Will I Lose My House in Bankruptcy?

Losing the house is the fear that keeps people out of bankruptcy court long after they should have talked to someone. The honest answer is that a home is lost in bankruptcy in only two situations, and both are visible in advance. Either the equity is larger than the exemption that protects it, or the mortgage is behind and the filer chose a chapter that cannot catch it up.

Key points

• Equity is the home's value minus every mortgage and lien on it. That is the only number the trustee cares about.
• The federal homestead exemption is $31,575 per filer for cases filed April 1, 2025 through March 31, 2028. It is doubled for a joint filing. Most states require their own homestead exemption instead, and those range from a few thousand dollars to unlimited.
• Chapter 7 does not cure a mortgage default. Chapter 13 does, by spreading the arrears over the plan.
• Section 522(p) caps a state homestead exemption at $214,000 for equity acquired in the 1,215 days before filing, unless the equity rolled over from a prior home in the same state.
• Nobody sells a house in bankruptcy without a trustee, a hearing, and a chance to respond. There are no surprise sales.

Chapter 7: the equity-versus-exemption test

Three numbers decide it:

1. Current market value

   What the house would sell for now, in its actual condition. Trustees may order a broker's opinion if the scheduled value looks low. Online estimates are a starting point, not evidence.

2. Every lien against it

   First mortgage, second mortgage, HELOC, recorded tax liens, judgment liens. All of them reduce equity. Some judgment liens can be avoided under §522(f) to the extent they impair the exemption, which can turn a non-exempt house into an exempt one.

3. The homestead exemption that applies

   Which set of exemptions applies depends on where the filer has lived for the 730 days before filing, under §522(b)(3)(A). The state guides cover the homestead figure and the statute for each of the 20 states researched so far. Texas and Florida protect unlimited equity in a qualifying homestead; some states protect very little.

Selling costs matter too. A trustee who would net only a few thousand dollars after a realtor's commission, closing costs, and the exempt payout will usually abandon the house under §554 rather than sell it. The U.S. Courts note that most individual Chapter 7 cases end with a no-asset report, and homes with modest equity are a large part of the reason.

The §522(p) cap on recent equity

One rule trips up people who moved or paid down a mortgage aggressively before filing. Section 522(p) says that a filer using state exemptions may not exempt more than $214,000 of interest in a homestead that was acquired during the 1,215 days (about three years and four months) before filing. Two carve-outs matter:

• Equity moved from a previous principal residence in the same state does not count, as long as the earlier home was bought before the 1,215-day window began.
• The cap does not apply to a family farmer's principal residence.

The $214,000 figure was set by the same January 30, 2025 Judicial Conference notice that adjusted the federal exemptions, effective April 1, 2025. The cap only bites in states with a large or unlimited homestead exemption; in states with a small exemption it never comes into play.

Chapter 7 does not fix a mortgage that is behind

The automatic stay pauses a foreclosure the moment the case is filed. In Chapter 7, that pause is temporary. The lender can ask the court to lift the stay, and after the discharge the stay ends on its own. A Chapter 7 discharge removes personal liability on the mortgage note, but the lien stays on the house, and the lender can still foreclose on the property if payments are not made.

So Chapter 7 keeps a house when the equity is exempt and the mortgage is current or can be made current quickly. It does not keep a house that is several payments behind with no way to catch up. For that, the tool is Chapter 13.

Chapter 13: curing the arrears through the plan

The mechanics:

• The plan runs three to five years. Under §1322(d), the maximum is five years. The arrears are divided across the plan months and paid through the Chapter 13 trustee.
• New payments continue. The regular monthly mortgage payment resumes right away. Falling behind again during the plan is the most common reason these cases fail.
• The mortgage itself is not rewritten. Section 1322(b)(2) bars a plan from modifying a claim secured only by the filer's principal residence. The interest rate, balance, and term stay as they were. What the plan changes is the timing of the catch-up.
• Timing is everything. Because the cure right ends at the foreclosure sale, a Chapter 13 petition filed the day before the sale stops it; one filed the day after generally does not.

What a trustee sale actually looks like

When there is real non-exempt equity in Chapter 7, the process is slow and visible. The trustee hires a broker with court approval, lists the house, and eventually asks the court to approve a sale. The filer receives notice of each step and can object. From the sale proceeds, the trustee pays the mortgage, the closing costs, the exempt amount to the filer in cash, and then creditors.

Two things soften this. First, a filer who learns before filing that the equity is non-exempt can choose Chapter 13 instead and keep the house. Second, some trustees will accept a payment from the filer or a relative for the non-exempt equity instead of selling; that is a negotiation, not a right.

Common mistakes to avoid

• ✕Using an online estimate as the scheduled value without checking recent comparable sales. A low value that the trustee disproves creates a credibility problem.
• ✕Forgetting a HELOC, a recorded judgment lien, or a tax lien when computing equity. Each one lowers the equity the trustee can reach.
• ✕Assuming the state homestead exemption from a former state still applies. The 730-day domicile rule may point to the old state's law, or to the federal set.
• ✕Filing Chapter 7 with a mortgage two or three payments behind and no plan to catch up. The stay is temporary; the default is not cured.
• ✕Waiting until after the foreclosure sale to file Chapter 13. The cure right in §1322(c)(1) ends at the sale.
• ✕Deeding the house to a family member before filing. That is the kind of transfer trustees look for first.

Frequently asked questions

Will I lose my house if I file Chapter 7?

Usually not, if two things are true: the equity fits within the homestead exemption that applies in the filer's state, and the mortgage payments continue. The trustee sells a house only when the non-exempt equity is large enough to produce meaningful money for creditors after the lender, selling costs, and the filer's exempt share are paid.

What is the federal homestead exemption in 2026?

The federal homestead exemption in 11 U.S.C. §522(d)(1) is $31,575 for cases filed from April 1, 2025 through March 31, 2028, and a married couple filing jointly can generally claim twice that. Most states require filers to use the state homestead exemption instead. The state figures range from a few thousand dollars to unlimited.

Can I keep my house in Chapter 13 if I am behind on the mortgage?

Often, yes. Section 1322(b)(5) lets a Chapter 13 plan cure the missed payments over three to five years while the filer resumes regular monthly payments. The lender cannot foreclose while the plan is being performed. The cure right ends once the house is sold at a foreclosure sale, so timing the filing matters.

Does bankruptcy get rid of my mortgage?

A Chapter 7 discharge removes the filer's personal liability on the mortgage note, but the lender's lien on the house survives. The lender can still foreclose if payments stop; it just cannot pursue the filer for any shortfall. Chapter 13 cannot change the terms of a first mortgage on a principal residence under §1322(b)(2), though it can cure arrears.

What is the 1,215-day rule for the homestead exemption?

Under §522(p), a filer using state exemptions cannot exempt more than $214,000 of interest in a home acquired during the 1,215 days before filing. Equity carried over from a previous home in the same state does not count against the cap. The rule matters mainly in states with large or unlimited homestead exemptions.

Can the trustee sell my house if it has some non-exempt equity?

The trustee can, but often does not when the non-exempt amount is small. Realtor commissions, closing costs, and the exempt payout come off the top, and a trustee who would net little for creditors typically abandons the property under §554. When the equity is substantial, a sale is likely, and Chapter 13 is usually the way to keep the house.

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