Bankruptcy / How To Keep Your House

Keeping Your House in Bankruptcy: 5 Things You Need to Know

Written by Ben Tejes
Updated Jun 15th, 2023

Filing bankruptcy and keeping a house is a common concern for many individuals. For example, many people ask, "Can a bankruptcy trustee sell your home?" We will cover that and more in this comprehensive article.

They assume they must give up most of their property to receive bankruptcy relief. However, that is not the case in most Chapter 7 and Chapter 13 bankruptcy cases. You often have options for your home in bankruptcy and also keep your vehicle in bankruptcy. Once they receive trusted bankruptcy advice, most people discover filing bankruptcy and keeping a house is possible.

Many people can keep their houses and also file for bankruptcy using exemptions. We will explain how exemptions work in this blog, but feel free to take the calculator below to compare your equity vs your state's allowable exemptions.

If you are interested in reading the information, keep reading to learn more about the following.

How to File Bankruptcy and Keep My House

You can often keep your house and car by claiming bankruptcy exemptions. The homestead exemptions can be complex, so we built the following free bankruptcy exemptions calculator to help you estimate the RISK of losing your house based on your state's bankruptcy exemptions.

When you file for bankruptcy relief, you are entitled to use bankruptcy exemptions to protect the equity in some property from being used to repay your unsecured creditors. Bankruptcy exemptions apply to a wide variety of assets, including homes, vehicles, retirement accounts, clothing, tools of the trade, government benefits, and other personal property. 

State Bankruptcy Homestead Exemptions

The Federal Bankruptcy Code allows states to enact state bankruptcy exemptions. Depending on where a person files for bankruptcy relief, that person may be required to use state bankruptcy exemptions or choose between state and federal bankruptcy exemptions.

So, what are the bankruptcy homestead exemptions in your state? We created a bankruptcy homestead exemptions guide to check for your state

Federal Bankruptcy Homestead Exemptions

Let's now review the federal bankruptcy homestead exemptions.

The protections offered by state and federal bankruptcy exemptions differ.  For example, the homestead exemption for Florida is unlimited in most cases, meaning your home may be protected no matter the amount of equity. However, the current exemption for a home under the federal exemptions is $25,150 (as of April 1, 2019). Couples who file a joint bankruptcy exemption and are both on the title to the home may double the federal homestead exemption to protect up to $50,300 of equity in their home.  The federal bankruptcy exemptions are subject to review and adjustment every three years. The next scheduled review for adjustment is on April 1, 2022.

So, which states allow you to choose federal bankruptcy homestead exemptions. See the list below.

District of ColumbiaHawaiiKentucky
New HampshireNew JerseyNew Mexico
New YorkOregonPennsylvania
Rhode IslandTexasVermont

But, how can bankruptcy exemptions help me with bankruptcy and keep my house? Let's continue how you can keep your home and car when filing bankruptcy.

Can I File Bankruptcy and Keep My House and Car?

Many people can keep their house and car when filing bankruptcy, but you need to understand the bankruptcy exemptions. See the bankruptcy exemptions calculator below to estimate whether you can keep your house and car.

You calculate the net equity in your home by subtracting your mortgage payoff and the total of other valid liens filed against the house title from the current fair market value of the home. 

For example, if your home is worth $100,000 and you owe $80,000 on your mortgage, the net equity in your home equals $20,000. However, if you apply the federal bankruptcy exemption for homes of $25,150, your home’s equity is protected from unsecured creditors if you file for bankruptcy relief. Remember, for married couples, the homestead exemption doubles if both debtors are on the title to the home and file a joint bankruptcy petition.

Your bankruptcy attorney carefully analyzes your property against the available bankruptcy exemptions before you file for Chapter 7 or Chapter 13. If there is a risk that you could lose property by filing bankruptcy, your attorney discusses the risk with you so that you can make an informed decision on how to proceed. In some cases, you might have alternatives to filing bankruptcy to get rid of debt. 

So if you are a senior and looking to file bankruptcy, you may have some additional things to help keep your home. For example, retirement income is generally untouchable in bankruptcy, and many retirees can avoid losing their homes by using the homestead exemption.

What if I Have Too Much Equity in My House?

You may still be able to keep your house, but let's cover how that process works.

You still have options. The amount of equity above the exemption is in question. You also have other options. To help people understand this scenario and the scenario when equity is below the limit, we built the following debt relief options comparison calculator to help you understand the different options, costs of those options, and pros and cons.

In this scenario, you may look at filing a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy in order to keep your home. The important aspect of a Chapter 13 bankruptcy is the monthly cost to you. We also built the following free Chapter 13 calculator based on the official US bankruptcy forms to help you estimate your monthly cost in a Chapter 13 bankruptcy.

Why Do Some People Lose Their Home When They File Bankruptcy?

There are a few cases in which a person might lose their home when they file bankruptcy. For example, filing bankruptcy does not discharge the secured lien a mortgage creates on your home’s title. Therefore, if you cannot afford to pay your mortgage payments, you may need to surrender your home in bankruptcy. 

However, surrendering your home is not always a negative thing. If you cannot afford your home, surrendering your home through a bankruptcy case avoids a deficiency judgment. 

The money owed if a foreclosure sale does not pay the mortgage in full is called a deficiency. A deficiency judgment can follow you even after a foreclosure sale if you didn’t file bankruptcy. In other words, you could owe the mortgage company more money even though it took your home. Filing bankruptcy gets rid of or avoids deficiency judgments.

Another example of losing a home in bankruptcy would be in cases in which the bankruptcy exemptions do not cover all equity in the home. A Chapter 7 bankruptcy trustee could sell the house and use the equity not protected by exemptions to pay unsecured creditors. The Chapter 7 trustee pays the mortgage debt in full, followed by payment of the homestead exemption to the debtors, and the remaining proceeds pay unsecured creditors. 

Will I Lose My House if I File Chapter 13?

If the net equity in your home exceeds the maximum bankruptcy exemption or you are behind on mortgage payments, filing Chapter 13 could save your home from foreclosure. 

A Chapter 13 bankruptcy is a reorganization. You repay some of your debts through a Chapter 13 bankruptcy plan. In your bankruptcy plan, you can catch up on past-due mortgage payments over time, allowing you to keep your home in bankruptcy. Also, Chapter 13 allows you to pay an additional amount to your unsecured creditors if your homestead exemption exceeds the maximum bankruptcy exemption. By paying a little extra each month through your bankruptcy plan, you keep your home. You may want to continue to make your payments throughout the plan. For example, if you stop making mortgage payments, the stay may be lifted and your creditors may try to collect on that debt.

Will I Lose My Home If I Am Currently Behind on My Mortgage?

Not necessarily. You should consider reading our lengthy guide covering, "Does Bankruptcy Stop Foreclosure". This article shows how your home is treated in the instance where you are currently behind payments on your mortgage.

In addition to keeping my house, what are the costs and pros and cons of bankruptcy?

There are other pros and cons of bankruptcy that you may be interested to review before deciding upon bankruptcy.

Ascend believes that you should compare all your debt relief options before choosing one specific option. Whether you have too much equity or too little equity in your home, you should consider taking the free debt relief options calculator to help you compare your options, the costs of those options, and the pros and cons to make the most informed decision.