Whether you keep your home in Chapter 7 bankruptcy depends on your state's homestead exemption and whether you're current on your mortgage.
If you file for bankruptcy, you'll likely keep your home if you can protect all of the equity with your state's homestead exemption and you aren't behind on your mortgage payments. A homestead exemption is a state or federal law that lets you shield or "exempt" a set amount of home equity from creditors in bankruptcy.
If you can't meet both requirements, you'll likely lose your home in Chapter 7, though Chapter 13 offers more flexibility. Below, you'll find out how the exemption works, how to find your state's amount, and the situations where a house is most at risk.
The Homestead Exemption in Chapter 7 Bankruptcy
If you can cover all of your home equity with the homestead exemption that applies in your case, and you're current on your mortgage, you'll keep your home in Chapter 7. In Chapter 7 bankruptcy, you must turn over any property you can't protect with an exemption, called "nonexempt assets," to the Chapter 7 bankruptcy trustee, who sells them and divides the proceeds among your creditors.
When You Might Lose a Home in Chapter 7 Bankruptcy
You could lose your home in Chapter 7 in these situations:
- The trustee will sell the house if you have too much equity and can’t protect it with an exemption, such as a homestead exemption or a wildcard exemption.
- If you're behind on your house payment when you file for Chapter 7, your lender will likely foreclose on the home once you're out of bankruptcy. A lender who doesn't want to wait could file a motion asking the court to lift the automatic stay that stops creditor collections in bankruptcy. If successful, the lender could proceed with foreclosure during Chapter 7 bankruptcy.
Chapter 7 bankruptcy doesn’t offer an option to help filers catch up on a mortgage. Debtors facing a home loss in Chapter 7 can often save their home using Chapter 13 by catching up on their mortgage payment through the Chapter 13 repayment plan.
How the Chapter 7 Trustee Distributes Home Sale Proceeds
If the Chapter 7 trustee sells your house, the trustee returns the exemption amount to you, and creditors receive whatever remains after the trustee deducts sales costs and the trustee's fee.
Homestead Exemption Amounts
State homestead exemption amounts vary and change periodically, so verifying the current amount available is essential. Only a few states allow you to keep your home regardless of equity. Most protect a certain dollar amount, with some limiting lot size. At least one state provides no homestead exemption. In that state, filers turn to federal bankruptcy exemptions for home equity protection.
Many states let married couples filing a joint bankruptcy petition “double” or claim twice the amount of the listed homestead exemption, as long as both spouses have an ownership interest in the property. If the homestead exemption doesn't cover all of your equity, check for a wildcard exemption that lets debtors exempt a specific dollar amount of any property. You'll likely be able to stack the wildcard exemption on your homestead exemption, though some state wildcard exemptions don’t apply to real estate.
How the Homestead Exemption Works
To know whether the homestead exemption will protect your home, you must determine if it's large enough to cover your equity. Your equity is the difference between your home's current market value and what you owe the mortgage holder and any other lienholders. In other words, if you sold your home today, the amount left over after paying off the mortgage and liens is your equity.
You cannot deduct sales costs or the trustee's fee when declaring your equity in your bankruptcy paperwork, though the trustee will factor in those amounts when deciding whether selling the house would leave anything for creditors. If enough equity remains to make a sale worthwhile, the trustee will sell the home and return the exemption amount to you. (A debt is unsecured if it isn't backed by collateral, such as credit card debt or medical bills.)
Finding the Homestead Exemption
Your homestead exemption amount depends on your state's exemption laws, though some states let filers use federal bankruptcy exemptions instead. Here's where you'll find the bankruptcy exemptions that apply to you, including the homestead exemption. Scroll to the middle of the article and click your state link for a rundown of your state's homestead and other exemptions.
Examples of How the Homestead Exemption Works
The homestead exemption amount you can use to protect your home is the same whether you file Chapter 7 or Chapter 13, but the exemption might not cover all of your equity. These examples illustrate what you can expect.
Chapter 7 Homestead Exemption Examples
In Chapter 7, the trustee will sell a house with unprotected equity for creditors' benefit.
Example 1. Marta’s home is worth $600,000, and she owes $550,000, leaving $50,000 in equity. Her state’s homestead exemption is $75,000. Because it covers all of her home equity and her mortgage payment is current, she will keep her house.
Example 2. Roland’s home is worth $600,000, and he owes $550,000, leaving $50,000 in equity. Like Marta, Roland’s state’s homestead exemption is $75,000. However, unlike Marta, he’s behind on his mortgage payment. The trustee won’t sell the house because Roland can protect all the equity with a bankruptcy exemption. But his lender might ask the court to lift the automatic stay so the lender can pursue foreclosure. Or the lender might wait until the case is over before foreclosing.
Example 3. Eric has $230,000 of equity in a home worth $500,000, and he can protect $100,000 using his state’s homestead exemption. Because Eric can’t protect all of the home’s equity with a homestead exemption, the trustee will sell the home. Once sold, the trustee will give Eric the exemption amount of $100,000. The trustee will pay creditors the amount remaining after deducting sales costs and the trustee’s fee.
Special Issues to Watch For With Homestead Exemptions
Below you'll find issues you'll likely want to discuss with a bankruptcy lawyer.
Your Mortgage Must Be Current in Chapter 7 Bankruptcy
If you're behind on your mortgage payments when you file for Chapter 7, you'll likely lose your home even if your equity is protected, because mortgage liens don't go away in Chapter 7. If you don't pay what you owe, the lender can ask the bankruptcy court to lift the automatic stay and foreclose, or wait to foreclose after your Chapter 7 bankruptcy ends. Because you can pay off a mortgage arrearage in Chapter 13, you might be able to save your home by filing for Chapter 13 instead. Learn more about how Chapter 13 bankruptcy can save your house.
Recent Acquisitions and Domicile Rules for the Homestead Exemption
If you acquired your interest in your current home within 1,215 days (about 40 months) of filing, your homestead exemption is capped at $214,000, regardless of your state's own exemption amount, unless you're rolling over equity from a homestead you owned in the same state before that 1,215-day period began. This is separate from the rule determining which state's exemption laws you can use, which depends on how long you've lived in your current state, and which is generally at least two years. (11 U.S.C. § 522(p); amount valid for cases filed between April 1, 2025 and March 31, 2028.)
You Might Need to File a Homestead Declaration
Some states require you to record a homestead declaration with your county land records office before filing for bankruptcy to claim the homestead exemption. Check your state's exemption laws to see whether your state requires this.
In Rare Cases, You Might Have an Invalid Lien
Did a friend or family member provide financing for your home? If so, check whether they properly recorded a lien against your property. The lien matters because it gives the lender the right to recover the property. If a lien isn't in place, the trustee will disregard the lender's collateral claim, which increases your equity. If, with the additional amount, your equity exceeds the homestead and wildcard exemptions, the trustee will sell the property in Chapter 7. If you think some of the liens on your home might not have been recorded correctly, check with a local bankruptcy attorney.
Navigating Your Bankruptcy Case
Keeping your home in bankruptcy comes down to whether the homestead exemption covers your equity, and whether you're current on your mortgage. Because bankruptcy is a qualification process that's more often complicated than not, your safest move is to talk to a bankruptcy attorney before you file, not after. In the meantime, here are more easy-to-understand articles:
Take our bankruptcy quiz to identify potential issues and learn how to best proceed with your bankruptcy case.
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