Keep Your House in Bankruptcy: Chapter 7 & 13 Guide

Many people who file bankruptcy keep their homes. You can too, depending on a few key factors.

Your ability to keep your house depends on three main things:

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Don't risk losing your home to Chapter 7 liquidation or foreclosure. Speak with a bankruptcy attorney today to understand your homestead exemption and explore Chapter 13 options.

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The type of bankruptcy you file
How much equity you have in your home
Whether you’re current on mortgage payments

Keeping Your Home in Chapter 7 Bankruptcy

Chapter 7 bankruptcy requires you to be current on mortgage payments. You’ll also need to check your state’s homestead exemption.

Every state protects a certain amount of home equity through its homestead exemption. Calculate your equity by subtracting what you owe from your home’s current market value.

Here’s what happens next:

If your equity falls below the exemption limit, you keep your home
If your equity exceeds the limit, the trustee may sell your house

When a trustee sells your home, they pay off the mortgage first. The remaining equity goes to creditors. You receive the exempted portion back.

Some states offer generous exemptions that fully protect your home. Others provide less protection. A bankruptcy attorney can help you understand your state’s rules.

When the Trustee Takes Your Home

The bankruptcy trustee takes your home when equity exceeds your homestead exemption. Chapter 7 is called liquidation bankruptcy for this reason.

Trustees sell non-exempt property to pay unsecured creditors. Your home’s safety depends on market value and protected equity.

Calculate non-exempt equity this way: Start with market value. Subtract your mortgage balance and homestead exemption. Any remaining equity goes to creditors.

Keeping Your Home in Chapter 13 Bankruptcy

Chapter 13 bankruptcy works differently than Chapter 7. Many people choose Chapter 13 when they’ve fallen behind on payments.

Chapter 13 includes a repayment plan lasting three to five years. You keep your home by maintaining current payments and following the plan.

Exemptions still matter in Chapter 13. They determine how much you repay to unsecured creditors. Unlike Chapter 7, the trustee won’t sell your property for excess equity. You’ll just pay more toward unsecured debts.

Behind on Mortgage Payments? Here Are Your Options

Falling behind on your mortgage doesn’t mean you’re out of options. Contact your lender first to discuss hardship programs.

Many mortgage companies offer foreclosure prevention programs:

Loan modification adjusts your mortgage terms to lower payments
Forbearance plans temporarily reduce or pause payments
Repayment plans spread overdue amounts over time

Bankruptcy can also help you catch up on payments.

Using Chapter 13 to Catch Up on Mortgage Payments

Chapter 13 bankruptcy works best for catching up on missed payments. You spread past-due amounts over your repayment plan while keeping current.

You get up to five years to catch up. Your monthly income must cover both plan payments and regular mortgage payments.

Chapter 7 doesn’t include a repayment plan. You can’t keep your home if you’re behind unless you catch up quickly. Lenders may proceed with foreclosure during or after your case.

Get legal advice from an experienced bankruptcy attorney if you have questions about protecting your home.

Mortgage Modification Mediation Programs

Many bankruptcy courts offer mortgage modification mediation programs. These programs help streamline the modification process for Chapter 13 filers.

The program can’t force your bank to modify your loan. But it makes the process easier through an online portal.

You submit required documents through the portal. The bank reviews everything to determine eligibility for modification programs.

If you don’t qualify, a mediation session is scheduled. A mediator helps you understand why you don’t qualify and what might change the outcome.

How Bankruptcy Makes Mortgage Payments Easier

Bankruptcy discharge eliminates most unsecured debts. Medical bills, credit card payments, and personal loans disappear.

Eliminating debt payments frees up money for your mortgage. You can focus on housing costs, utilities, and living expenses.

The automatic stay protects you from debt collectors immediately. You get breathing room to stabilize your finances.

Protecting your home during bankruptcy sets you up for a better financial future. Professional help increases your chances of success.

Bankruptcy Compared to Other Debt Relief Options

Bankruptcy provides powerful relief, but it’s not right for everyone. Explore all your options before deciding.

Other debt relief options include:

Budgeting with debt snowball or avalanche methods
Debt consolidation loans
Debt settlement negotiations
Debt management plans

Creating a Budget and Repayment Plan

Budgeting works when you have manageable debt levels. Commit to a debt repayment strategy to get back on track.

High-interest credit card debt over $10,000 often requires more than budgeting. Interest charges accumulate quickly, even with excellent budgeting skills.

Consolidating Your Debts

Debt consolidation doesn’t work for mortgage debt. But it can help with credit cards and other unsecured debts.

Consolidation loans combine multiple debts into one payment. You may get a lower interest rate, saving money over time.

The main drawback is credit requirements. You typically need good credit to qualify for favorable terms.

Avoid using home equity loans or HELOCs to pay unsecured debt. You’re converting unsecured debt into secured debt. Your home becomes collateral you could lose.

Settling Your Debts

Debt settlement doesn’t work for mortgages. But you can settle credit cards and medical bills.

Settlement requires access to a lump sum payment. Creditors accept less than you owe to close the account.

Debt settlement damages your credit score. You’ll need strong negotiation skills or professional help.

Debt Management Plans

Debt management plans don’t include mortgage debt or secured loans. But they work well for credit cards and unsecured debts.

DMPs are three to five-year repayment plans. A nonprofit credit counselor facilitates the plan and negotiates with creditors.

Counselors often reduce your interest rates. You pay less over time compared to minimum payments.

You’ll need to close accounts included in the plan. Your credit score may temporarily drop. Not all debt types qualify for DMPs.

Frequently Asked Questions

What is the homestead exemption in bankruptcy?

The homestead exemption protects a certain amount of equity in your primary residence during bankruptcy. Each state sets its own exemption amount. If your home equity is below this limit, you can keep your home in Chapter 7 bankruptcy as long as you stay current on payments.

How do I catch up on missed mortgage payments in Chapter 13 bankruptcy?

Chapter 13 bankruptcy lets you spread past-due mortgage payments over a three to five-year repayment plan. You must continue making current mortgage payments while catching up on arrears through the plan. Your income must be sufficient to cover both the plan payments and regular mortgage payments.

Can I file Chapter 7 bankruptcy if I'm behind on my mortgage?

You can file Chapter 7 while behind on your mortgage, but you typically can't keep your home unless you catch up quickly. Chapter 7 doesn't include a repayment plan for arrears. Your lender may proceed with foreclosure during or after bankruptcy if you remain behind on payments.

Can You File Bankruptcy and Keep Your House? What to Know