Can I Keep My House in Bankruptcy? Homestead Exemption

The Two Numbers That Determine Whether You Keep Your Home

When you file bankruptcy, a Chapter 7 trustee reviews your assets for anything that can be sold to pay creditors. Your home is your largest asset but it is not automatically at risk. The trustee can only sell your home if proceeds would benefit creditors after paying off the mortgage and your homestead exemption. If those two items consume all the equity, the trustee abandons the asset.

The homestead exemption is the legal shield that protects your home equity in bankruptcy. Every state has one, but amounts vary from a few thousand dollars to unlimited protection in Florida, Texas, Iowa, Kansas, Oklahoma, and South Dakota. The federal exemption offers $27,900 and many states allow you to choose whichever is higher. Married couples filing jointly can often double the exemption.

The calculation in plain terms: equity equals current market value minus all mortgage balances. If equity is below your state exemption, the home is protected. If equity exceeds the exemption, the at-risk amount is what a trustee could potentially claim. Trustees also account for transaction costs of 8-10 percent when deciding whether to pursue a sale, so many abandon properties even with modest at-risk equity.

See if your home equity is protected in your state

Enter your home value, mortgage balances, and state. The calculator applies your state homestead exemption, shows protected vs at-risk equity, and tells you whether Chapter 7 or Chapter 13 better protects your home.

Check My Home Protection

How to Evaluate Whether You Can Keep Your Home in Bankruptcy

1
Calculate your true home equity
Equity equals current market value minus all secured debts against the property: first mortgage, second mortgage, home equity loan, and any HELOC balance. Use current market value, not the purchase price. A defensible number from a professional CMA or appraisal will hold up if the trustee questions it. Subtract all mortgage balances. A $300,000 home with a $220,000 first mortgage and a $30,000 HELOC has $50,000 in equity, not $80,000.
2
Find your state homestead exemption
State exemptions vary dramatically. Examples: California up to $626,400; Massachusetts $800,000; Minnesota $480,000; Nevada $605,000; Ohio $161,375; New York $179,950; Texas and Florida are unlimited. Low-exemption states include Arkansas $2,500, Missouri $15,000, Virginia $25,000, and Indiana $19,300. Some states let you choose between state and federal exemptions ($27,900) and you take whichever is higher. The calculator includes all 50 states plus DC with current approximate figures.
3
Check whether joint filing doubles the exemption
In many states, married couples filing jointly can double the homestead exemption. If your state exemption is $35,000 and you file jointly, you may protect $70,000 in equity. States that allow doubling include Georgia, Illinois, Maine, Maryland, Michigan, Missouri, New Mexico, New York, North Carolina, Ohio, Oregon, South Carolina, Tennessee, Virginia, and Wisconsin. Federal exemptions always double for joint filers ($55,800). Confirm with an attorney whether your state allows doubling.
4
Calculate at-risk equity and choose your chapter
At-risk equity equals the maximum of zero or equity minus applied exemption. If at-risk equity is zero, Chapter 7 is safe and the trustee has no incentive to sell. If at-risk equity is greater than zero, Chapter 13 is the better path. In Chapter 13, you keep the home by paying the at-risk equity into the plan over 3 to 5 years. Chapter 13 also cures mortgage arrears. Chapter 7 is for homeowners whose equity is fully within the exemption and who are current on payments. Chapter 13 is for everyone else who owns a home.
5
Assess mortgage arrears separately
Mortgage arrears and the homestead exemption are separate issues. You could have fully protected equity but still lose the home in Chapter 7 if you are behind on payments. The automatic stay stops foreclosure temporarily but the lender will file for relief from stay after discharge and proceed. Chapter 13 stops foreclosure the moment you file and allows you to spread arrears over 36 to 60 months while making current payments going forward.
6
Consider lien stripping in Chapter 13
Chapter 13 offers lien stripping, which is unavailable in Chapter 7. If your home is worth less than the first mortgage balance, a second mortgage or HELOC is wholly unsecured. Chapter 13 allows you to reclassify the junior lien as unsecured debt and upon plan completion strip it permanently from the property. Example: Home value $220,000, first mortgage $230,000, HELOC $35,000. The HELOC is wholly unsecured and can be stripped, eliminating $35,000 in secured debt from the property.

Home and Bankruptcy Questions Answered

Will the bankruptcy trustee actually sell my home?

Only if financially worthwhile for creditors. Transaction costs for selling a home run 8 to 10 percent of sale price. If at-risk equity is less than approximately $10,000 to $15,000, most trustees abandon the asset as not worth pursuing. If at-risk equity is substantial, a trustee will act. This is why keeping equity within the exemption eliminates the risk entirely.

Can I keep my home in Chapter 7 if I am current on the mortgage?

Yes, if your equity is within the homestead exemption and you remain current on payments. To keep the home post-discharge you can reaffirm the mortgage, signing a new agreement that keeps you personally liable, or ride-through by continuing payments without reaffirming. Most jurisdictions allow the ride-through approach but lenders may not cooperate. An attorney can advise which approach makes sense for your lender and jurisdiction.

What if my home is worth less than the mortgage balance?

If you are underwater with no equity, the homestead exemption is irrelevant and a Chapter 7 trustee will simply abandon the asset. Your decision is then whether to keep the home. If yes, continue making payments and reaffirm or ride-through. If you want to walk away, Chapter 7 discharge eliminates personal liability for the mortgage deficiency though the lender will still foreclose to take back the property.

How does a bankruptcy trustee value my home?

Trustees use public records and recent comparable sales. You must list the value on bankruptcy schedules under oath. If you list a value where equity is within the exemption, trustees often accept it without challenge. If the trustee suspects significant equity, they may order an appraisal. Using a professional CMA or independent appraisal to support your listed value is the safest approach.

Can I buy a house after bankruptcy?

Yes. FHA loans allow purchase 2 years after Chapter 7 discharge with re-established credit. Conventional loans typically require 4 years. VA loans allow purchase 2 years after discharge. Chapter 13 filers can sometimes buy with court approval while in the plan or 2 years after discharge for FHA. Many Chapter 7 filers buy homes within 3 to 4 years of discharge, often with better financial footing than before bankruptcy.

Check whether your home is protected in your state

Enter your home value, mortgage balances, filing type, and state. See your protected equity, at-risk equity, and an estimated Chapter 13 plan payment if needed.