What happens if you file bankruptcy and own a house?

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Filing for bankruptcy can be a difficult decision to make, especially if you own a house. It is important to understand what happens to your house when you file for bankruptcy and how it can impact your financial situation. In this article, we will explore the various scenarios that may occur when you file bankruptcy and own a house.

Types of Bankruptcy

Chapter 7 Bankruptcy: In a Chapter 7 bankruptcy, also known as liquidation bankruptcy, non-exempt assets are sold to repay creditors. If you own a house with significant equity, it may be sold to pay off your debts. However, each state has different exemption laws that determine what portion of your home’s equity is protected.

Chapter 13 Bankruptcy: Chapter 13 bankruptcy, also known as reorganization bankruptcy, allows you to keep your assets while creating a repayment plan to pay off your debts over a period of three to five years. If you own a house, you can include your mortgage arrears in the repayment plan, allowing you to catch up on missed payments.

Homestead Exemption

The homestead exemption is a crucial factor to consider when filing bankruptcy and owning a house. This exemption protects a certain amount of equity in your primary residence from being seized by creditors. The exemption amount varies by state, so it is important to consult the specific laws in your jurisdiction.

If your home’s equity is within the allowed exemption amount, you can typically keep your house during bankruptcy proceedings. However, if the equity exceeds the exemption limit, the bankruptcy trustee may sell your house to repay your creditors.

Equity and Forced Sale

If your house has significant equity that exceeds the exemption limit, you may be concerned about the possibility of a forced sale. In this scenario, the bankruptcy trustee may sell your house to pay off your debts. However, it is important to note that the trustee will typically only sell your house if there is enough equity to make it worthwhile for creditors.

If your house does have substantial equity, you may have the option to buy back the equity from the trustee or negotiate a repayment plan to keep your home. It is advisable to consult with a bankruptcy attorney to explore your options and determine the best course of action.

Effect on Mortgage Payments

Filing for bankruptcy does not automatically eliminate your mortgage obligations. If you want to keep your house, you will need to continue making regular mortgage payments. However, if you are struggling to make these payments, Chapter 13 bankruptcy can provide a solution by allowing you to include mortgage arrears in your repayment plan.

By including mortgage arrears in your repayment plan, you can catch up on missed payments over the course of the bankruptcy period. This can help you avoid foreclosure and keep your house.


Filing for bankruptcy when you own a house can have significant implications for your financial situation. The outcome will depend on the type of bankruptcy you file, the equity in your home, and the exemption laws in your state. It is crucial to consult with a bankruptcy attorney to understand your options and navigate the process effectively.


– United States Courts: www.uscourts.gov
– Investopedia: www.investopedia.com
– Legal Information Institute: www.law.cornell.edu