If you own a home, you can file bankruptcy and, in most cases, keep the house. Whether you actually hold onto it comes down to three things: how much equity is in the property, which chapter you file under, and whether you keep paying the mortgage. Bankruptcy law protects a set amount of home equity from creditors, but that protection has real limits, and the limits shift depending on where you live and how long you’ve owned the place.
The Homestead Exemption Decides Whether Your House Is Safe
The homestead exemption is the rule that shields your home equity from creditors in bankruptcy. Equity is the gap between your home’s market value and everything you owe on it. If the house is worth $300,000 and you owe $220,000, your equity is $80,000. The exemption protects that equity up to a dollar limit.
Which limit applies depends on your state. About a third of states let filers choose between the state exemption system and the federal one; the rest require the state system. If you have a choice, you pick one system for the whole case and cannot mix items from both lists.1Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions State homestead amounts range from a few thousand dollars in some places to unlimited protection in a handful of others.
The federal homestead exemption under 11 U.S.C. § 522(d)(1) is adjusted every three years for inflation. As of the April 1, 2025 adjustment, it protects roughly $31,575 per filer, or about $63,150 for a married couple filing jointly. If you don’t use the full homestead amount, the unused portion under the federal system can be rolled into a wildcard exemption covering other property.1Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions
Two Timing Rules That Catch Homeowners Off Guard
Two federal timing rules limit which exemptions you can actually claim. The first is the 730-day domicile rule. The exemptions available to you are based on where you lived for the two years before filing. Move states inside that window and you may be locked into your former state’s rules, not your new one’s.1Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions
The second rule matters more if you have significant equity. Under 11 U.S.C. § 522(p), if you acquired your interest in the property within 1,215 days (about 40 months) before filing, your homestead exemption is capped at $214,000, no matter how generous your state’s exemption is. The cap targets filers who pour money into a home right before bankruptcy to shelter it. Own the same home for more than roughly three and a half years and the cap doesn’t apply.1Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions
Keeping the House in Chapter 7
Chapter 7 is a liquidation. A trustee reviews your assets, sells anything not covered by an exemption, and pays creditors from the proceeds.2United States Courts. Chapter 7 – Bankruptcy Basics The question for your home is simple: does your equity fit inside the exemption?
If it does, the trustee has no reason to sell. Selling would clear the mortgage and return your exempt equity to you, leaving nothing for unsecured creditors. In that case the trustee usually abandons the property. State exemption of $100,000 and equity of $80,000? The house is safe.
If your equity exceeds the exemption, the picture changes. With $150,000 in equity and a $100,000 exemption, there’s $50,000 in non-exempt equity. The trustee can sell, pay off the mortgage, hand you your $100,000, and distribute what’s left (after sale costs and trustee fees) to creditors. This is the scenario that pushes most homeowners toward Chapter 13.
Buying Back the Non-Exempt Equity
A sale isn’t always the only outcome when there’s non-exempt equity. Some trustees will let you buy back the non-exempt portion instead of listing the home. You pay the trustee what creditors would have netted from a sale, often using money from family, a retirement loan, or funds outside the bankruptcy estate. The trustee avoids the delay and cost of an actual sale. Not every trustee agrees to this, and your attorney would need to negotiate it, but it’s a realistic option when the non-exempt figure is manageable.
Statement of Intention, Reaffirmation, and Ride-Through
Filing Chapter 7 requires a Statement of Intention telling the court and lender what you plan to do with the property: surrender it, redeem it in a lump sum, or retain it under a reaffirmation agreement.3United States Courts. Official Form 108 – Statement of Intention for Individuals Filing Under Chapter 7
A reaffirmation agreement is a new contract with the lender. You agree to remain personally liable for the mortgage after discharge, and in return the lender keeps reporting your payments to the credit bureaus. The downside is real. If you default later, the lender can foreclose and sue you for any deficiency, because you gave up the protection the discharge would have provided.
Many lenders don’t insist on reaffirmation as long as you keep paying. This informal “ride-through” lets you keep the home without re-exposing yourself to personal liability. If things go wrong later, the lender can still foreclose, but cannot pursue a deficiency judgment against you. For most homeowners this is the safer choice, at the cost of slower credit rebuilding.
Keeping the House in Chapter 13
Chapter 13 is built for homeowners. Instead of selling assets, you propose a three- to five-year repayment plan and pay a trustee monthly, who then pays creditors. Filers below the state median income usually run three-year plans; above the median means five.4United States Courts. Chapter 13 Bankruptcy Basics Nobody sells your house.
Chapter 13 works especially well when you have non-exempt equity that would trigger a sale in Chapter 7. But the plan has to satisfy the best-interests-of-creditors test: unsecured creditors must receive at least as much through the plan as they would have received from a Chapter 7 liquidation.5Office of the Law Revision Counsel. 11 USC 1325 – Confirmation of Plan If your non-exempt equity is $50,000, your plan must pay at least $50,000 to unsecured creditors over its life. You keep the house, but you pay for it through higher plan payments.
Stopping Foreclosure and Catching Up
If you’re already behind on the mortgage, Chapter 13 can pull you back from foreclosure. Filing triggers an automatic stay that halts almost all collection activity, including a pending foreclosure.6Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay You can then wrap the missed payments into the plan and pay them off across three to five years while making regular monthly mortgage payments going forward.4United States Courts. Chapter 13 Bankruptcy Basics
One catch on the automatic stay. If you had a bankruptcy case dismissed within the past year, the stay in the new case lasts only 30 days unless the court extends it. Two prior dismissals in a year means no automatic stay at all. Using a Chapter 13 to stop a foreclosure only works cleanly if you haven’t had a recent case tossed out.6Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay
Stripping a Second Mortgage
Chapter 13 offers a tool Chapter 7 does not. If your first mortgage balance exceeds the home’s current market value, any junior lien (a second mortgage or HELOC) has no equity to attach to and can be reclassified as unsecured debt. Whatever isn’t paid through the plan is discharged at completion, and the lender releases the lien.
The Supreme Court shut this option down in Chapter 7. In Bank of America v. Caulkett (2015), the Court held that a debtor cannot void a junior mortgage lien in Chapter 7 even when the property is fully underwater.7Justia U.S. Supreme Court. Bank of America, N.A. v. Caulkett, 575 U.S. 790 (2015) If stripping a junior lien matters in your situation, Chapter 13 is the only route.
The Mortgage Lien Outlives the Discharge
Here’s where homeowners most often misread bankruptcy. A discharge wipes out your personal obligation to repay the mortgage. It does not erase the lender’s lien on the property. The lien and the personal debt are separate legal things.8United States Courts. Discharge in Bankruptcy – Bankruptcy Basics
After a Chapter 7 discharge, the lender can no longer sue you for the mortgage balance. The lien stays with the house. Stop paying and the lender can still foreclose. They just can’t pursue you for a deficiency after the sale.8United States Courts. Discharge in Bankruptcy – Bankruptcy Basics Keeping your home through bankruptcy means paying the mortgage on time, every month, for as long as you want to live there. The discharge protects you personally. It does not hand you the house free and clear.
Costs That Homeowners Should Plan For
The court filing fee for Chapter 7 is $338; for Chapter 13, it’s $313. Both can be paid in installments. Attorney fees vary by region and complexity: a straightforward Chapter 7 usually runs $1,000 to $2,000, while Chapter 13 cases, which involve drafting and managing a multi-year plan, often run $2,500 to $4,000 or more.
Homeowners face one expense renters don’t. You may need a professional appraisal to establish equity for the bankruptcy schedules. A standard single-family appraisal typically costs $300 to $600, and high-value or unusual properties run higher. Two required education courses (credit counseling before filing, financial management before discharge) add roughly $20 to $50 each.