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

Learn what it takes to keep your house in Chapter 7 bankruptcy.

By , Attorney

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.



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

Yes, but it isn't always possible because you'll need to meet the following requirements to keep your house in Chapter 7 bankruptcy:

  • current mortgage payments so the lender can't foreclose on the home
  • the ability to protect your home equity with bankruptcy exemptions, and
  • enough income to afford mortgage payments after bankruptcy.

The first and last points protect you from foreclosure because bankruptcy doesn't remove the mortgage lender's lien. The lien gives the lender the right to take back your home if you don't pay the mortgage.

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 with a bankruptcy exemption. Find out what happens to mortgages in bankruptcy.

Chapter 7 Bankruptcy Exemptions Help You Keep Your House

Your state's bankruptcy exemption laws list the property you can protect in bankruptcy, including the amount of home equity you can keep. They also explain whether you can use the federal bankruptcy exemptions instead.

Some, but not all states let filers choose between the two systems. If you have a choice, you'd use whichever bankruptcy set protects the most property or the property most important to you.

Keeping Your House Using Bankruptcy's Homestead Exemption

You'll use the homestead exemption if you live in the house you want to keep. Most states don't allow filers to use the homestead exemption on investment or rental properties. The homestead exemption explicitly protects home equity in your residence.

Using Bankruptcy's Wildcard Exemption to Keep Your Home

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

Losing Your Home When You Can't Protect the Equity

In Chapter 7, almost all people must protect home equity with a bankruptcy exemption to keep a home. 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.

This rule applies to all of the following followers:

  • single people
  • married people filing jointly, and
  • married people filing individually unless the property is held as a tenancy by the entirety.

An exception exists for a married person filing without their spouse when the property is held as tenancy by entirety but speak with your bankruptcy lawyer to ensure your property will be safe.

How to Calculate and Protect Home Equity if You Have a Mortgage or Liens

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. You'll also subtract the amount required to pay off any other creditor liens against your property.
  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 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 deduct sales costs, the trustee will consider sales costs 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.

When Should You Surrender Your Home in Chapter 7 Bankruptcy?

Most people will surrender a home in Chapter 7 bankruptcy when they don't have any home equity and can't afford the monthly payment. People who have equity but can no longer afford the home might want to try selling it before filing for Chapter 7.

If you can't sell it and you're at risk of losing it to foreclosure, consider filing for Chapter 7 before the foreclosure sale date. If the trustee sells the home, you'll at least receive the homestead exemption amount.

Navigating Your Bankruptcy Case

Bankruptcy is essentially a qualification process. The laws provide instructions for completing a 50- to 60-page bankruptcy petition, and because the rules apply to every case, you can't skip a step. We want to help.

Below is the bankruptcy form for this topic and other resources we think you'll enjoy. For more easy-to-understand articles, go to TheBankruptcySite.

More Bankruptcy Information

Bankruptcy Forms and Document Checklist

Schedule A/B: Property

Schedule C: The Property You Claim as Exempt

Schedule D: Creditors Who Have Claims Secured by Property

Statement of Intention for Individuals Filing Under Chapter 7

Chapter 7 and 13 Bankruptcy Forms

Chapter 7 Bankruptcy Document Checklist

More You Might Like

How Much Debt Do You Have to Have to File Bankruptcy?

How to Value Your Home in Bankruptcy

Can You File for Bankruptcy If Your House Is in Foreclosure?

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 hiring a local bankruptcy lawyer.

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