Chapter 13 Bankruptcy: What If I Have a Lot of Equity in My Home?

Expect a hefty Chapter 13 monthly payment if you have significant home equity and file for Chapter 13 bankruptcy.

Updated by , Attorney

It's always possible to keep your home in Chapter 13 bankruptcy, but it can be more challenging if you have a lot of home equity. If you can't protect all your equity with a bankruptcy exemption, you'll have to pay more through your repayment plan to keep the house—and many people can't afford the payment. Read on to learn how to:

  • calculate your home equity
  • determine whether your equity is exempt, and
  • calculate how much you'll pay to keep your home in Chapter 13.

Learn more about your home in Chapter 13 bankruptcy and how to calculate a Chapter 13 payment.



Can You Keep Your Home in Chapter 13 Bankruptcy?

Yes—even if you would have lost the house in Chapter 7 bankruptcy. But there's a catch. You must pay your creditors the amount they would have received in Chapter 7 bankruptcy.

Here's how to figure out whether you'll need to pay to keep your house in Chapter 13.

How Much Home Equity Do You Have?

Start by calculating your home's value and your home's equity, or how much you'd get if you were to sell it. Suppose you own your home free and clear. In that case, your equity and your home's value would be the same. By contrast, if your home is "underwater" because your mortgage balance exceeds your home's value, you wouldn't have any equity in your home.

It's likely that your equity falls between the two extremes. Your home's equity is the difference between the value of your home, and anything you'd have to pay if you sold your property, such as your mortgage, and any other liens.

Is Your Home Equity Exempt in Chapter 13 Bankruptcy?

Whether you'll keep or lose property in bankruptcy will depend on if you can protect or "exempt" the equity with a bankruptcy exemption. Once you know the amount of your home equity, check your state's bankruptcy exemptions to see if it's fully or partially covered.

In most cases, you'll use a homestead exemption for the equity in your principal residence. The amounts vary significantly by state, so if it isn't enough, check whether your state offers a wildcard exemption that covers real estate.

Calculating Home Equity Protection in Chapter 13 Bankruptcy

These steps will help you determine whether you can protect your home equity in Chapter 13 bankruptcy.

  1. Research your home's value. Start by checking websites like Realtor.com and Zillow.com when valuing your home before bankruptcy.
  2. Subtract the mortgage balance. The amount necessary to pay the loan and any liens in full.
  3. Find out how much equity you can exempt. You'll find your state's bankruptcy exemptions here. The homestead exemption covers equity in a home in which you reside. The wildcard exemption might cover an additional amount, but not all states offer a wildcard exemption or allow filers to use it for real estate. If your state will let you use the federal bankruptcy exemptions instead, compare the two systems and select the one that will best protect your assets.

If you can exempt all of your home equity, you won't pay an additional amount in your Chapter 13 plan. However, if you have nonexempt equity, you'll have to pay an equivalent amount toward your general unsecured debts (such as credit cards and medical bills) through your repayment plan.

You might also need to know what happens if you're on the deed to someone else's home when you file for bankruptcy.

Navigating Your Bankruptcy Case

Bankruptcy is an unusual area of law because it's essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because all rules apply in every case, you can't skip a step.

The forms and resources below will help you find more information. Also, you can use this list of Chapter 7 and 13 bankruptcy forms to see where this topic falls. And this handy bankruptcy document checklist will help you gather the things you'll need to complete the petition.

More Bankruptcy Information

Bankruptcy Forms

Schedule A/B: Property

Schedule C: The Property You Claim as Exempt

Schedule D: Creditors Who Hold Claims Secured By Property

Chapter 13 Plan

Related Information

Your Car in Chapter 13 Bankruptcy

Debts You Can Wipe Out in Chapter 13 Bankruptcy

What If I Lose My Job After I File for Chapter 13 Bankruptcy?

Need More Info?

We want to help you find the answers you need. Go to TheBankruptcySite for more easy-to-understand bankruptcy articles, or consider buying a self-help book like Chapter 13 Bankruptcy by Attorney Cara O'Neill

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by consulting with a local bankruptcy lawyer.

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