Most people who file bankruptcy keep their homes. Whether you end up losing your house in bankruptcy depends on three things: which chapter you file, how much equity you have, and whether your state’s homestead exemption covers that equity. Chapter 13 filers almost always keep the home because the whole structure is built around holding onto property while catching up on debt. Chapter 7 carries more risk, but even there the house is safe when your equity falls within the exemption limits.
How Chapter 7 and Chapter 13 Treat Your Home
The two chapters work from opposite directions. In Chapter 7, a court-appointed trustee reviews what you own and can sell anything that isn’t protected by an exemption, with the proceeds going to creditors. If your home equity isn’t fully exempt, the trustee can force a sale.1United States Courts. Chapter 7 Bankruptcy Basics
Chapter 13 is different. You keep all your property and propose a repayment plan lasting three to five years, making monthly payments to a trustee who distributes the money to creditors. The structure is specifically designed to let homeowners save their homes from foreclosure by catching up on missed payments over time.2United States Courts. Chapter 13 – Bankruptcy Basics
Equity Is What Puts the House at Risk
Home equity is the share of the home’s value that actually belongs to you. Take the market value, subtract the mortgage balance and any other liens, and the remainder is your equity. A home worth $300,000 with a $220,000 mortgage carries $80,000 in equity. That number is what decides whether your house is exposed in a Chapter 7 case.
The homestead exemption is the legal tool that shields some or all of that equity from the trustee. Every state sets its own amount, and the range is wide. A handful of states, including Texas and Florida, offer unlimited homestead exemptions, so the trustee cannot reach your home equity no matter how high it climbs. Others cap protection in the tens of thousands.
Roughly a third of states let you choose between the state exemption and the federal one. The federal homestead exemption is $31,575 per filer as of April 2025, so a married couple filing jointly can protect up to $63,150.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions Where the state exemption is lower than the federal number, the option to elect federal can be the difference between keeping and losing the house.
The 1,215-Day Residency Rule
There is an important catch for anyone who recently bought a home or moved to a new state. Federal law requires that you have owned your home in that state for at least 1,215 days (roughly 40 months) before filing to claim the full state homestead exemption. If you haven’t been there that long and you’re relying on a state exemption, your protection is capped at $214,000 regardless of what the state allows.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions The cap matters most in states with unlimited exemptions, where someone might otherwise shield millions in equity. If you sold a previous home in the same state and rolled the proceeds into your current one, time at the old address counts toward the requirement.
When Chapter 7 Takes the House, and When It Doesn’t
Chapter 7 comes down to one question: is your equity fully covered by the homestead exemption? If yes, the trustee has no financial reason to sell. There would be nothing left to distribute to creditors after paying off the mortgage and your exemption, so the trustee abandons interest in the property and you keep it.
The math gets uncomfortable when equity exceeds the exemption. Say your state’s homestead exemption is $75,000 and your equity is $100,000. That leaves $25,000 exposed. The trustee will likely sell, pay off the mortgage lender, hand you a check for your $75,000 exemption, and distribute the remaining $25,000 to unsecured creditors. This is the scenario where Chapter 7 filers actually lose houses, and it’s the one careful planning is meant to avoid.
Even when equity is fully exempt, keeping the house still requires staying current on the mortgage. Bankruptcy can wipe out credit card debt and medical bills, but it does not eliminate the lien your mortgage lender holds on the property. Stop paying and the lender can still foreclose after the case closes.
The Statement of Intention
Within 30 days of filing a Chapter 7 petition, or by the date of the creditors’ meeting if that comes first, you must file a Statement of Intention telling the court what you plan to do with each piece of property that secures a debt.4Office of the Law Revision Counsel. 11 USC 521 – Debtor’s Duties For the home, you have three options:
- Surrender the house and walk away from the mortgage.
- Reaffirm by signing a new agreement that keeps you personally responsible for the mortgage on its original terms.
- Redeem by paying the lender the property’s current market value in a single lump sum, which is rare for homes because few people can write that check.
You then have 30 days after the first date set for the creditors’ meeting to follow through on whatever you declared.5United States Courts. Official Form 108 – Statement of Intention for Individuals Filing Under Chapter 7
Reaffirmation vs. Ride-Through
Reaffirmation is the trickiest decision most Chapter 7 homeowners face. When you reaffirm a mortgage, you voluntarily give up the bankruptcy protection on that specific debt. The loan continues as if you never filed, so the lender can come after you personally if you default later, including suing for a deficiency balance if the home sells at foreclosure for less than you owe.6Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge The upside is that reaffirmed mortgage payments get reported to the credit bureaus, which helps rebuild credit. Without reaffirmation, many lenders simply stop reporting the payment history even while you continue to pay.
Many Chapter 7 filers choose a middle path: they keep making mortgage payments without signing a reaffirmation agreement. This informal ride-through eliminates the personal liability risk. If you default later, the lender can take the house through foreclosure but cannot chase you for any remaining balance. The trade-off is that those on-time payments won’t appear on your credit report, which slows credit recovery. Whether ride-through works depends on your jurisdiction. Some courts accept it without issue; others push harder for a formal reaffirmation or surrender.
If you sign a reaffirmation agreement and later regret it, you can cancel. The deadline is 60 days after the agreement is filed with the court, or the date your discharge is entered, whichever comes later.6Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge After that window closes, you’re locked in.
Why Chapter 13 Is the Stronger Tool for Homeowners
Chapter 13 is particularly powerful for people already behind on mortgage payments. The moment you file, the automatic stay halts all collection activity, including a pending foreclosure sale.7Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay That alone buys critical time.
The real rescue is in the repayment plan. You can roll all your missed mortgage payments into the plan and spread them over three to five years while keeping up with your regular monthly mortgage going forward.8Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan The court must approve the plan, and the central test is whether your income realistically supports both the plan payment and the ongoing mortgage. Whether the plan runs three years or five depends on your income relative to your state’s median; below-median income generally means three years, above-median generally means five, and no plan can exceed five years.2United States Courts. Chapter 13 – Bankruptcy Basics Plan payments go through a Chapter 13 trustee who takes a percentage fee for administering distributions, often in the range of 7% to 10%, so budget for that overhead when deciding whether a plan is affordable.
Stripping Junior Liens
Chapter 13 offers an option Chapter 7 does not: lien stripping. If your home is worth less than what you owe on the first mortgage alone, any junior liens, such as a second mortgage or a home equity line of credit, are effectively unsecured because there’s no equity backing them. A bankruptcy court can reclassify those junior liens as unsecured debt, and you pay them through the plan at whatever percentage your disposable income allows.9Office of the Law Revision Counsel. 11 USC 506 – Determination of Secured Status
For example, if your home is worth $250,000 and the first mortgage balance is $270,000, a second mortgage of $40,000 has no collateral value. The court can strip that lien entirely, and once you complete the plan, any remaining balance on the stripped lien is discharged. The critical requirement is that the first mortgage balance must fully exceed the home’s market value. If there’s even a dollar of equity after the first mortgage, the second lien keeps its secured status and cannot be stripped.
Chapter 13 Debt Ceilings
Chapter 13 is not open to everyone. As of 2026, your debts cannot exceed $1,580,125 in secured debt and $526,700 in unsecured debt.10Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor These limits are evaluated separately, so a large mortgage balance can push you past the secured ceiling even when unsecured debts are modest.
What the Automatic Stay Will and Won’t Do
The automatic stay stops foreclosure proceedings, collection calls, lawsuits, and wage garnishments the moment the petition is filed.7Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay For homeowners facing an imminent foreclosure sale, filing can halt the process even on the courthouse steps.
It is not bulletproof. A mortgage lender can ask the court to lift the stay, and courts regularly grant these motions when the debtor has no equity and the property isn’t necessary for an effective reorganization. In Chapter 7, this motion usually succeeds unless you have significant equity. In Chapter 13, the court is more likely to keep the stay in place as long as you’re current on plan payments.
Repeat filers face tighter limits. If you had a case dismissed within the past year and file again, the automatic stay expires after 30 days unless you convince the court to extend it by showing good faith. If two or more cases were dismissed in the prior year, you get no automatic stay at all and must petition the court to impose one.7Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay The rule exists to stop people from filing repeatedly just to delay foreclosure.
The Mortgage Lien Survives the Discharge
One point is worth stating plainly because filers often misunderstand it. Bankruptcy discharges your personal obligation on dischargeable debts, but it does not erase liens. The mortgage lender’s right to foreclose on the house continues after the case closes. Keeping the home always means keeping the mortgage current, whether or not you reaffirmed. The exemption protects your equity from the trustee; it does not protect the house from the lender you owe.