Can I Keep My House If I File for Bankruptcy in California?

You’re probably asking one big question: “Can I file for bankruptcy and keep my house?” Filing for bankruptcy can feel scary. Your home is more than just property—it’s your family’s security. Many people worry they’ll lose everything if they file.

Financial troubles can happen to anyone—whether from job loss, medical bills, or rising credit card debt. When money problems pile up, bankruptcy may seem like the only choice.

So, what happens to your house? The answer depends on several things: the type of bankruptcy you choose, your mortgage payment status, your home’s equity, and which exemption laws apply in the state.

Impact of Business Bankruptcy on Your Personal Residence

If you own a business and are filing for corporate bankruptcy, your personal home is generally not affected because it is usually not part of the business’s bankruptcy estate. The house typically remains under your control and is not subject to the creditors of the business. Your mortgage payments for the personal residence must continue as usual during and after the business bankruptcy.

However, exceptions may apply. If your business lender required a deed of trust on your home to secure a business loan (common with SBA loans), your home could be at risk if this obligation goes unpaid. Similarly, if you personally guaranteed business debts and a creditor obtained a judgment lien against your residence, the creditor could seek foreclosure.

Bankruptcy law still protects your home through exemptions like the California Homestead Exemption (Code of Civil Procedure § 704.110 et seq). Proper planning is essential to protect non-exempt assets from creditors.

Step 1: Understanding Your Bankruptcy Options

Here’s a quick comparison between Chapter 7 and Chapter 13 bankruptcy:

Chapter 7 Bankruptcy: Liquidation

Chapter 7 is designed for people who can’t repay their debts.

In Chapter 7, a court trustee reviews your non-exempt assets and sells them to pay debts. You keep your home only if your equity falls within the exemption limit and you continue making mortgage payments. This process quickly discharges unsecured debts like credit cards and medical bills but does not help you catch up on missed mortgage payments.

Chapter 13 Bankruptcy: Reorganization

Chapter 13 is for people with a steady income who need to catch up on missed payments.

Under Chapter 13, you propose a court-approved repayment plan that bundles your arrears and current payments. This stops foreclosure and lets you keep your home. It also allows lien stripping when your home’s value is less than your first mortgage.

Step 2: Automatic Stay Protection

The automatic stay acts like a legal “pause button” that starts the moment you file for bankruptcy. It stops most creditor actions such as foreclosure, scheduled home sales, lawsuits, wage garnishments, and collection calls.

Under Chapter 7, this protection usually lasts three to four months. Under Chapter 13, it can last for the entire 3–5 year repayment plan, as long as you stay current on both your plan and mortgage payments.

However, the automatic stay does not stop obligations like child support, alimony, or certain tax debts. Since the stay is temporary, you must address any missed mortgage payments to keep your home long-term—either through a Chapter 13 repayment plan or by negotiating with your lender.

For more information, see 11 U.S.C. § 362 about the automatic stay.

Step 3: Apply California’s Homestead Exemption

Your home equity—what your house is worth minus what you owe—is key to keeping your house in bankruptcy. California offers two homestead exemption systems, and you must choose one when you file.

The 704 Exemption System (Higher Protection)

Under California Code of Civil Procedure § 704.730, you can protect between $361,076 and $722,507, depending on your county’s median home price.

For 2025, the protection levels by county category are:

The 703 Exemption System (Lower Protection, More Flexibility)

Under California Code of Civil Procedure § 703.140(b), you can protect $36,750 in equity plus a wildcard exemption for cash, savings, or other property.

Choosing the Right Exemption System

You must choose one exemption system or the other—you cannot mix and match. Knowing your home’s true market value is important to protect your property. Picking the right exemption system before filing is just as critical.

Step 4: Assess Your Mortgage Status and Payment History

Whether you’re current on your mortgage payments or behind on them greatly affects your bankruptcy outcome. If you’re current, both Chapter 7 and Chapter 13 make it easier to keep your home, partly because the automatic stay pauses foreclosure.

If you’re behind on payments, Chapter 7 offers no built-in way to catch up, and your lender can resume foreclosure once the automatic stay ends. Chapter 13, however, lets you include missed payments in a repayment plan that lasts three to five years. You can stay in your home as long as you make both your regular monthly payments and the catch-up payments.

Affordability and Ongoing Financial Planning

Filing bankruptcy can free you from many debts, potentially making your mortgage payments more affordable. However, your ability to keep your home depends on your ongoing income and expenses.

Continuing to pay your monthly mortgage, property taxes, insurance, and other homeowner obligations is critical. Changes in your financial situation—such as job loss or reduced income—may increase the risk of foreclosure unless you negotiate with your lender or modify your repayment plan.

Bankruptcy offers a unique opportunity to evaluate whether keeping your home is financially sustainable or if walking away might ultimately serve your best interests.

Step 5: Key Strategies to Keep Your Home

Even if you're in serious money trouble, there are tools that can help. You can use these tools to keep your home through bankruptcy:

1. Reaffirmation Agreements (Chapter 7): Crucial for people deciding whether to remain liable on their mortgage after discharge. Explaining risks and benefits helps homeowners make informed choices.
2. Loan Modifications: An Important practical tool lenders often offer for foreclosure prevention, which many readers may not know about.
3. Lien Stripping (Chapter 13): Highly relevant for homeowners with second mortgages or HELOCs, especially given fluctuating home values.
4. Catch-Up Payment Plans: Reinforces the repayment method in Chapter 13, tying back to earlier sections for clarity.
5. Ownership Protections: Briefly mentioning how marital property affects creditor claims adds valuable context without overcomplicating.

Pre-Bankruptcy Planning

Before filing, take time to explore other solutions. This might help you keep your home. It also avoids the long-term effects of bankruptcy.

Credit Counseling

By law, you must complete credit counseling with an approved nonprofit agency within 180 days before filing (11 U.S.C. § 109(h)). This session is more than a formality—it helps you review your finances, create a budget, and consider if a debt management plan could free enough money to cover your mortgage.

Alternatives to Bankruptcy

• Debt Management Plan: This puts all your unsecured debt into one monthly payment. It often comes with lower interest rates. This frees up money for mortgage payments.
• Loan Modification/Refinance: Work with your lender to lower your rate or extend your term. You can also add missed payments to the balance.
• Forbearance: This gives you a temporary payment reduction or pause during hardship.
• Sell or Short Sale: Pay off or settle the mortgage on better terms than foreclosure. This makes sense given the state's high property values.

When Should You Hire a Bankruptcy Attorney

Keeping your home during bankruptcy involves complex financial calculations and strict legal deadlines. You also need to navigate both federal and state exemption laws. Small mistakes can cost you the house you’re trying to protect.

Why Professional Guidance Matters

California bankruptcy lawyers understand the state’s unique dual exemption systems. They can accurately assess your home equity and help you choose the best chapter—Chapter 7 or Chapter 13—for your situation. They also negotiate with lenders, create payment plans, and represent you in bankruptcy court.

Key Benefits of Hiring a California Bankruptcy Attorney

• Avoid paperwork mistakes, missed deadlines, and incorrect exemption choices.
• Choose between the 703 and 704 exemption systems to maximize home protection.
• Secure better reaffirmation agreements, loan modifications, and lien strips.
• Reduce stress by having a professional handle the legal process.

You can file without a lawyer, but the risks are much higher, especially if you have significant equity or are behind on payments. For the best results, consult a qualified California bankruptcy attorney early in your decision-making process.

Frequently Asked Questions

The Bottom Line

Filing for bankruptcy does not always mean losing your home. Success depends on choosing the right exemption system, understanding your home’s true value, and realistically managing your mortgage payments. Early consultation with a qualified bankruptcy attorney can help protect both your home and your financial future.