Can you keep your house if you file for bankruptcy?

In many cases, yes. In Chapter 7, you keep your house if your equity is within your state's homestead exemption. In Chapter 13, you almost always keep your house because it's a repayment plan, not a liquidation. You must continue making mortgage payments in both chapters.

What happens to my mortgage if I file for bankruptcy?

Bankruptcy doesn't eliminate your mortgage (it's a secured debt). In Chapter 7, you can reaffirm the debt and keep paying, or surrender the home. In Chapter 13, you can catch up on missed payments over 3-5 years while keeping the home. Either way, the mortgage stays unless you choose to surrender.

Will I lose my house in Chapter 7?

Only if your home equity exceeds your state's homestead exemption. If your equity is within the exemption, the trustee can't sell your home. Many states have generous homestead exemptions ($100,000-$600,000+), and some states (Texas, Florida, Kansas, Iowa, Oklahoma, South Dakota) have unlimited homestead exemptions.

What Happens to Your House in Bankruptcy?

Most people keep their house in bankruptcy — especially in Chapter 13. In Chapter 7, the homestead exemption protects a set amount of equity. If your equity is within the limit, the trustee can’t touch your home.

Chapter 7 vs. Chapter 13: Your House

Factor	Chapter 7	Chapter 13
Keep your house?	If equity within exemption	Almost always yes
Continue mortgage payments?	Must keep current	Can catch up over 3-5 years
Behind on payments?	Must be current or catch up	Catch up through plan
Second mortgage/HELOC	Remains	Can sometimes be stripped if underwater
Trustee can sell?	Only if non-exempt equity exists	No — it’s a repayment plan

Homestead Exemptions by State (Selected)

State	Homestead Exemption
Texas	Unlimited (up to 10 acres urban, 100 acres rural)
Florida	Unlimited (up to ½ acre in city, 160 acres rural)
Kansas	Unlimited (up to 1 acre urban, 160 acres rural)
Iowa	Unlimited (up to ½ acre urban)
Oklahoma	Unlimited (up to 1 acre urban, 160 acres rural)
California (System 1)	$300,000-$600,000 (varies by county)
California (System 2)	~$32,000
New York	$179,950-$399,975 (varies by county)
Illinois	$15,000
New Jersey	$0 (no state homestead exemption)
Federal exemption	$27,900

How Equity Is Calculated

Item	Amount
Home value (fair market value)	$350,000
Minus: mortgage balance	-$275,000
Minus: HELOC/second mortgage	-$25,000
Your equity	$50,000

If Your Exemption Is…	Result
$50,000 or more	✅ Keep your house — fully exempt
Less than $50,000	⚠️ Trustee may sell; you’d get the exempt amount

Chapter 7: Three Options for Your House

Option	How It Works	When to Choose
Reaffirm the debt	Sign new agreement to keep paying mortgage	Equity is exempt; want to keep the home
Redeem	Pay the home’s current market value in a lump sum	Only if home is worth less than mortgage
Surrender	Give up the home; remaining mortgage debt discharged	Can’t afford payments or want a fresh start

Chapter 13: Catch Up on Missed Payments

Situation	Chapter 13 Solution
6 months behind on mortgage	Spread $12,000 arrears over 3-5 year plan (~$200-$333/month extra)
Facing foreclosure	Automatic stay stops foreclosure immediately
Second mortgage (house underwater)	May be able to “strip” second lien if no equity
Property tax arrears	Paid through the plan
HOA arrears	Paid through the plan

Example: $2,000/month mortgage, 8 months behind ($16,000):

Without Chapter 13	With Chapter 13
Foreclosure likely	Foreclosure stopped
Must pay $16,000 immediately	Spread $16,000 over 60 months ($267/month)
Lose home	Keep home
Total monthly: $18,000 (impossible)	Total monthly: $2,267 (manageable)

What Happens to Your Home Equity

Equity	Chapter 7	Chapter 13
Within exemption	Protected — keep home	Protected — keep home
Above exemption	Trustee may sell to pay creditors	Protected — pay through plan
No equity / underwater	Surrender option makes sense	Strip second lien if applicable

The Bottom Line

Most homeowners keep their house in bankruptcy. Chapter 13 is designed for exactly this — catching up on missed payments while keeping your home. In Chapter 7, the homestead exemption protects your equity. If you’re in Texas, Florida, Kansas, Iowa, or Oklahoma, the exemption is unlimited. Even in states with lower exemptions, many homeowners’ equity falls within the protected amount. If keeping your home is the priority, Chapter 13 is almost always the better choice.

Written by WealthVieu

WealthVieu researches and writes data-driven personal finance guides using primary sources including the IRS, Bureau of Labor Statistics, Federal Reserve, and Census Bureau.

The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy