If you file for bankruptcy what happens to your house?

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When facing financial difficulties, individuals may consider filing for bankruptcy as a way to alleviate their debt burden. However, a common concern for homeowners is what happens to their house if they file for bankruptcy. In this article, we will explore the various scenarios and potential outcomes related to homeownership and bankruptcy.

Home Equity and Bankruptcy

Equity: Before delving into the impact of bankruptcy on a house, it is important to understand the concept of equity. Equity refers to the value of a property minus any outstanding mortgage or liens. For example, if a house is valued at $300,000 and there is a mortgage of $200,000, the equity would be $100,000.

Chapter 7 Bankruptcy: In a Chapter 7 bankruptcy, the debtor’s non-exempt assets are liquidated to pay off creditors. However, exemptions exist to protect certain assets, including a primary residence. The amount of equity that can be protected varies depending on the state’s laws. If the equity in the house exceeds the exemption limit, the trustee may sell the property to satisfy the debts.

Chapter 13 Bankruptcy: Chapter 13 bankruptcy involves creating a repayment plan to pay off creditors over a period of three to five years. Unlike Chapter 7, Chapter 13 allows debtors to keep their assets, including their house. However, the debtor must continue making mortgage payments and fulfill the terms of the repayment plan.

Exemptions and Homestead Laws

Homestead Exemption: Homestead exemption laws vary by state and provide protection for a certain amount of equity in a primary residence. These laws are designed to prevent homeowners from losing their homes in bankruptcy. The exemption amount can range from a few thousand dollars to several hundred thousand dollars, depending on the state.

Non-Homestead Exemption: In some cases, individuals may have a second property or investment property that is not protected under the homestead exemption. In these situations, the property may be subject to liquidation by the bankruptcy trustee.

Foreclosure and Bankruptcy

Preventing Foreclosure: Filing for bankruptcy can temporarily halt foreclosure proceedings through an automatic stay. The automatic stay prevents creditors from pursuing collection actions, including foreclosure, while the bankruptcy case is active. This provides homeowners with additional time to address their financial situation.

Chapter 7 and Foreclosure: If a homeowner is already facing foreclosure when they file for Chapter 7 bankruptcy, the automatic stay will only provide temporary relief. Once the bankruptcy case is closed, the lender can resume the foreclosure process.

Chapter 13 and Foreclosure: Chapter 13 bankruptcy can be an effective tool for homeowners to prevent foreclosure and catch up on missed mortgage payments. The repayment plan allows debtors to make regular mortgage payments while also paying off arrears over the course of the plan.


In conclusion, the impact of filing for bankruptcy on a house depends on various factors, including the type of bankruptcy, the amount of equity, and the state’s exemption laws. While Chapter 7 may put a homeowner’s house at risk if the equity exceeds the exemption limit, Chapter 13 provides an opportunity to keep the house and catch up on missed mortgage payments. It is important for individuals considering bankruptcy to consult with a qualified bankruptcy attorney to understand their specific situation and the potential consequences for their house.


– Nolo: www.nolo.com
– United States Courts: www.uscourts.gov
– Investopedia: www.investopedia.com