Yes, you can file Chapter 7 and keep your house and car in most cases. Whether you actually walk out of bankruptcy with both depends on two things: how much equity you have in each, and whether you can keep paying the loans attached to them. If your equity fits within the exemption limits your state (or the federal system) allows, the trustee cannot sell the property, and if you stay current on the mortgage and car loan, the lender has no reason to take it back.
Equity Is What the Trustee Looks At
Equity is not what your property is worth. It is what would be left after selling it and paying off every loan and lien attached to it. For your home, subtract the mortgage balance, any second mortgage or home equity loan, and any tax liens from the current fair market value. For your car, subtract the loan balance from the vehicle’s current value. That leftover number is what the trustee cares about, because that is the amount potentially available to your creditors.
Say your house is worth $300,000 and you still owe $250,000 on the mortgage. Your equity is $50,000. A car worth $15,000 with a $10,000 loan balance leaves $5,000 in equity. Those equity figures are what get compared against the exemption limits.
Valuation matters. Bankruptcy trustees typically value cars using published guides like Kelley Blue Book or NADA Guides, and the relevant number is replacement value, not the lower trade-in figure a dealer would quote. For a home, a recent appraisal or a comparative market analysis carries the most weight. Online estimates are a starting point, not an authoritative number.
Exemptions Are What Let You Keep the Property
Exemptions are the legal mechanism that shields property from the trustee.1Office of the Law Revision Counsel. 11 U.S.C. 522 – Exemptions Federal law sets a default list with specific dollar limits, and every state has its own list. Roughly half of all states require you to use their state exemptions; the rest let you choose, but you must pick one list in full. You cannot mix and match.
The variation across states is huge. A few states offer unlimited homestead protection (subject to acreage limits), so a home worth millions can be fully shielded. Other states cap the homestead below $30,000, which leaves many homeowners exposed. Vehicle exemptions swing just as widely. Two people with identical assets can have very different outcomes depending on where they live.
Federal Exemption Amounts
If federal exemptions apply and work in your favor, 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 the homestead exemption, for a possible total of $17,475 applied to any property.
The wildcard is worth understanding, because unused homestead capacity flows into it. If your home equity is well below $31,575, or you rent and don’t need the homestead at all, the leftover can stack on top of the motor vehicle exemption to protect additional car equity, cash, or other property.
Applied to the earlier examples: the $50,000 in home equity is only partly protected by the $31,575 federal homestead, leaving $18,425 exposed. Under a state homestead of $75,000 or more, that same equity is fully shielded. The $5,000 in car equity fits within the $5,025 motor vehicle exemption with a little room to spare. If the car had $8,000 of equity instead, the motor vehicle exemption alone would not cover it, but the wildcard could fill the gap.
Filing Jointly Doubles Federal Exemptions
When spouses file a joint Chapter 7 petition and use federal exemptions, each spouse claims the full set independently.2Office of the Law Revision Counsel. 11 U.S. Code 522 – Exemptions That effectively doubles the protection on jointly owned property: up to $63,150 in home equity and $10,050 in vehicle equity. Whether state exemptions can be doubled depends on the specific state’s rules.
The Loans Are a Separate Question
Exemptions handle equity. They do not erase the mortgage or car loan. If you want to keep the house and car, you have to deal with the secured debt attached to them, and Chapter 7 forces you to declare how within 30 days of filing (or by the date of the creditors’ meeting, whichever comes first).3Office of the Law Revision Counsel. 11 U.S. Code 521 – Debtor’s Duties The document is called a statement of intention. For each piece of secured property, you choose to reaffirm the debt, redeem the property, or surrender it. You then have 30 days from the first date set for the creditors’ meeting to actually carry out what you stated. Missing these deadlines can cost you the automatic stay protection on that property, opening the door to foreclosure or repossession.
Reaffirmation
A reaffirmation agreement is a new contract in which you agree to stay personally liable on the debt despite the bankruptcy. The original loan terms usually carry over, and 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 has to be filed with the court before your discharge is entered. If no attorney signed off on it, the judge must hold a hearing and approve it, looking at whether the payments realistically fit your budget. If your income minus expenses leaves too little room, the court can reject the agreement under a presumption of undue hardship.
Reaffirmation is the standard route for keeping a home in Chapter 7, because the other option, redemption, does not apply to real estate.
Redemption
Redemption lets you keep personal property like a car by paying the lender a lump sum equal to the property’s current value, regardless of the loan balance.5Office of the Law Revision Counsel. 11 U.S.C. 722 – Redemption If you owe $12,000 on a car worth $7,000, you can redeem it for $7,000 and own it outright. The remaining $5,000 gets discharged along with your other unsecured debts.
The catch is that you need the full amount at once. Some lenders specialize in financing redemption payments, though the interest rates run high. Redemption applies only to tangible personal property used for personal or household purposes, so it works for a car but not for a house.
The Informal Ride-Through
In some districts, car lenders will informally let you keep paying and keep driving without reaffirming or redeeming. You stay current, they leave you alone. The trade-off is that the lender retains its right to repossess at any time, and without a reaffirmation, your on-time payments may not show up on your credit report. Not every lender or jurisdiction allows this, so check with a local bankruptcy attorney.
Think Twice Before Reaffirming
Reaffirmation gets you through the case with your property, but it has a real cost. You are voluntarily giving up the bankruptcy discharge on that specific debt. If you fall behind later and the lender repossesses or forecloses, you are still on the hook for any deficiency, meaning the gap between what you owed and what the lender recovered at auction. The lender can sue you and pursue wage garnishment to collect it.
There is a window to back out. You can rescind a reaffirmation agreement until the later of two dates: your discharge being entered, or 60 days after the reaffirmation is filed with the court.6Office of the Law Revision Counsel. 11 U.S. Code 524 – Effect of Discharge Rescission has to be in writing to the creditor. After that window, you are locked in.
Be especially cautious about reaffirming a loan on a fast-depreciating asset. A car worth $10,000 today may be worth $6,000 in two years. If you reaffirm the full balance and then can’t make payments, you have recreated the problem bankruptcy was meant to solve. Redemption, or surrender combined with buying a cheaper car after discharge, is often the safer play when the budget is tight.
When Non-Exempt Equity Doesn’t Actually Cost You the Property
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 involves appraisals, storage, transportation, auction fees, and the trustee’s own commission. If the amount that would reach creditors after paying your exemption, the lender’s lien, and those administrative costs is negligible, the trustee will abandon the property, and you keep it.
This is more common than people expect. A home with $5,000 of non-exempt equity looks like it gives the trustee something to work with, but after real estate commissions, closing costs, and trustee fees, nothing meaningful may be left. Trustees sell assets that produce real returns for the estate, not assets that generate paperwork for pennies.
When Chapter 13 Protects the House and Car Better
If Chapter 7 exemptions don’t cover your equity, or you have fallen behind on the mortgage or car payment, Chapter 13 is worth a look. Instead of liquidating, Chapter 13 lets you propose a three-to-five-year repayment plan and catch up on arrears over time while keeping the property.7United States Courts. Chapter 13 – Bankruptcy Basics You have to stay current on payments that come due during the plan, but past-due amounts are cured gradually rather than all at once.
Chapter 13 also allows some restructuring of secured debts. On a car loan, you may be able to reduce the balance to the vehicle’s current value (a “cramdown”) and stretch repayment over the plan, which lowers the monthly payment. Cramdown generally does not apply to a primary mortgage, but the ability to cure arrears while keeping the home is often the main reason people choose Chapter 13 over Chapter 7. If the alternative is losing a house with significant equity or a vehicle you need for work, that trade can be worth it.