Filing bankruptcy with a mortgage does not automatically cost you your home. If you can keep up with payments and your equity is covered by an exemption, Chapter 7 lets you erase other debts while staying in the house. If you have fallen behind, Chapter 13 gives you three to five years to catch up under court supervision. And if the home is no longer affordable, either chapter lets you hand it back and walk away from the debt without a deficiency judgment chasing you later.
The Automatic Stay Stops Foreclosure Immediately
The moment your petition is filed, a federal protection called the automatic stay takes effect. It is a court order that forces creditors to halt collection activity. For a homeowner, that means any scheduled foreclosure sale is stopped, demand letters cease, and the lender cannot move the case forward.1Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay
The stay is not permanent. It lasts until your case is closed, dismissed, or a discharge is granted or denied, and a lender can ask the court to lift it early by arguing their interest in the property is not adequately protected. Courts routinely grant those motions when there is no equity and no payments are being made.1Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay
One boundary worth knowing. If a prior bankruptcy of yours was dismissed within the past year, the stay expires after just 30 days unless you convince the court the new filing is in good faith. If two or more of your cases were dismissed in the preceding year, no stay goes into effect at all.2Office of the Law Revision Counsel. 11 US Code 362 – Automatic Stay These rules exist to shut down repeat filings used purely to stall foreclosure.
Keeping the House in Chapter 7
Chapter 7 is a liquidation. A trustee reviews your assets, sells anything not protected by an exemption, and distributes the proceeds to creditors.3Office of the Law Revision Counsel. 11 USC 704 – Duties of Trustee That sounds threatening to homeowners, but most people who file Chapter 7 keep their homes. The reason is the homestead exemption.
The homestead exemption protects a set dollar amount of equity in your primary residence. Equity here is the difference between the home’s market value and what you still owe on it. The federal homestead exemption for cases filed in 2026 is $31,575 per person, so a married couple filing jointly can shield up to $63,150. Many states set their own figures, and some require you to use the state amount instead of the federal one. A few states offer unlimited homestead protection. When your equity fits inside the applicable exemption, the trustee has no reason to sell the home and will typically abandon any interest in it.
If your equity exceeds the exemption, the trustee can sell the house, pay off the mortgage, return the exempt amount to you, and distribute the rest to creditors. That outcome is uncommon but real when a homeowner has substantial equity and a small mortgage balance.
Not everyone qualifies for Chapter 7 in the first place. If your household income is above the state median, a means test decides whether your filing counts as abusive; failing the test can push you into Chapter 13 or lead to dismissal.4United States Courts. Chapter 7 – Bankruptcy Basics
The Ride-Through
Within 30 days of filing, you must file a statement of intention identifying what you plan to do with each piece of secured property. The listed options for your mortgage are to surrender the property, redeem it by paying its value in a lump sum, or reaffirm the debt.5Office of the Law Revision Counsel. 11 US Code 521 – Debtors Duties For real estate, most courts recognize a fourth path not on that list: the ride-through.
Under the ride-through, you keep making your regular mortgage payments and stay in the home without signing any new agreement with the lender. Your personal liability on the note gets discharged along with your other debts, which effectively turns the mortgage into a non-recourse loan. The lender can still foreclose if you stop paying, but can never sue you personally for any shortfall. Congress ended the ride-through for personal property such as cars in 2005, but the statute specifically left it in place for real estate.
Why Reaffirming a Mortgage Is Unusual
A reaffirmation agreement is a voluntary contract in which you agree to remain personally liable for a debt after discharge. Lenders sometimes push for them, and they are common on car loans. For mortgages secured by real property, bankruptcy courts generally do not approve reaffirmation agreements, and no court action is taken on the agreement itself.6United States Bankruptcy Court. Reaffirmation Agreements7United States Bankruptcy Court District of Rhode Island. Reaffirmation Agreement FAQs
The practical result is that most Chapter 7 homeowners use the ride-through. One trade-off: without a reaffirmation, your lender may stop reporting your ongoing mortgage payments to the credit bureaus, so you lose the credit-rebuilding benefit of paying on time. For most people, that cost is smaller than reviving personal liability.
Curing Missed Payments in Chapter 13
Chapter 13 is a reorganization for people with regular income. Instead of liquidating, you propose a repayment plan running three years if your income is below the state median, and generally five years if it is above.8United States Courts. Chapter 13 – Bankruptcy Basics This is the chapter homeowners typically choose when they are behind on the mortgage and want to save the house.
The central tool is curing your mortgage arrears through the plan. Whatever you are behind is divided into installments and paid to the Chapter 13 trustee over the life of the plan. At the same time, you must keep making your regular monthly mortgage payments directly to the lender. Finish the plan successfully and the mortgage is fully current, with the default treated as resolved.9Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan
One limit surprises many filers. You cannot use Chapter 13 to reduce the principal balance or change the interest rate on a mortgage secured only by your primary residence. The Bankruptcy Code specifically prohibits modifying that kind of claim.9Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan You can cure the arrears and stretch the timeline, but the original loan terms stay intact. Mortgages on investment properties and vacation homes do not have this protection, so they can sometimes be modified.
Stripping a Second Mortgage
If you have a second mortgage or a home equity line of credit, Chapter 13 offers something powerful. When the home’s current market value is less than what you owe on the first mortgage alone, the junior lien is wholly unsecured. A Chapter 13 plan can reclassify it as unsecured debt paid pennies on the dollar alongside credit cards and medical bills, and once you complete the plan, the junior lien is removed from the property entirely.
The math has to be clean. If even one dollar of equity remains after the first mortgage, the second lien is partially secured and cannot be stripped. On a home worth $300,000 with a $310,000 first mortgage and a $75,000 second, the second is fully underwater and eligible. But if that same home is worth $315,000, the second has $5,000 of security and stays put as a secured claim.
Surrendering the Home
Sometimes keeping the house is not realistic. If you are deeply underwater or simply cannot afford the payments, both Chapter 7 and Chapter 13 let you surrender the property. You indicate the choice in your paperwork, and the lender takes the home back.
Handing it back through bankruptcy rather than just walking away has a specific benefit: the discharge eliminates your personal liability for the mortgage. The lender cannot pursue you for the gap between what you owed and what the house brings at foreclosure sale. Outside of bankruptcy, many states allow lenders to obtain a deficiency judgment for that shortfall, which can follow you for years.
After you indicate surrender, the lender still has to complete the formal foreclosure to take title, and you can typically stay in the home during that period. Depending on your state’s foreclosure timeline, that window may last several months, and you owe nothing during it.
The Tax Bill You Avoid
When a lender forgives debt outside bankruptcy, the IRS generally treats the canceled amount as taxable income. A homeowner who surrenders a property with $80,000 in negative equity could face a tax bill on that $80,000. Bankruptcy shields you completely: under the Internal Revenue Code, debt canceled in a bankruptcy case is excluded from gross income.10Office of the Law Revision Counsel. 26 US Code 108 – Income From Discharge of Indebtedness To claim the exclusion, attach Form 982 to your federal return for the year the debt was discharged and check the box indicating a Title 11 case.11Internal Revenue Service. Publication 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments Skip that form and the IRS may treat the discharged amount as income, so flag it for your tax preparer.
Why You Still Have to Pay the Mortgage After Discharge
Every mortgage has two pieces. The promissory note is your personal promise to repay the money. The lien is the lender’s security interest attached to the property itself, giving them the right to foreclose if you default. Bankruptcy treats these two pieces differently.
A discharge wipes out your personal liability under the note. The lender can no longer sue you for the money. But the discharge does not remove the lien. The Supreme Court confirmed the distinction in Johnson v. Home State Bank, holding that a mortgage lien remains a valid claim against the property even after the underlying personal obligation is discharged.12Cornell Law Institute. Reed Johnson, Petitioner v Home State Bank
That is why you must keep paying to keep the house after a Chapter 7 discharge. The lender has lost the right to come after you personally, but not the right to foreclose. Stop paying and they will take the home eventually, though they cannot pursue you for any shortfall. The debt is gone; the collateral pledge is not.
What Filing Costs
Court filing fees are $338 for Chapter 7 and $313 for Chapter 13. Attorney fees vary by location and case complexity, generally running $1,000 to $3,000 for a straightforward Chapter 7, and higher for Chapter 13 because the attorney stays involved throughout the repayment plan. Chapter 7 fees are usually paid upfront, while Chapter 13 fees can often be folded into the plan itself.
If home equity is in question, you may also need a professional appraisal. Residential appraisals typically cost $500 to $800, though complex or multi-unit properties can run higher. The appraisal fixes the fair market value that determines whether the trustee has any interest in selling and whether a junior lien qualifies for stripping.
Getting a Mortgage After Bankruptcy
Bankruptcy does not permanently disqualify you from another mortgage. A bankruptcy filing stays on your credit report for up to 10 years from the date the order is entered,13Consumer Financial Protection Bureau. How Long Does a Bankruptcy Appear on Credit Reports but mortgage eligibility returns well before that.
FHA Loans
FHA-insured mortgages have the shortest waits. After a Chapter 7 discharge, the standard wait is two years, during which you must re-establish good credit or avoid taking on new obligations. If the bankruptcy resulted from circumstances beyond your control, that period can drop to 12 months. For Chapter 13, you do not need to wait for the plan to end at all: after 12 months of on-time plan payments, you can apply for an FHA loan with written permission from the bankruptcy court.14U.S. Department of Housing and Urban Development. How Does a Bankruptcy Affect a Borrowers Eligibility for an FHA Mortgage
Conventional Loans
Conventional mortgages backed by Fannie Mae require longer waits. After a Chapter 7 discharge, the standard waiting period is four years, reduced to two years with documented extenuating circumstances. After a Chapter 13 discharge, the wait is two years from the discharge date. If a Chapter 13 case was dismissed rather than discharged, the wait is four years from the dismissal date.15Fannie Mae. Significant Derogatory Credit Events – Waiting Periods and Re-establishing Credit The clock runs from the discharge or dismissal date, not the filing date, so a long Chapter 13 plan pushes the timeline further out than many filers expect.