing Arrears Through the Plan
Your repayment plan can include all of your overdue mortgage payments, spread across three to five years. You keep making regular monthly payments to the lender on time, and the plan payments gradually eliminate the arrearage.2United States Courts. Chapter 13 Bankruptcy Basics Complete the plan and you are current on the mortgage as if you had never missed a payment.
Staying Current After You File
This is where most failing Chapter 13 cases actually fail. The plan handles past-due amounts, but you are responsible for every mortgage payment that comes due after the petition. Miss those post-petition payments and you risk dismissal, which restarts the foreclosure clock. Depending on the jurisdiction, your plan may require you to pay the mortgage directly to the lender, or it may route all payments through the Chapter 13 trustee under a conduit plan. Either way, payments must be on time and in full.
Lien Stripping on Second Mortgages
If your home is worth less than what you owe on the first mortgage, Chapter 13 lets you strip junior liens such as second mortgages or home equity lines of credit. The court reclassifies the junior lien as unsecured because there is no equity supporting it. That debt then gets paid alongside credit card balances in your repayment plan, often at pennies on the dollar, and when you complete the plan the lien is removed from the property entirely.5Office of the Law Revision Counsel. 11 US Code 522 – Exemptions
To qualify, the first mortgage balance must fully exceed the home’s current market value. If the home is worth $200,000 and you owe $210,000 on the first mortgage, the second is wholly unsecured and can be stripped. If the home is worth $200,000 and you owe $195,000 on the first, there is $5,000 in equity partially securing the second lien, and stripping is not available. The court will require evidence of value, typically a professional appraisal or comparable sales data supported by declarations under penalty of perjury.
What Happens If the Plan Fails
Life does not always cooperate with a three-to-five-year plan. If you fall behind on plan payments, miss post-petition mortgage payments, or fail other plan requirements, the court can dismiss your case or convert it to Chapter 7.8Office of the Law Revision Counsel. 11 USC 1307 – Conversion or Dismissal
Dismissal is the more common outcome, and it is hard on homeowners. The automatic stay evaporates. Creditors can restart foreclosure, lawsuits, and garnishments immediately. Any progress you made catching up on arrears through the plan may be lost. Refiling is sometimes possible, but the reduced stay protections for repeat filers make the second attempt harder. Conversion to Chapter 7 keeps you in bankruptcy but shifts to a liquidation, so the trustee can sell non-exempt assets and you lose the ability to cure arrears through a plan.
If a rough patch hits during your plan, talk to your attorney before missing payments. Courts can sometimes modify a confirmed plan to lower payments temporarily, which is a far better outcome than dismissal.
Moves That Can Cost You the House Before You File
Transferring your home to a relative, selling it below market value, or making large payments to favored creditors before filing is one of the fastest ways to destroy your case. The trustee can reverse any transfer made within two years before filing if it was made for less than fair value or with intent to defraud creditors.9Office of the Law Revision Counsel. 11 USC 548 – Fraudulent Transfers and Obligations State fraudulent transfer laws often extend the lookback to four years or longer.
Payments to insiders like family members draw extra scrutiny. Ordinary creditor payments are examined within the 90 days before filing, but payments to insiders can be clawed back if made within one year. The trustee can recover the money and redistribute it to all creditors. Beyond the financial hit, fraudulent transfers can result in denial of your discharge entirely, leaving you with every debt intact and none of the protection bankruptcy was supposed to provide.