How to Keep Your House When You File for Bankruptcy Guide

Can I keep my house if I file bankruptcy? This is one of the most common and urgent questions homeowners ask when their finances are in trouble. Filing for bankruptcy can be overwhelming because a house represents more than just a financial asset—it’s your family’s stability, security and home. Naturally, people worry, Do you lose your home if you file for bankruptcy?

Financial setbacks like job loss, medical bills or mounting debt can push homeowners to consider bankruptcy as a last-resort solution. Thankfully, bankruptcy laws provide certain protections but the outcome depends on several factors: the type of bankruptcy you choose, your mortgage status, your home equity and your state’s exemption laws.

The two main types of personal bankruptcy in the U.S. that affect homeowners are Chapter 7 and Chapter 13. Each offers different paths, timelines and outcomes for managing debt and retaining property.

Types of Bankruptcy and Their Impact on Your Home

Chapter 7 Bankruptcy: Liquidation Bankruptcy

Chapter 7 bankruptcy, often called liquidation bankruptcy, is designed for individuals with limited income who cannot repay their debts. The process typically lasts about 4 to 6 months, during which a court‑appointed trustee may sell non‑exempt assets to repay creditors.

However, many personal assets — including some home equity — may be protected under federal or state exemptions. You can keep your home if your equity is within these limits and you continue paying the mortgage. If the non‑exempt equity is high, the trustee may sell the home to pay creditors.

Chapter 7 offers fast discharge of most unsecured debts but does not provide a way to catch up on missed mortgage payments.

Chapter 13 Bankruptcy: Reorganization Bankruptcy

Chapter 13 bankruptcy, also known as reorganization bankruptcy, is designed for individuals with a steady income who want to repay some or all of their debts through a court-supervised plan lasting three to five years. Instead of selling your property, you propose a repayment plan based on your income and assets.

This plan allows you to catch up on missed mortgage payments (arrears) over time so you can keep your home and avoid foreclosure. It also factors in any non-exempt equity, requiring repayment of that amount during the plan.

Chapter 13 prevents foreclosure by including mortgage arrears in the repayment schedule and can allow lien stripping on second mortgages if your home’s value supports it. There are debt limits for filing Chapter 13 as of 2024, generally restricting total secured and unsecured debts to about $2,750,000.

While other bankruptcy chapters exist, such as Chapter 11 for businesses and Chapter 12 for family farmers, Chapter 13 (along with Chapter 7) is the most relevant for typical homeowners seeking to keep their home while resolving debts.

If you’re asking, If I file for bankruptcy, what happens to my house? The short answer is: it depends on your chapter choice, payment status, equity and local laws.

Automatic Stay: Immediate Protection Against Foreclosure

Many homeowners ask, “Do I lose my house if I file bankruptcy?” One of the first protections you receive is the automatic stay — a legal “pause button” that takes effect the moment you file. It immediately stops most creditor actions, including foreclosure proceedings, scheduled home sales, lawsuits, wage garnishments and collection calls.

The stay lasts about 3 to 4 months in most Chapter 7 cases and can protect you for the full 3 to 5 years of a Chapter 13 repayment plan, so long as you keep up with the plan and mortgage payments.

However, it won’t stop obligations like child support, alimony or certain tax actions. Lenders can also ask the court to lift the stay if you fall behind on payments after filing and repeat bankruptcy filings within a short period may shorten or eliminate the stay entirely.

Think of the automatic stay as your first line of defense against foreclosure — but only a temporary one. To keep your home for the long term, you still need to address any mortgage arrears through a repayment plan or by working out an arrangement with your lender.

Homestead Exemptions and Home Equity in Bankruptcy

One of the biggest factors in whether you can keep your house if you file bankruptcy is how much home equity you have — and how much of it is protected by the homestead exemption. Your equity is simply your home’s market value minus what you still owe on all mortgages or home equity loans. For example, if your home is worth $300,000 and you owe $240,000, you have $60,000 in equity.

The homestead exemption protects a set amount of that equity from creditors. In 2025, the federal exemption is $31,575 for individuals and $63,150 for joint filers. Many states have their own rules, with some offering higher limits and a few — including Florida, Texas and Iowa — giving unlimited primary-residence protection. Depending on where you live, you may need to use the state exemption or choose between state and federal.

In Chapter 7, if your equity exceeds the exemption limit, the trustee may sell your home and use the non‑exempt portion to repay creditors. If it’s within the limit and you’re current on mortgage payments, you can usually keep your home.

In Chapter 13, you keep the property but any non‑exempt equity must be included in your 3–5‑year repayment plan. Knowing your home’s true market value and your state’s exemption rule before filing is crucial for protecting your property.

Mortgage Status and Its Critical Role in Bankruptcy Outcomes

Whether you’re current on your mortgage or behind on payments greatly influences how bankruptcy will affect your home.

Current vs. Behind on Payments

• Current on Mortgage: If you’ve kept up with payments before filing, it’s generally easier to keep your home in either Chapter 7 or Chapter 13. Bankruptcy’s automatic stay will pause foreclosure and you simply continue making payments.
• Behind on Mortgage (Arrears): In Chapter 7, there’s no repayment plan for missed payments—you must catch up quickly outside of court or risk foreclosure once the stay lifts. Chapter 13 lets you spread arrears over 3–5 years while staying in the home but you must pay both arrears plus ongoing monthly payments.

Staying Current After Filing

Your home is only safe as long as you maintain timely mortgage payments:

• In Chapter 7, falling behind after discharge means the lender can foreclose.
• In Chapter 13, missed plan or mortgage payments can lead to case dismissal, ending protections and triggering foreclosure.

Filing bankruptcy buys time but it doesn’t erase the need to pay your mortgage. If you’re behind, Chapter 13 offers the only built-in way to catch up without losing the home.

Will I Lose My Home if I File Bankruptcy? Strategies to Keep Your Home

Even if you’re in financial distress, there are legal and practical tools that can help you retain your home through bankruptcy. The right approach depends on your income, equity and the type of bankruptcy you file.

Reaffirmation Agreements (Chapter 7)

In Chapter 7, you can sign a reaffirmation agreement with your lender, promising to keep paying your mortgage despite the bankruptcy discharge.

• Advantage: It lets you keep your home if you’re current and can maintain payments.
• Risk: You remain personally liable—missed payments can still lead to foreclosure.

Loan Modifications

Lenders may agree to change loan terms—lowering interest rates, extending repayment periods or adding missed payments to the end of the loan. Bankruptcy often puts you in a better position to negotiate since it clears other debts.

Stripping Second Mortgages (Chapter 13)

If your home’s market value is less than what you owe on the first mortgage, a second mortgage or junior lien may be “stripped” in Chapter 13, reclassifying it as unsecured debt. Once your plan is completed, the unpaid balance is discharged.

Ownership Protections

In some states, holding property as tenancy by the entirety (for married couples) protects it from creditors of one spouse, though this doesn’t shield you from mortgage foreclosure.

A tailored combination of legal actions, lender negotiations and strategic use of bankruptcy chapters can greatly improve your chances of keeping your home.

Deficiency Judgments and Risks of Keeping Your Home

A deficiency judgment is the amount you still owe a lender after foreclosure if your home sells for less than the mortgage balance. For example, if you owe $250,000 and the foreclosure sale brings in $220,000, the $30,000 shortfall could become a deficiency judgment.

In Chapter 7, surrendering your home generally wipes out that debt. In Chapter 13, deficiency judgments only arise if foreclosure happens later and any remaining balance can often be included — and possibly discharged — in your repayment plan.

Keeping your home during bankruptcy offers emotional stability but it also carries risks. You must stay current on your mortgage both during and after bankruptcy and in Chapter 13 that means making ongoing payments plus catching up on arrears for 3–5 years.

Nearly half of Chapter 13 repayment plans fail because of budget strain, which can lead to foreclosure once the case is dismissed. Bankruptcy also leaves a mark on your credit for 7–10 years and reaffirming a mortgage in Chapter 7 keeps you legally responsible for the loan. For some homeowners, selling before or during bankruptcy may be a more practical long‑term approach.

Pre‑Bankruptcy Planning and Alternative Options

Before filing, taking time to explore other solutions can sometimes help you keep your home without the long‑term consequences of bankruptcy.

Credit Counseling

By law, you must complete credit counseling from an approved nonprofit agency within 180 days before filing. More than a formality, this session can help assess your finances, create a budget and explore whether a debt management plan could free enough cash flow to cover your mortgage.

Alternatives to Bankruptcy

• Debt Management Plan: Consolidates unsecured debt into one affordable monthly payment, often with reduced interest, freeing up money for mortgage payments.
• Loan Modification/Refinance: Work with your lender to lower your rate, extend your term or add missed payments to the balance.
• Forbearance: Temporary payment reduction or pause during hardship.
• Sell or Short Sale: Pay off or settle the mortgage on better terms than foreclosure.

Asset Protection Strategies

Planning ahead can shield home equity in certain situations:

• Tenancy by the entirety (in some states) protects homes from the creditors of one spouse.
• Homestead declaration may boost equity protection in states that allow it. These require legal guidance and may not help if you’re already in serious financial trouble.

Filing bankruptcy shouldn’t be your first stop—credit counseling, lender negotiation and strategic asset protection may resolve the issue and preserve your home with fewer long‑term drawbacks.

Legal and Financial Advice: When to Hire a Bankruptcy Attorney

Keeping your home through bankruptcy involves complex financial calculations, strict legal timelines and navigating both federal and state exemption laws. Small mistakes can end up costing you the house you’re trying to protect.

Why Professional Guidance Matters

Bankruptcy attorneys understand how to apply exemptions effectively, calculate equity accurately and decide whether Chapter 7 or Chapter 13 best serves your situation. They can also negotiate with lenders, draft repayment plans and represent you in court.

Key Benefits of Hiring an Attorney

• Prevent paperwork errors, missed deadlines or misapplied exemptions.
• Choose the chapter, exemptions and plan terms that maximize home protection.
• Secure better reaffirmation agreements, loan modifications or lien strips.
• Reduce your stress by having a professional handle the legal process.

While it’s possible to file without an attorney, the risk is far higher for homeowners—especially if you have significant equity or are behind on payments. For best results, consult with a qualified bankruptcy attorney early in the decision‑making process.

FAQs

The Bottom Line

Filing bankruptcy doesn’t always mean losing your home. Whether you lose your home if you file for bankruptcy depends on your bankruptcy chapter, mortgage status, home equity and state laws. Chapter 7 offers fast debt relief but limited options to catch up on missed payments.

Chapter 13 provides a structured repayment plan to catch up but requires consistent adherence. The best outcomes come from understanding your home’s true value, your state’s exemption laws and realistically evaluating your ability to keep payments current. Early consultation with a qualified bankruptcy attorney or credit counselor can help protect your home and financial future.