You can usually file Chapter 7 and keep your house and car, as long as the equity in each one fits inside the exemptions available to you and you stay current on the loans. Chapter 7 wipes out qualifying unsecured debts, but it does not erase a mortgage or auto loan. If you want to hold on to collateral, the lender still has to be paid, and the trustee has to leave the property alone. Both of those outcomes come down to numbers you can work out before you file.
The Equity Test That Decides Everything
Exemptions are what let you keep property in Chapter 7. Federal bankruptcy law sets default amounts, and each state can replace those defaults with its own list.1Office of the Law Revision Counsel. 11 U.S.C. 522 – Exemptions Roughly half of all states require you to use the state exemptions; the rest let you choose between federal and state, but you have to pick one list in full. You cannot mix items from both.
State protection varies enormously. A few states offer unlimited homestead protection subject to acreage limits, so a home worth millions can be fully shielded. Others cap the homestead exemption below $30,000, which leaves many homeowners partially exposed. Vehicle exemptions swing just as widely. The same assets can produce very different outcomes depending on where you live, so the first practical step is to find out which exemption system applies to you and what each category allows.
2026 Federal Exemption Amounts
If the federal exemptions are available and they help you, these are the key limits effective April 1, 2025, applicable to cases filed in 2026:1Office of the Law Revision Counsel. 11 U.S.C. 522 – Exemptions
- Homestead: up to $31,575 in equity in your primary residence.
- Motor vehicle: up to $5,025 in equity in one vehicle.
- Wildcard: $1,675 plus up to $15,800 of any unused portion of your homestead exemption, for a potential total of $17,475 applied to any property.
The wildcard matters because it stacks. If you rent or your home equity sits well below $31,575, the unused homestead amount flows into the wildcard and can be dropped on top of the motor vehicle exemption. A filer who does not need the homestead at all could shield up to $17,475 of car equity, cash, or other property that way.
Joint Filings Double the Federal Numbers
When spouses file a joint petition and elect federal exemptions, each spouse claims the full set independently.2Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions Protection on jointly owned assets effectively doubles. A couple using federal exemptions could cover up to $63,150 in home equity and $10,050 in vehicle equity. Doubling under state exemptions depends on each state’s rules; the federal system expressly applies each exemption “separately with respect to each debtor in a joint case.”
Calculating the Equity You Need to Protect
Equity is not what your property is worth. It is what would be left after paying off every loan and lien against it. For your home, take the current fair market value and subtract the mortgage, any second mortgage or home equity loan, and any tax liens. For your car, subtract the loan balance from the vehicle’s current value. The result is the number the trustee cares about.
A house worth $300,000 with $250,000 owed on the mortgage has $50,000 of equity. Under the federal homestead exemption of $31,575, that leaves $18,425 unprotected and the home at risk. In a state with a homestead exemption of $75,000 or more, the same $50,000 is fully shielded. A car worth $15,000 with a $10,000 loan balance has $5,000 of equity, which fits inside the $5,025 federal motor vehicle exemption. Push the car’s value to $18,000 and the equity jumps to $8,000, past the vehicle exemption on its own, though the wildcard can fill the gap.
Getting the valuation right matters. For vehicles, trustees commonly use published pricing guides like Kelley Blue Book or NADA Guides, and the relevant figure is replacement value (what you would pay for a comparable car in similar condition), not the lower trade-in price. Some districts have a preferred method, so check your local trustee’s website. For real estate, a recent appraisal or a comparative market analysis carries the most weight; online estimates are a starting point but not authoritative. If the trustee disputes your number, the court sorts it out and you have the chance to present evidence.
When the Trustee Walks Away
Even if your equity technically exceeds the exemption limit, the trustee may leave the property alone. Selling a house or car through the bankruptcy estate costs money: appraisals, storage, transportation, auction or real estate fees, and the trustee’s own commission. If little or nothing is left for creditors after the exemption, the lender’s lien, and those administrative costs, the trustee will “abandon” the property and you keep it.
This outcome is more common than people expect. A home with $5,000 of non-exempt equity may look like something to work with, but after a real estate commission, closing costs, and the trustee’s fee, there is often nothing meaningful left for creditors. Trustees pursue assets that produce real returns for the estate, not assets that generate paperwork for pennies.
What You Have To Do To Keep Each One
Qualifying under the exemption math is only half of it. You also have to tell the court what you intend to do with each secured debt and follow through on it.
Within 30 days of filing your petition, or by the date of your creditors’ meeting if that comes first, you must file a statement of intention listing each piece of secured property and what you plan to do with it.3Office of the Law Revision Counsel. 11 U.S. Code 521 – Debtor’s Duties For your house and car the options are to keep the property and reaffirm the debt, keep it and redeem it, or surrender it. You then have 30 days from the first date set for the creditors’ meeting to actually carry out whatever you stated. Miss the deadlines and the stay on that property can lapse, giving the lender a path to foreclosure or repossession.
Reaffirmation (The Usual Path for a House)
A reaffirmation agreement is a new contract in which you agree to remain personally liable for the debt despite the bankruptcy. The original loan terms usually carry over and you keep paying as before; the lender agrees not to foreclose or repossess as long as you stay current.4Office of the Law Revision Counsel. 11 U.S.C. 524 – Effect of Discharge The agreement must be filed with the court before discharge. If you are not represented, a judge must hold a hearing and approve the agreement, looking at whether the payments are realistic in your budget. If income minus expenses leaves little room, the court can reject the agreement based on a presumption of undue hardship.
Reaffirmation is the standard way to keep a home in Chapter 7, because redemption applies only to personal property, not real estate.
Redemption (A Useful Tool for an Underwater Car)
Redemption lets you keep personal property like a car by paying the lender a single lump sum equal to the property’s current value, regardless of how much you still owe.5Office of the Law Revision Counsel. 11 U.S.C. 722 – Redemption Owe $12,000 on a car worth $7,000, and you can redeem it for $7,000 and own it free and clear. The remaining $5,000 is discharged with your other unsecured debts.
The obvious hurdle is coming up with the lump sum. Specialty lenders will finance redemption payments for bankruptcy filers, usually at steep interest rates. Even so, if you owe substantially more than the car is worth, redemption can save thousands compared to reaffirming the full loan balance. The option applies only to tangible personal property used for personal or household purposes, so it works for a car but not a house.
The Informal Ride-Through
In some districts, auto lenders will let you keep paying on the loan without a reaffirmation agreement or redemption. You keep paying, you keep driving. The trade-off is that the lender retains the right to repossess at any time, and because you did not reaffirm, your payment history may not be reported to credit bureaus. Not every lender or jurisdiction allows this, so ask a local bankruptcy attorney whether it is realistic where you are.
The Hidden Cost of Reaffirming
Reaffirmation gets you through bankruptcy with your property intact, but it costs you the discharge on that specific debt. If you fall behind on a reaffirmed car loan and the lender repossesses, you remain on the hook for any deficiency between what you owed and what the lender recovered at auction. The lender can sue and pursue wage garnishment to collect it.
There is a window to back out. Federal law lets you rescind up to the later of two dates: your discharge being entered, or 60 days after the reaffirmation agreement is filed with the court.6Office of the Law Revision Counsel. 11 U.S. Code 524 – Effect of Discharge You rescind by notifying the creditor in writing. After the window closes, you are locked in. Think carefully before reaffirming on a rapidly depreciating asset like a car. A $10,000 vehicle today may be worth $6,000 in two years, and a reaffirmed loan you can no longer afford recreates the exact problem bankruptcy was meant to solve.
When Surrender Is the Better Call
Surrender is always on the table. You return the property to the lender and the remaining debt is discharged along with your other obligations.3Office of the Law Revision Counsel. 11 U.S. Code 521 – Debtor’s Duties For a car that is deeply underwater, surrender often makes the most financial sense: no deficiency follows you, and the money that would have gone to loan payments can buy a cheaper car with cash after discharge. For a home with an unaffordable mortgage or deep negative equity, surrender is harder emotionally but sometimes the honest answer, because reaffirming only delays the problem.
When Chapter 13 Fits Better Than Chapter 7
Chapter 7 does not cure past-due payments. If you have fallen behind on a mortgage or car loan, filing Chapter 7 does not force the lender to let you catch up; it only stops collection temporarily, and the arrears remain. If you cannot protect your equity, or if you need time to make up missed payments, Chapter 13 is worth considering.
Chapter 13 uses a three-to-five-year repayment plan that lets you cure arrears over time while keeping the property.7United States Courts. Chapter 13 – Bankruptcy Basics You have to stay current on new payments as they come due during the plan, but past-due amounts get stretched out instead of demanded all at once. Chapter 13 can also restructure certain secured debts. For a car loan, you may be able to reduce the balance to the vehicle’s current value (a “cramdown”) and extend repayment over the plan, lowering your monthly payment. The cramdown power generally does not apply to a primary mortgage, but the ability to cure mortgage arrears while keeping the home is often the main reason filers choose Chapter 13 over Chapter 7.
A Chapter 7 stays on your credit report for 10 years from the filing date; Chapter 13 drops off after seven. That is a modest but real advantage for long-term credit recovery when the two chapters are otherwise close in fit.