You probably will not lose your house if you file Chapter 7 bankruptcy. Whether your home is safe comes down to three things: how much equity you have, whether that equity fits within the homestead exemption available to you, and whether you can keep paying the mortgage. The federal homestead exemption shields up to $31,575 in home equity for cases filed on or after April 1, 2025, and many states protect far more.1Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases If your equity fits inside those limits and your payments stay current, filing does not cost you the home.
Start With Your Equity Number
Equity is the part of the home you actually own: current market value minus your mortgage balance, any HELOC, tax liens, and other recorded debts against the property. A $300,000 house with a $250,000 mortgage has $50,000 in equity. A $300,000 house with a $310,000 mortgage has none.
That number is what the Chapter 7 trustee looks at. When you file, a court-appointed trustee reviews your assets for property that could be sold to pay unsecured creditors.2United States Courts. Chapter 7 – Bankruptcy Basics Your home counts as an asset, but the trustee can only reach equity that isn’t shielded by an exemption. Little or no equity almost always means a safe house, because a forced sale wouldn’t generate anything for creditors after the mortgage is paid.
Get the equity figure right before you file. A rough Zillow number is not enough when the outcome depends on it. Pull recent comparable sales in your neighborhood, or pay for an appraisal.
The Exemption That Protects Your Home
Exemptions let you shield a set dollar amount of home equity from the trustee and creditors. If your equity falls within the applicable exemption, the trustee cannot sell the property.
Federal or State
The federal homestead exemption is $31,575 per filer for cases filed on or after April 1, 2025, and it adjusts every three years.1Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases A married couple filing jointly can each claim it, for up to $63,150 combined.
Every state also has its own homestead exemption. The amounts range from a few thousand dollars to unlimited protection on a primary residence in Texas and Florida. About two-thirds of states opt out of the federal system, meaning filers there must use the state exemption.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions In the roughly 20 states that haven’t opted out, you can choose whichever set gives you more protection. If your state’s homestead exemption is small, the federal $31,575 may be the better pick; if it’s generous, the state number likely wins.
The Wildcard Adds a Little More
Under the federal system, a wildcard exemption of $1,675 plus up to $15,800 of any unused homestead exemption can be applied to any property, including your home.1Federal Register. Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases If your home equity is less than the full homestead exemption, the leftover feeds the wildcard, which you can spend on other assets. If your equity already uses up the full homestead amount, only the flat $1,675 remains for additional home protection.
Residency and Recent-Purchase Limits
You cannot move to a state with a generous homestead exemption and file the next month. Federal law requires 730 days of residency in your current state before you can use its exemptions. If you moved more recently, the exemptions from where you lived during the 180 days before that 730-day window apply instead. If the math leaves you eligible for no state’s exemptions, you can fall back on the federal set even in an opt-out state.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions
There is also a cap on recently acquired homes. If you bought your current home within 1,215 days (about three years and four months) before filing, the state homestead exemption you can claim is capped at $189,050, no matter how much the state itself would otherwise allow. Equity rolled over from a prior home in the same state doesn’t count against the cap.3Office of the Law Revision Counsel. 11 USC 522 – Exemptions
What Happens if Your Equity Exceeds the Exemption
Unprotected equity is legally available to the trustee, but a trustee’s decision to sell is a business calculation, not a reflex. Before selling, the trustee has to see enough money left over to justify the effort. The sale proceeds pay the mortgage in full, then real estate commissions and closing costs, then your exemption amount in cash, then the trustee’s own commission. Only what’s left goes to unsecured creditors.2United States Courts. Chapter 7 – Bankruptcy Basics
Say you have $45,000 in equity and a $31,575 exemption. On paper you have about $13,425 in non-exempt equity. Strip out a 6% real estate commission, closing costs, and the trustee’s cut, and there may only be a few thousand dollars left. Many trustees will abandon a property in that range rather than pursue a sale.
If a sale does go forward, you receive your full exemption amount in cash from the proceeds. The mortgage lender is paid first, you’re paid second, and creditors get whatever remains.
Keeping the Mortgage Current
Exemptions protect the equity. Your mortgage payments protect your right to stay in the house. A Chapter 7 discharge wipes out your personal liability on the mortgage debt, so the lender can never sue you personally for the balance. But it does not remove the lien on the property, and the lien is what gives the lender the right to foreclose if payments stop.4United States Courts. Discharge in Bankruptcy – Bankruptcy Basics
The practical result is that many homeowners keep making monthly payments after discharge exactly as before, even though they are no longer legally required to. That’s how you keep the house.
The Statement of Intent
Within 30 days of filing your petition, or by the date of the meeting of creditors if earlier, you must file a Statement of Intent telling the court and your lender what you plan to do with the property.5Office of the Law Revision Counsel. 11 USC 521 – Debtor’s Duties The options are surrender, claim exempt and keep paying, redeem, or reaffirm. You then have 30 days after the first meeting of creditors to follow through.
Missing the deadline won’t automatically cost you the house, but it creates problems. The lender may seek relief from the automatic stay sooner than it otherwise would. Handle the form early.
Should You Reaffirm the Mortgage?
A reaffirmation agreement is a new contract that keeps you personally liable for a debt the discharge would otherwise eliminate. For a mortgage, that means giving up the discharge’s protection on that specific loan. If you default later, the lender can foreclose and, depending on state law, come after you for any deficiency.
The agreement must be filed with the court before discharge. If you have an attorney, your lawyer must certify that the agreement won’t impose undue hardship and that you understand what you’re signing. You can cancel any time before discharge, or within 60 days after the agreement is filed with the court, whichever is later.6Office of the Law Revision Counsel. 11 USC 524 – Effect of Discharge
Reaffirming is not usually necessary to keep the house. Because the lien survives regardless, the lender still has collateral and generally has no reason to reject payments from a non-reaffirming borrower who stays current. Reaffirmation mainly helps in two ways: keeping the mortgage on your credit reports so on-time payments help rebuild credit, and preserving eligibility for future loan modifications. The cost is being personally on the hook again if something goes wrong. Many bankruptcy attorneys are wary of reaffirming a mortgage for that reason.
When Chapter 7 Isn’t the Right Tool
Chapter 7 works well when your equity fits inside an exemption and you can afford your mortgage going forward. It works poorly if you’ve already fallen behind. When you file, an automatic stay immediately halts foreclosure, but that pause only lasts through the case, and a lender can ask the court to lift it sooner if you have no equity and aren’t making payments.7Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay Once your Chapter 7 case closes (typically three to four months), foreclosure resumes where it left off.
Chapter 13 is built for that situation. It puts you on a three-to-five-year court-supervised plan under which you cure missed mortgage payments over time while making regular payments going forward. Complete the plan and the arrears are cured; the lender cannot foreclose on the old default. Chapter 13 also helps when you have significant non-exempt equity a Chapter 7 trustee would sell, because you can keep the property as long as your plan pays unsecured creditors at least as much as they would have received in a Chapter 7 liquidation. If either of those describes you, talk with a bankruptcy attorney about filing Chapter 13 instead.