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.
Related: What Happens When You File for Bankruptcy? | What Happens to Your Car in Bankruptcy?