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How to File for Bankruptcy and Keep Your House
How to File for Bankruptcy and Keep Your House: What You Need to Know How to file for bankruptcy and
July 21, 2025
How to File for Bankruptcy and Keep Your House
How to File for Bankruptcy and Keep Your House: What You Need to Know
How to file for bankruptcy and keep your house is a common concern for many homeowners struggling with overwhelming debt. The good news is that, depending on your financial situation, it’s often possible to protect your home during the bankruptcy process. You’ll need to understand which type of bankruptcy to file, how homestead exemptions work, and what legal protections are available.
This guide breaks down everything you need to know to make informed choices and avoid losing your home.
Understanding Bankruptcy Basics and Homeownership
What Bankruptcy Can and Can’t Do
Bankruptcy is a legal tool designed to help individuals and families eliminate or restructure debt. It doesn’t erase all types of debt, but it can temporarily halt aggressive collections, wage garnishments, and foreclosures through a legal stay. When considering how to file for bankruptcy and keep your house, it’s important to understand how your mortgage fits into your overall debt picture.
Secured debts, like your home loan, are tied to a specific asset—your house. If you stop paying, the lender can foreclose, even during bankruptcy in some cases. But certain filings and protections allow you to stop or delay that process.
Your Home as a Secured Asset
Since your mortgage is a secured debt, bankruptcy won’t automatically wipe it out. However, it can help you catch up on past-due payments or reorganize your debt through a court-approved plan. Whether you keep your house depends on your ability to continue payments, the amount of equity in your home, and the bankruptcy chapter you choose.
Chapter 7 vs. Chapter 13 — Which One Helps You Keep Your Home?
Choosing the right type of bankruptcy is a key factor in how to file for bankruptcy and keep your house. Let’s explore the differences.
Chapter 7 Bankruptcy
Chapter 7 is known as a liquidation bankruptcy. If you qualify, it allows you to wipe out unsecured debts like credit cards and medical bills. However, if you have significant equity in your home that exceeds your state’s exemption limit, the bankruptcy trustee could sell the property to pay creditors. That’s why Chapter 7 isn’t always ideal for those wanting to keep their home.
Still, many homeowners can retain their homes in Chapter 7 if:
- They are current on their mortgage
- Their home equity is within the protected exemption amount
- They continue to make payments on time after filing
Chapter 13 Bankruptcy
Chapter 13 is often the preferred route for homeowners looking to retain their property. This type of bankruptcy allows you to repay all or part of your debts over a 3- to 5-year period through a structured repayment plan.
Advantages of Chapter 13 for homeowners:
- Stops foreclosure through an automatic stay
- Let’s you catch up on missed mortgage payments
- Allows you to keep your home if you follow the repayment plan
If you’ve fallen behind on your mortgage but want to keep your house, Chapter 13 is usually the more effective option.
Using Homestead Exemptions to Protect Equity
One of the most important elements in how to file for bankruptcy and keep your house is understanding your state’s homestead exemption laws.
What Is a Homestead Exemption?
A homestead exemption is a legal provision that protects a certain amount of home equity from being used to pay off creditors in bankruptcy. It ensures that, even in Chapter 7, you may keep your home if its equity is below the exempted amount.
Federal vs. State Exemptions
Some states allow you to choose between the federal exemption system and your state’s exemptions, while others require you to use the state’s rules.
For example:
- Federal exemption (2025): Up to $27,900 of equity per person
- California (System 1): Up to $678,391 based on home value and county median
- Texas and Florida: Unlimited homestead exemption (with some conditions)
Check your specific state laws or consult a bankruptcy professional to determine which exemption protects your property best.
When to File for Bankruptcy to Protect Your Home
Timing Is Critical
If you’re struggling financially, knowing how to file for bankruptcy and keep your house is only part of the equation—when to file is just as important. Filing too early or too late can change the outcome.
For example:
- If you’re behind on your mortgage and foreclosure is imminent, filing for bankruptcy before the sale can trigger an automatic stay, halting the foreclosure process.
- If you wait too long and the foreclosure is finalized before you file, bankruptcy won’t help you get your house back.
Act quickly if you’re receiving foreclosure notices or if your lender has scheduled a sale date.
Indicators It Might Be Time to File
You might consider filing for bankruptcy when:
- You’ve missed multiple mortgage payments
- Your lender has started or threatened foreclosure
- You’re unable to catch up using your current income
- You have overwhelming unsecured debt that makes mortgage payments impossible
In these cases, bankruptcy can create breathing room, halt legal actions, and help you work toward stability.
Key Steps in How to File for Bankruptcy and Keep Your House
Once you’ve decided to move forward, here’s what the process generally looks like:
Review Your Finances
List all sources of income, debt obligations, property value, and assets. Knowing your home’s equity is critical to determine if it can be protected.
Choose the Right Bankruptcy Chapter
If you’re current on your mortgage and have limited equity, Chapter 7 might work. If you’re behind and need to catch up over time, Chapter 13 is likely better for protecting your home.
Complete Mandatory Credit Counseling
Before filing, you must take an approved credit counseling course. This is required for both Chapter 7 and Chapter 13 filings.
File Bankruptcy Forms
You’ll submit a petition with the bankruptcy court, listing all assets, debts, income, expenses, and property exemptions.
Attend the 341 Meeting of Creditors
This mandatory hearing allows creditors and the trustee to ask questions about your finances. It’s generally brief and straightforward.
Follow Your Repayment Plan (for Chapter 13)
If you’re filing Chapter 13, your court-approved plan will outline how you’ll pay back certain debts, including overdue mortgage payments, over 3–5 years.
Mistakes That Can Risk Your Home in Bankruptcy
Understanding how to file for bankruptcy and keep your house also means knowing what not to do. These common mistakes can put your home at risk:
- Transferring property before filing: Courts may consider this an attempt to hide assets.
- Failing to list your home properly: Incomplete or inaccurate paperwork can lead to the denial of exemption claims.
- Filing without understanding your state’s exemption laws: You might miss critical protections.
- Choosing the wrong chapter: Filing Chapter 7 when you’re behind on payments can still result in foreclosure.
Always seek guidance from a legal professional if you’re unsure how to proceed.
Strategic Tools to Help Keep Your Home
In addition to exemptions and repayment plans, there are other legal tools that support your effort to keep your house during bankruptcy.
Mortgage Modification
Some courts allow you to pursue a mortgage modification during Chapter 13, giving you the opportunity to renegotiate payment terms or reduce interest rates.
Lien Stripping
If your home has a second mortgage or home equity line of credit (HELOC) that’s fully unsecured, you may be able to eliminate that lien in Chapter 13—freeing up equity and reducing your overall obligations.
Automatic Stay Protection
The automatic stay is one of the most powerful tools. It immediately halts creditor actions, including:
- Foreclosure
- Wage garnishment
- Utility disconnections
This gives you time to reorganize your finances and develop a strategy to retain your home.
Using State Homestead Exemptions to Keep Your Home
Understanding how to file for bankruptcy and keep your house means understanding your rights under the homestead exemption. This key protection allows you to shield a certain amount of your home’s equity from creditors when filing for bankruptcy.
What Is a Homestead Exemption?
A homestead exemption is a legal provision that protects a homeowner’s primary residence from being sold to pay off unsecured debts in bankruptcy. It doesn’t eliminate mortgage obligations, but helps you keep your house by making it less appealing to creditors or trustees.
Each state sets its own exemption limit. For example:
- Texas and Florida have unlimited homestead exemptions (with some acreage limits).
- California offers a range between approximately $300,000 to $600,000, depending on the median home value in your county.
- States like New York and Illinois also have high exemption caps, while others are more modest.
Some states allow you to choose between federal and state exemptions, and the better option often depends on your home equity and other personal property.
How It Works in Chapter 7
In a Chapter 7 bankruptcy, the court assigns a trustee to liquidate non-exempt assets to repay creditors. If your equity in the home is below the homestead exemption limit, the trustee will usually leave your home alone.
If your equity exceeds the exemption, the trustee may try to sell the property and give you the exempted portion while using the rest to pay creditors.
To keep your home in Chapter 7:
- Your mortgage must be current.
- Your equity must be fully covered by the exemption.
- You must remain current on property taxes and HOA dues.
How It Works in Chapter 13
In Chapter 13 bankruptcy, the homestead exemption helps reduce how much you must repay to unsecured creditors. You don’t risk losing your home as long as you:
- Include mortgage arrears in your repayment plan.
- Stay current on mortgage payments moving forward.
- Comply with the terms of your 3- to 5-year plan.
This chapter is especially helpful if you have more equity than your exemption allows—you won’t lose your house, but you’ll repay more through the structured plan.
Why It Matters
Knowing your homestead exemption is essential to successfully filing bankruptcy while keeping your home. It’s not just about choosing the right chapter—it’s about understanding how to apply these laws strategically. An experienced bankruptcy attorney can review your state’s exemptions, calculate your equity, and recommend the best course to protect your home and finances.
How to File for Bankruptcy and Keep Your House: Key Takeaway
Bankruptcy doesn’t always mean losing everything. Understanding how to file for bankruptcy and keep your house can be the key to gaining financial control while preserving your most important asset—your home.
Whether you choose Chapter 7 or Chapter 13, timing, exemption laws, and filing strategy are crucial. With proper planning and the right support, you can discharge debts, stop foreclosure, and remain in your home as you rebuild your financial future.
Get Help with How to File for Bankruptcy and Keep Your House
If you’re asking how to file for bankruptcy and keep your house, you’re not alone, and the decision can feel overwhelming. But you don’t have to figure it out by yourself.
Speak with a trusted bankruptcy professional who can guide you through your options, protect your home, and help you move forward with confidence. Start with a free evaluation today and learn how the right filing strategy can help you keep your home and get a fresh financial start.
Frequently Asked Questions (FAQs)
1. Can I file Chapter 7 bankruptcy and still keep my house?
Yes, if you’re current on payments and your equity is within your state’s exemption limits, you can keep your house in Chapter 7.
2. Does Chapter 13 bankruptcy stop foreclosure?
Yes. Filing Chapter 13 puts an automatic stay in place and allows you to catch up on mortgage payments through a 3–5 year repayment plan.
3. Will bankruptcy wipe out my mortgage?
No. Bankruptcy does not eliminate your mortgage. It helps you manage or catch up on payments, but doesn’t remove the debt unless the home is surrendered.
4. Can I file for bankruptcy and keep my home if I have equity?
It depends on how much equity you have and your state’s homestead exemption. If your equity exceeds the exemption, the trustee might sell the property in Chapter 7. Chapter 13 may be a better option.
5. What is a homestead exemption?
A homestead exemption is a legal provision that protects a certain amount of home equity from creditors during bankruptcy. Each state has different limits.
Key Takeaways
- Bankruptcy laws allow many homeowners to keep their property while resolving debt.
- Chapter 7 may work if you’re current on your mortgage and your equity is protected.
- Chapter 13 helps you catch up on missed payments and avoid foreclosure.
- Timing, exemption laws, and accurate filings are essential to success.
- Professional legal guidance ensures you choose the right path for your situation.
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