Most people who file bankruptcy keep both their home and their car. Keeping your house and car in bankruptcy comes down to three things: how much equity you have in each, which exemptions you can claim to protect that equity, and whether you can stay current on the loans attached to them (or catch up on missed payments through a repayment plan). The chapter you file under decides how the math plays out.
The Automatic Stay Buys You Time the Day You File
The instant your petition is docketed, an automatic stay takes effect and bars creditors from nearly any collection action against you or your property.1Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay A mortgage lender in the middle of foreclosure has to stop. A repossession agent already dispatched has to stand down. Wage garnishments and collection calls freeze at the same moment.
The stay is not permanent. A creditor can ask the court to lift it, and the court will grant relief on a showing of cause, such as no equity in the property and no realistic path to reorganization.2Office of the Law Revision Counsel. 11 US Code 362 – Automatic Stay If you filed a prior case that was dismissed within the past year, the stay may last only 30 days or may not apply at all. For most filers, though, the stay creates a working pause long enough to sort out what happens next.
Exemptions Are What Actually Protect Your Property
Exemptions are the legal mechanism that keeps property out of creditors’ hands. When you file, you list what you own and then declare which assets you’re claiming as exempt. Anything properly exempted is off-limits to the bankruptcy trustee, the court-appointed official responsible for identifying assets that could be sold to repay debts.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions
Which exemptions you get depends on where you live. About 20 states and the District of Columbia let you choose between the state’s own exemption list and the federal bankruptcy exemptions. The other 30 or so states require you to use the state list. You cannot mix items from both systems. If your state gives you the choice, compare both lists against your specific property, because one system almost always protects more than the other for your situation.
Exemptions protect equity, not the full value of the property. If your home is worth $300,000 and you owe $250,000 on the mortgage, you have $50,000 in equity. The exemption only needs to cover that $50,000.
Married Couples Can Double Up
Spouses who file jointly can each claim a full set of exemptions, effectively doubling the protection for jointly owned property. Federal law provides that exemption amounts “apply separately with respect to each debtor in a joint case.”4Legal Information Institute. Doubling For a home with significant equity, doubling can be the difference between protecting it and losing it.
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.5National Consumer Law Center. April 1 Increase of Federal Bankruptcy Exemptions, Other Dollar Amounts A married couple filing jointly can protect up to $63,150 in home equity under the federal exemption alone.
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 states may impose acreage limits. Compare your state’s exemption to the federal one, keeping in mind that the federal option is only available if your state permits the choice.
Two Timing Rules That Can Shrink Your Homestead Protection
Two rules can limit your homestead exemption even when the raw numbers would otherwise cover you. First, to use a particular state’s exemptions at all, you generally need to have lived in that state for the 730 days (roughly two years) before filing. If you moved recently, you may be stuck using 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, your homestead exemption is capped at $214,000 regardless of what your state allows.6Office of the Law Revision Counsel. 11 US Code 522 – Exemptions The rule targets people who buy expensive homes shortly before filing. Equity you rolled over from a prior home in the same state doesn’t count against the cap.
Protecting Your Car With the Motor Vehicle Exemption
The federal motor vehicle exemption protects $5,025 in equity per person for cases filed on or after April 1, 2025.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions Your car’s equity is its current resale value minus any outstanding loan balance. A car worth $12,000 with a $9,000 loan has $3,000 in equity, well within the federal exemption.
Some state exemptions protect more than $5,025 in vehicle equity, another reason comparing the two systems matters. A paid-off car worth $15,000 won’t be fully covered by the federal exemption alone, but your state exemption might reach it.
The Wildcard Exemption Can Fill the Gap
When the motor vehicle exemption falls short, the federal wildcard exemption can cover the rest. The wildcard protects up to $1,675 in any type of property, plus up to $15,800 of any homestead exemption amount you didn’t use.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions Renters benefit most: with no home equity to shelter, up to $15,800 of the unused homestead can stack onto the wildcard, giving you as much as $17,475 to apply to a car, a bank account, or anything else.
Homeowners sometimes have leftover homestead exemption too. If your home equity is $10,000 and the homestead exemption is $31,575, you have $21,575 unused, and up to $15,800 of that can flow into the wildcard.
Chapter 7 Versus Chapter 13
The chapter you file under changes what happens when your equity is bigger than the exemptions available to cover it. This is often the key 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 cover only $5,025, the trustee may sell the car, pay you your exempt amount, pay off the loan, and distribute the remainder to unsecured creditors.7United States Courts. Chapter 7 – Bankruptcy Basics The same logic applies to a home with equity above the homestead exemption.
In practice, most Chapter 7 cases are “no-asset” cases, where exemptions cover everything and the trustee finds nothing worth selling. But if you have significant non-exempt equity, Chapter 7 puts that asset at risk.
Chapter 13
Chapter 13 lets you keep all your property, exempt or not, in exchange for a court-supervised repayment plan lasting three to five years.8United States Courts. Chapter 13 – Bankruptcy Basics The trade-off: your plan must pay unsecured creditors at least as much as they would have received if your non-exempt assets had been liquidated in Chapter 7. If you have $20,000 in non-exempt home equity, your plan needs to pay at least $20,000 to unsecured creditors over its term.
Chapter 13’s other big advantage matters most to people already behind: the plan can cure missed payments over three to five years while you resume regular payments going forward.8United States Courts. Chapter 13 – Bankruptcy Basics This is the go-to option when foreclosure or repossession is already in motion and you have steady income to fund a plan. Chapter 13 has debt limits, so filers with very high total debts may not qualify.
Dealing With the Lender on a Financed Home or Car
Exemptions protect your equity from the trustee and unsecured creditors. They do nothing against the mortgage lender or auto lender that holds a lien on your property. To keep a financed home or car, you have to deal with the secured lender directly, and the options depend on the chapter.
Reaffirmation in Chapter 7
A reaffirmation agreement is a new contract with your lender that survives the discharge. You agree to keep paying the debt as if you never filed, and the lender agrees not to repossess as long as you stay current. The agreement must be filed with the court before your discharge is entered, and you have 60 days after filing it to change your mind and rescind.9Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge If a court finds the agreement imposes undue hardship and you’re not represented by an attorney, the court can refuse to approve it.
Reaffirmation has a real downside. If you fall behind again later, the lender can repossess the property and sue you for any deficiency, exactly as if bankruptcy never happened. If the payment isn’t comfortably affordable, reaffirming puts you back on the hook for a debt the bankruptcy would otherwise wipe out.
Redemption in Chapter 7
For personal property like a car, redemption is an alternative to reaffirmation. You pay the lender the current value of the car in one lump sum, and the lien is released.10Office of the Law Revision Counsel. 11 USC 722 – Redemption This helps when you owe far more than the car is worth. Owe $14,000 on a car worth $8,000? Redeem for $8,000 and walk away owing nothing further.
The catch is coming up with the full amount at once. Some specialty lenders offer redemption financing, but their rates tend to be steep. Redemption applies only to tangible personal property for household use, not to real estate.
The Ride-Through
In some jurisdictions, you can simply keep making payments on a secured loan without reaffirming. This is called a ride-through. Your personal liability on the loan gets discharged, so the lender can repossess if you stop paying but cannot sue you for any shortfall. As long as payments continue, you keep the car. Not every lender accepts this arrangement, and not every court permits it, so the ride-through depends heavily on where you file and who your lender is.
Curing Arrears in Chapter 13
In Chapter 13, secured loans run through the repayment plan rather than reaffirmation agreements. If you’re behind on your mortgage, the plan can spread missed payments across its three-to-five-year term while you make regular monthly payments going forward. As long as you complete the plan, the lender cannot foreclose.8United States Courts. Chapter 13 – Bankruptcy Basics
Car loans get an extra Chapter 13 tool. 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, a process sometimes called a cramdown. You repay the reduced amount through your plan instead of the full original balance. Loans taken out within that 910-day window are protected from cramdown, so newer purchases don’t qualify.
Chapter 7 Requires You to Be Current
Chapter 7 has no mechanism for catching up on missed payments. If you’re already behind on your mortgage or car loan when you file Chapter 7, the lender can ask the court to lift the stay and move ahead with foreclosure or repossession. To keep a financed asset in Chapter 7, you need to be current when you file and stay current afterward.
Don’t Try to Move Property Around Before Filing
Transferring property to a friend or family member before filing almost always makes things worse. A trustee can undo any transfer made within two years before filing if the transfer was intended to put assets beyond creditors’ reach or if you received less than fair value while insolvent.11Office of the Law Revision Counsel. 11 US Code 548 – Fraudulent Transfers and Obligations For transfers to certain trusts where you remain a beneficiary, the lookback stretches to ten years.
Paying off a family member or business partner before filing has its own risk. The trustee can claw back payments to insiders (relatives, partners, close business associates) made within one year before filing.12Office of the Law Revision Counsel. 11 US Code 547 – Preferences For regular creditors, the lookback is 90 days. The trustee recovers the payment and distributes it equally to all creditors, and the person you paid ends up with an unsecured claim in your case. The impulse to settle up with people you care about before filing usually creates problems for exactly the people you’re trying to help.