Most people who file bankruptcy keep their homes. Whether you will lose your house if you file for bankruptcy comes down to four things: how much equity you have, whether your homestead exemption covers it, which chapter you file, and whether you keep paying the mortgage after your case begins. Get those right and the house stays. Miss one and it doesn’t.
Equity Is What Puts a Home at Risk
Your equity is the home’s market value minus what you still owe on the mortgage. If your equity fits inside the homestead exemption you’re allowed to claim, no trustee or creditor can force a sale to pay unsecured debts. If your equity exceeds the exemption, the excess is what’s at risk, and only in a Chapter 7 case.
The federal homestead exemption under 11 U.S.C. § 522(d)(1) protects up to $31,575 in equity for an individual filer for cases filed between April 1, 2025 and March 31, 2028.1Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions Married couples filing jointly can double that to $63,150 under § 522(m). The figures adjust every three years based on the Consumer Price Index.2Office of the Law Revision Counsel. 11 U.S.C. 104 – Adjustment of Dollar Amounts
Not every filer can use the federal number. Roughly 30 states have opted out and require residents to use state exemptions instead. The rest let you choose whichever set works better. Some state exemptions are far more generous than the federal amount, and a few states offer unlimited homestead protection. Which state’s law applies depends on where you lived for the 730 days before filing.3Office of the Law Revision Counsel. 11 U.S.C. 522 – Exemptions If you moved during that period, the rules look back to where you lived for the majority of the 180 days before that window.
One federal cap sits on top of state law. Equity you acquired during the 1,215 days (about three years and four months) before filing is limited to $214,000 in 2026 cases under § 522(p), regardless of what your state allows.3Office of the Law Revision Counsel. 11 U.S.C. 522 – Exemptions The cap does not apply to equity rolled over from a previous home in the same state, and family farmers are exempt from it entirely.
If your equity slightly exceeds the homestead limit and your state allows federal exemptions, the wildcard exemption under § 522(d)(5) can fill the gap. It provides $1,675 in protection for any property, plus up to $15,800 of whatever homestead exemption you didn’t use.4Office of the Law Revision Counsel. href=”https://uscode.house.gov/view.xhtml?req=(title:11%20section:522%20edition:prelim)” target=”_blank” rel=”noopener”>11 U.S. Code 522 – Exemptions
None of this is automatic. You must list your home and the specific exemption law you’re claiming on Schedule C of your petition.5United States Courts. Instructions for Bankruptcy Forms for Individuals Skip that step and the trustee can treat the home as non-exempt.
What Happens in Chapter 7 When Equity Exceeds the Exemption
In Chapter 7, a court-appointed trustee reviews what you own to determine whether anything can be sold for creditors.6Office of the Law Revision Counsel. 11 U.S.C. 704 – Duties of Trustee The home is only at risk if there’s non-exempt equity, and even then the trustee runs the math before doing anything.
Selling a house costs money. Real estate commissions, closing costs, the mortgage payoff, your full exemption, and the trustee’s own commission all come out of the sale proceeds before creditors see a dollar. The trustee’s statutory commission is 25 percent of the first $5,000 disbursed, 10 percent on amounts between $5,000 and $50,000, and 5 percent up to $1,000,000.7Office of the Law Revision Counsel. U.S. Code 326 – Limitation on Compensation of Trustee If a sale wouldn’t leave meaningful proceeds after those deductions, the trustee has no reason to sell, and will file a no-asset report.
When the non-exempt equity is real but modest, trustees often negotiate. You or a family member can offer to pay the trustee the approximate value of the non-exempt equity in cash, and the trustee avoids the cost of listing and selling the house. The buyback number is usually less than the raw non-exempt equity because the trustee discounts for the sale costs that would have come out anyway.
If the non-exempt equity is large and no deal is reached, the trustee will seek court approval to sell. The mortgage is paid first, you receive your full exemption in cash, the trustee takes a commission, and the rest goes to creditors. You lose the house but walk away with the exemption amount to put toward new housing.
Chapter 13 Is Built to Save Homes
Chapter 13 doesn’t liquidate anything. You propose a repayment plan lasting three to five years, and while the case is active, creditors cannot foreclose. You keep the home regardless of how much equity you have.
The plan’s most important feature for homeowners is under 11 U.S.C. § 1322(b)(5): you can cure any mortgage default and maintain ongoing payments while the case is active.8Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan If you’re $12,000 behind and your plan runs five years, that’s an extra $200 per month on top of your regular mortgage payment. You need to show the court you earn enough to cover the catch-up, the ongoing mortgage, and a proportional payment to unsecured creditors.
Plan length turns on income. Below-median filers can propose a three-year plan, though the court can extend it to five for cause. Above-median filers must propose five years.8Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan Missing plan payments can lead to dismissal, which strips all bankruptcy protections and lets the lender resume foreclosure. Completing the plan reinstates your mortgage as if the default never happened.
Stripping a Second Mortgage
Chapter 13 offers something Chapter 7 does not. If your home is worth less than what you owe on the first mortgage, any junior lien (a second mortgage or home equity line of credit) has no equity to attach to. The court can reclassify that junior lien as unsecured debt, effectively removing it from the title.
The junior lien has to be completely underwater. If the home is worth $300,000 and the first mortgage balance is $310,000, a $50,000 second mortgage has zero secured value and can be stripped. If the home is worth $320,000 against the same $310,000 first, there’s $10,000 of equity securing part of the second lien, and it cannot be stripped. Once you finish the plan, the stripped lien is permanently removed and the underlying debt is discharged with your other unsecured obligations.
The Bigger Risk Is Missing Payments After You File
The moment you file, an automatic stay under 11 U.S.C. § 362 halts foreclosures, collection activity, and lawsuits.9Office of the Law Revision Counsel. 11 U.S.C. 362 – Automatic Stay A scheduled foreclosure sale is postponed. A pending collection suit stops. The stay buys time.
It does not eliminate your mortgage or excuse future payments. Every payment that comes due after your filing date has to be paid on time if you want to keep the home. The mortgage survives bankruptcy because it’s secured by the property itself; the lien stays attached to the house even if your personal liability is later discharged.
If you fall behind on post-petition payments, the lender can ask the court to lift the automatic stay by showing it lacks adequate protection of its interest.9Office of the Law Revision Counsel. 11 U.S.C. 362 – Automatic Stay Courts routinely grant these motions when the debtor has stopped paying. Once the stay is lifted, foreclosure proceeds as though the bankruptcy weren’t there. This is where most people who lose homes in bankruptcy actually lose them: not because a trustee sold the house, but because they couldn’t keep up with payments after filing.
A practical trap: your servicer may stop sending regular billing statements during the case. Federal regulations allow servicers to stop mailing periodic statements once a borrower enters bankruptcy, though modified informational statements are usually required.10eCFR. 12 CFR 1026.41 – Periodic Statements for Residential Mortgage Loans Silence from the lender isn’t permission to skip. Track the due dates yourself.
Your Options for the Mortgage in Chapter 7
Within 30 days of filing a Chapter 7 petition, or before the meeting of creditors if that comes first, you must file a statement of intention telling the court and lender what you plan to do with each secured debt.11Office of the Law Revision Counsel. 11 U.S. Code 521 – Debtor’s Duties For the mortgage, the choices are to reaffirm, surrender, or redeem. You have 30 days after the meeting of creditors to follow through.
Reaffirmation
A reaffirmation agreement under 11 U.S.C. § 524(c) is a new contract that keeps the mortgage alive after your other debts are discharged.12Office of the Law Revision Counsel. 11 U.S.C. 524 – Effect of Discharge You remain personally liable, and in return, the lender typically continues reporting your payment history to credit bureaus, which helps rebuild credit. Without reaffirmation, many lenders stop reporting even if you keep paying.
The signed agreement must be filed with the court within 60 days after the first date set for the meeting of creditors.13Legal Information Institute (LII) / Cornell Law School. Federal Rules of Bankruptcy Procedure – Rule 4008 For most consumer debts a judge reviews the agreement for undue hardship, but mortgages secured by the home you live in are an exception and don’t need court approval. You can rescind at any time before your discharge is entered, or within 60 days after the agreement is filed, whichever is later.14Office of the Law Revision Counsel. 11 U.S. Code 524 – Effect of Discharge After that, it’s binding.
Ride-Through
Many Chapter 7 homeowners simply keep making payments without reaffirming. As long as you stay current, most lenders won’t foreclose; they’d rather receive money than take back a house. The tradeoff: your personal liability is discharged, so you can walk away later without owing a deficiency, but the lender may stop reporting your payments, and if you ever fall behind, foreclosure can proceed without the lender having to sue you personally for the balance.
Reaffirm and you preserve credit reporting but put yourself back on the hook for a potentially underwater loan. Ride through and you keep a clean exit but lose the credit-building benefit. This is one of the most consequential decisions in a Chapter 7 case.
If Someone Co-signed the Mortgage
Filing does not automatically protect a co-signer in every case. Under 11 U.S.C. § 1301, Chapter 13 imposes a co-debtor stay that stops creditors from pursuing anyone who shares liability on your consumer debts while the case is active.15Office of the Law Revision Counsel. 11 U.S. Code 1301 – Stay of Action Against Codebtor The lender can ask the court to lift that stay if the plan doesn’t propose to pay the mortgage claim in full, or if the stay would cause the lender irreparable harm. Chapter 7 has no co-debtor stay, so the lender can pursue your co-signer immediately while your case is pending.