Can I Keep My Home in Chapter 7 Bankruptcy?

Whether you can keep your home in Chapter 7 bankruptcy will depend on several factors, including:

• the amount of equity you have in the home
• the homestead exemption available to you, and
• whether you are current on your mortgage.

Even if you won't lose your home in bankruptcy, you should consider whether you can afford your home in the long run. If not, you'd likely come out ahead for credit reporting and tax purposes to surrender your home in bankruptcy rather than lose it later to foreclosure.

Protecting Equity With the Homestead Exemption in Chapter 7

You can keep your home in Chapter 7 bankruptcy if you don't have any equity in your home, or the homestead exemption covers all of your equity.

Figure out the equity amount. You can determine the amount of equity in your home by subtracting all home mortgages and liens from your home's "current market value" or what it would sell for today. A positive number is your equity amount. You'll need to protect the equity with a homestead exemption (your state might let you use a "wildcard" exemption to protect home equity, too).

If you get a negative number, you owe more than what your home is worth and don't have any equity. You won't lose your home through bankruptcy if you meet other requirements, such as staying current on the monthly payment.

Find the homestead exemption. Homestead exemptions protect a certain amount of equity from the reach of the bankruptcy trustee. Most states protect at least some equity in your primary residence. A few states protect your entire home, regardless of how much equity you have. The federal exemptions protect up to $27,900 (double that if you are married and file jointly) in your primary residence. This amount applies to bankruptcy cases filed between April 1, 2022, and March 31, 2025. Find the most recent federal bankruptcy exemption figures.

Do the math. Compare your home equity to your applicable homestead exemption. If the homestead exemption covers all of your equity, you get to keep your home. If you have equity left over after applying the homestead exemption, you risk losing your home.

If the difference is small, the trustee might decide it's not worthwhile to sell your home, especially if the costs of sale will eat up any remaining equity. Or, you might be able to use part of another exemption, such as a wildcard exemption, to tip the equity-homestead balance in your favor.

Another option is to pay the trustee for the nonexempt equity or give up some nonexempt property to keep your home. You'll find more information in Your Home in Bankruptcy: The Homestead Exemption.

Chapter 7 Won't Help You Keep a Home If You're Behind on the Mortgage

If you are in arrears or facing foreclosure, Chapter 7 won't allow you to catch up on the mortgage and keep the house the way a Chapter 13 bankruptcy would. So, unless you can negotiate something with your lender independent from bankruptcy, preferably before filing because lenders aren't under an obligation to negotiate with you in bankruptcy, you will most likely lose your home. Here's why.

When you complete a Chapter 7 bankruptcy, your qualifying debts get discharged, including your mortgage debt. However, even though you won't be liable for your mortgage, the lender will still have a lien against the property because Chapter 7 bankruptcy does not get rid of mortgage liens. So, if you stop paying your mortgage, the lender is legally allowed to foreclose on your property.

Find out how Chapter 13 can help you keep your home.

The Automatic Stay Provides Temporary Relief

The automatic stay prevents your lender from continuing with foreclosure proceedings when you file for bankruptcy. However, it's often temporary in Chapter 7 bankruptcy.

Your lender can ask the court to remove the stay to continue with the foreclosure. The court is likely to do so if you are behind in your payments and will lose your home eventually.

HOA Dues and Chapter 7

Continue paying all of your HOA dues, including any amounts you were behind on when you filed for bankruptcy. Even though you can discharge your personal liability for any HOA dues owed before your filing date, the HOA will typically still have a lien on your home. The HOA can foreclose on your home if you fail to pay your arrearages, just as your lender can foreclose if you don't pay your mortgage.

If you surrender your house in your Chapter 7 bankruptcy, your discharge will eliminate your personal liability for any unpaid HOA fees due as of your filing date. But it won't wipe out any dues that accrue after you file your case. You'll be on the hook for any HOA fees that come due after your filing date until the lender sells your house at a foreclosure sale, and you are no longer the legal owner of the property.

Unless the outstanding HOA dues are paid off through the foreclosure sale, the HOA can come after you to collect any unpaid dues that have accrued after you filed for Chapter 7 bankruptcy (even if you have already surrendered the house). Unfortunately, many homeowners find this out by way of a lawsuit filed long after they have moved out of the property.

Example. Caroline moved out of her home on January 1, 2020, and filed for Chapter 7 bankruptcy on February 15, 2020, stating her intention to surrender the property in her petition. Although she received her discharge on May 15, 2020, the bank doesn't foreclose on and sell her house until June 15, 2020. Caroline will be on the hook for any HOA fees that come due between her bankruptcy filing date of February 15 and the foreclosure sale on June 15. Unless those fees are paid off by the foreclosure proceeds, the HOA can sue her to collect them.

Avoiding Liability for HOA Dues After Bankruptcy

If you want to avoid any potential liability for outstanding HOA dues after filing for bankruptcy, consider:

• selling your house as a short sale before filing for bankruptcy
• negotiating with the HOA to waive any fees that come due after you surrender the property, or
• waiting to file your bankruptcy case until your mortgage lender or HOA has already foreclosed on the property.

Other Ways Chapter 7 Can Help Save Your Home

If you are current on your mortgage but making payments is a struggle, Chapter 7 can get rid of other debt, leaving you more money to devote to your house payments.

Learn more about what happens to your home in bankruptcy in Your Home in Bankruptcy.

Updated April 8, 2022