Can I Keep My House If I File for Chapter 7 Bankruptcy?

Your home will be safe in Chapter 7 if you can protect all of your home equity with a bankruptcy exemption and can answer "yes" to one of the following questions:

• Do you own your home outright?
• Will your house payment be current when you file and remain current after your case ends?

If your house payment isn't current when you file, the lender could ask the court to lift the automatic stay and foreclose during your case or wait until after your Chapter 7 ends to take back the house. In that situation, you'd have a better chance of keeping your home using Chapter 13.

Chapter 7 Bankruptcy Exemptions Help You Keep Your House

If you don't have a mortgage or it's current, your next step will be checking whether you can protect all of your equity. Your state's bankruptcy exemption laws list the property you can protect in bankruptcy, including the amount of home equity you can keep, and explain whether you can use the federal bankruptcy exemptions instead.

If you live in the home, you'll want to use the homestead exemption. If it doesn't fully cover your equity, your state might have a wildcard exemption, but be sure it applies to real estate. Some states limit the wildcard exemption to personal property.

In Chapter 7, you must protect all equity or you risk losing the house (although in some states, an exception exists when a married couple holds the property in "tenancy by the entirety" but only one spouse files for bankruptcy). If bankruptcy exemptions don't cover all of your equity, the Chapter 7 trustee will sell the home, return the exemption amount to you, deduct sales costs and the bankruptcy trustee's fee, and distribute the rest to creditors.

How to Calculate Home Equity and Keep a House in Chapter 7 Bankruptcy

Here's how to determine whether you can protect your home equity in Chapter 7 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. This is the amount necessary to pay the loan in full.
3. Find out how much equity you can exempt. Use the instructions above to find bankruptcy exemptions you can use to protect your home. If the exemptions will cover the amount remaining after subtracting your mortgage balance from your home's value, your equity will be safe in bankruptcy.

Don't subtract sales costs when calculating your home equity. Although you can't take it into consideration, the trustee will before deciding whether to sell a home.

Also, remember that your mortgage payment must be current. Otherwise, the lender can use its lien rights to foreclose on your home after your case closes. Learn what happens to liens in Chapter 7 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.

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 How to File for Chapter 7 Bankruptcy by Attorney Cara O'Neill and Albin Renauer, J.D.

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.