Can You File Bankruptcy and Keep Your House?

Key Takeaways

• Filing bankruptcy doesn’t always mean losing your home. Many homeowners keep their houses, depending on their mortgage status and state exemptions.

• Chapter 7 bankruptcy may let you keep your home if you’re current on payments and your equity is protected by your state’s homestead exemption.

• Chapter 13 bankruptcy can help you catch up on missed mortgage payments by spreading them out over 3–5 years in a repayment plan.

• The automatic stay temporarily stops foreclosure when you file, but long-term protection depends on the type of bankruptcy you choose.

Will I Lose My House if I File Bankruptcy?

Many people who file bankruptcy are able to keep their home. Whether or not you can will depend on a few factors, including which type of bankruptcy you file.

Chapter 7 and Chapter 13 are the most common types of personal bankruptcy.

👉 In Chapter 7 bankruptcy, you can typically keep your home if:

• You’re current on your mortgage payments.

• Your home equity is protected by the available homestead exemption.

👉 In Chapter 13 bankruptcy, you can typically keep your home if:

• You can catch up on missed payments through a 3–5-year repayment plan.

• You can afford to keep making your regular mortgage payments going forward.

Will I Lose My House in Chapter 7 Bankruptcy?

If you’re filing Chapter 7 and want to keep your home, you’ll first need to be up to date on your mortgage payments. Then, check your state’s bankruptcy exemptions. (Some states allow you to choose between state and federal exemptions.)

🏠 Every state has a homestead exemption. This is a law that protects a certain amount of equity you have in your home when you file bankruptcy. Your home equity is the difference between your home’s current fair market value and what you still owe on your mortgage.

If your equity is within the exemption limit, you can likely keep your home as long as you continue making mortgage payments. But if your home’s equity is higher than the exemption allows, the bankruptcy trustee may sell your home to pay off creditors. You would receive the exempted portion of the equity, but you could lose the house.

Some states have generous homestead exemptions that fully protect home equity. Others have lower limits. You can find your state’s exemptions by searching your state name + “exemptions” in the Upsolve Learning Center.

Will the Bankruptcy Trustee Take My House in Chapter 7?

If your home equity exceeds the homestead exemption, the Chapter 7 bankruptcy trustee might take and sell your home.

👉This is why Chapter 7 is sometimes called liquidation bankruptcy. In Chapter 7, the trustee can sell non-exempt assets to repay creditors. (Note that this is rare.)

To determine if your home is at risk:

1. Find your home’s market value.

2. Subtract what you owe on your mortgage.

3. Subtract the homestead exemption allowed in your state.

If there’s any remaining equity after these deductions, the trustee can use it to pay off unsecured creditors. If your home is fully covered by the homestead exemption, you should be able to keep it.

📌 Example: Let’s say you own a home worth $250,000, you still owe $180,000 on your mortgage, and your state’s homestead exemption is $50,000.

First, calculate the equity: $250,000 (home value) – $180,000 (mortgage balance) = $70,000 in equity.

Then, subtract the homestead exemption from the equity: $70,000 (equity) – $50,000 (homestead exemption) = $20,000 in non-exempt equity.

Since there’s $20,000 in non-exempt equity, the trustee could sell the home and pay off the mortgage. Then they could give you the exempted $50,000 and use the remaining $20,000 to pay creditors.

But if your state had a $75,000 homestead exemption instead of $50,000, your entire $70,000 equity would be protected, and the trustee wouldn’t sell your home.

Can I Keep My House in Chapter 13 Bankruptcy?

Yes, Chapter 13 bankruptcy allows many homeowners to keep their homes. This is true even if they’re behind on mortgage payments.

Chapter 13 involves a repayment plan where you pay off debts over 3–5 years. As long as you stay current on your mortgage payments and follow your payment plan, you can typically keep your home.

🔹 In other words, if you’re current with your mortgage payments, everything will stay basically the same. You'll continue making your regular monthly mortgage payments, typically directly to the mortgage company.

Exemptions still matter in Chapter 13 because they help determine how much you must repay to unsecured creditors. But unlike Chapter 7, the trustee won’t sell your home even if your equity exceeds the exemption limit. Instead, you may have to pay more toward unsecured debts in your repayment plan.

Can Bankruptcy Stop Foreclosure?

It depends on the type of bankruptcy you file.

• Chapter 7 bankruptcy can temporarily stop foreclosure because of the automatic stay, a legal protection that halts collection activity. But the mortgage lender may still be able to foreclose if you’re behind on your payments.

• Chapter 13 bankruptcy can stop foreclosure and give you time to catch up on missed mortgage payments. 

A Chapter 13 repayment plan allows you to spread out past-due payments over 3–5 years. During this time, you also have to keep up with current payments. This can help you keep your home. But your monthly income must be high enough to cover your regular mortgage payments and your Chapter 13 plan payments.

If you’re considering bankruptcy and facing foreclosure, it’s a good idea to speak with a bankruptcy attorney. Upsolve can help you set up a free consultation with a qualified attorney to get legal advice about your case.

Will Filing Bankruptcy Make It Easier To Pay My Mortgage?

Possibly! Your bankruptcy discharge wipes out most (if not all) of your unsecured debts. This includes medical bills, credit card payments, personal loan payments, and other debts that are making it hard for you to make ends meet now. 

With these debts gone, you can focus on the expenses that really matter. Filing bankruptcy often makes it easier to keep up with monthly housing payments and other living expenses. 

Also, as soon as you file your bankruptcy case, the automatic stay kicks in. This stops debt collection efforts while your case is active. Upsolvers report that this gives them breathing room to make a financial plan, and it reduces their stress considerably.

If you’re a homeowner, it’s a good idea to speak with a bankruptcy lawyer to get legal guidance so you make the best decision for your financial situation.

I’m a Homeowner. Should I File Bankruptcy or Try Another Debt Relief Option?

Bankruptcy can help some homeowners, but it’s not the only option. If you’re behind on mortgage payments, you may want to explore these alternatives before filing:

• Loan modification: Your lender may agree to adjust your loan terms to lower your monthly payment or add missed payments to the end of your loan.

• Forbearance: Some lenders offer temporary payment relief, allowing you to pause or reduce payments for a set period.

• Repayment plan: If you’ve fallen behind on payments but can afford to catch up, your lender may allow you to spread out missed payments over several months.

• Refinancing: If you qualify, refinancing your mortgage could lower your monthly payments and make it easier to stay current.

If these options aren’t enough to keep your home, Chapter 13 bankruptcy may allow you to catch up on missed payments over time while stopping foreclosure in its tracks. Chapter 7 bankruptcy may be an option if you can’t afford to keep the home and want to eliminate personal liability for the mortgage.

📌 Beware: Watch out for scams! If a company promises to “save your home” in exchange for upfront fees, do your research to make sure it’s a legitimate program.

Upsolve is a debt-relief nonprofit that helps people file Chapter 7 bankruptcy without a lawyer. However, Upsolve isn’t able to help homeowners at this time. A home is most people’s greatest asset, which is why we recommend homeowners work with a qualified bankruptcy attorney. Upsolve can help you set up a free consultation with a lawyer near you.

How Does Bankruptcy Affect Your Mortgage? FAQs for Homeowners

If you’re a homeowner considering bankruptcy, you probably have a lot of questions about how it will affect your mortgage and your ability to keep your home. Below are answers to some common questions about mortgages, foreclosure, and bankruptcy.

What Happens to Your Mortgage When You File Bankruptcy?

Home loans, like mortgages, home equity loans, or home equity lines of credit, are secured debts. This means the bank has a sort of ownership interest in the real estate. As long as you make your monthly payments and your home equity is protected by state exemptions, the home is yours to keep. 

If you don’t pay your mortgage loan, the bank can take the house back by way of a foreclosure. That’s true even after you get a bankruptcy discharge. 

Because of this, keeping your home means keeping your mortgage debt. There’s no such thing as a free house. 

Can Bankruptcy Help Me Catch Up on My Mortgage Payments?

✅ Yes, Chapter 13 bankruptcy can help you catch up on missed mortgage payments and stop foreclosure. It allows you to spread past-due payments over 3–5 years while keeping up with your regular mortgage payments. As long as you follow the repayment plan, your lender can’t foreclose on your home.

❌ However, Chapter 7 bankruptcy doesn’t provide a way to catch up on missed payments. If you’re behind, your lender can still proceed with foreclosure unless they agree to a loan modification or repayment plan outside of bankruptcy.

What Is Mortgage Modification Mediation in Chapter 13 Bankruptcy?

Many bankruptcy courts offer mortgage modification mediation (MMM) programs to help homeowners negotiate with their lenders during Chapter 13 bankruptcy. This process doesn’t force the bank to modify your loan, but it streamlines communication and encourages good-faith negotiations.

Here’s how it typically works:

1. Either you or your lender requests mediation through the bankruptcy court. Some courts require you to dedicate a certain percentage of your income to a modified mortgage payment for eligibility.

2. You submit required financial documents through a secure online portal, making it easier for both sides to track and review paperwork.

3. Your lender reviews your information to determine whether you qualify for a mortgage modification.

4. If you don’t qualify, a mediation session is scheduled. A neutral mediator helps you understand why and whether changes could make you eligible.

5. If you and your lender reach an agreement, the court must approve it to make the new mortgage terms legally binding.

While not all bankruptcy courts offer MMM, it can be a valuable tool for homeowners looking to avoid foreclosure and make mortgage payments more manageable. 

Does Bankruptcy Remove My Second Mortgage?

In some cases, Chapter 13 bankruptcy can strip a second mortgage if your home is worth less than what you owe on the first mortgage. Chapter 7 generally doesn’t eliminate second mortgages.

Should I File Chapter 7 if I Am Giving Up My Home?

Filing Chapter 7 bankruptcy may help if you’re surrendering your home and have concerns about remaining mortgage debt. In some cases, if a lender sells the home for less than what’s owed, they can seek a deficiency balance from you. That’s the remaining amount after the sale. Some lenders may even sue you to try to get a deficiency judgment, which allows them to try to collect the unpaid balance through wage garnishment or other means.

Many people who file Chapter 7 find that it eliminates personal liability for mortgage debt, including deficiency balances and judgments. It can also discharge other unsecured debts, such as credit card balances and medical bills. 

Let’s Summarize…

Many bankruptcy filers who are homeowners are nervous about what will happen to their home. Generally, if you file Chapter 7 bankruptcy and you’re up to date on your mortgage payments, you can keep your house so long as your equity is less than the available bankruptcy exemption.

If you file Chapter 13, you can usually keep your home even if you’re behind on your mortgage. You can catch up on your mortgage payments through the required repayment plan.

Whether bankruptcy is right for you depends on several factors, but the fact that you own your home doesn’t have to be one of them. If your home is protected in a bankruptcy filing, your fresh start can make your mortgage payments more manageable.