Can I Keep My Home in Chapter 7 Bankruptcy?

Several factors determine whether you can keep your home in Chapter 7 bankruptcy. To prevent the Chapter 7 trustee appointed to the case from selling your home, you must protect all the home equity with a homestead or wildcard exemption. To prevent the lender from foreclosing on your home, you must be current on your mortgage when you file and remain current after your bankruptcy case ends. Read on to learn what you must do to avoid losing your house in a Chapter 7 case.

Protecting Equity With Bankruptcy Exemptions in Chapter 7 Bankruptcy

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. If you can’t protect all home equity, the trustee will sell the house, pay the mortgage, give you the exemption amount, deduct sales costs and the trustee’s fee, and distribute the remaining proceeds to creditors.

Here are the steps to calculate whether bankruptcy exemptions fully cover your home.

Calculate the equity amount. You can determine your home's equity 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 your home is worth and have no equity. You won't lose your home through bankruptcy if you meet other requirements, such as staying current on the monthly payment. Learn more about filing for bankruptcy with home equity.

Determine the exemption amount. 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. Some states allow you to choose between state and federal bankruptcy exemptions, but you must select one set. If you have the option, you’ll want to choose the exemption scheme that protects the property most valuable to you. Find the most recent federal bankruptcy exemption figures.

Do the math. Compare your home equity to the available exemptions. You keep your home if the homestead and wildcard exemptions cover all your equity. If equity remains unprotected, you risk losing your home. If the difference is minimal and wouldn’t provide much to creditors after deducting sales costs and the trustee’s fee, the trustee might decide selling your home is not worthwhile.

Paying the Mortgage Before Filing Chapter 7 Bankruptcy

If you are in arrears or facing foreclosure when you file for Chapter 7, Chapter 7 won't do much other than give you a few months’ reprieve—possibly less. Although Chapter 7 will discharge your mortgage debt, the lender won’t lose the lien against the property. The lien gives the lender the right to legally foreclose your property if you aren’t current on the mortgage.

If you’re behind but you’d like to keep the house and Chapter 13 isn't an option (it's the better chapter to file when behind on a mortgage), it’s best to negotiate a workout plan with your lender before filing for bankruptcy. Lenders aren't required to work with you in Chapter 7, so if you don't make arrangements before filing, you will most likely lose your home. Here's why.

The automatic stay prevents your lender from continuing foreclosure proceedings when you file for bankruptcy. However, it's temporary. Your lender can ask the court to remove the stay to continue with the foreclosure, and the court will likely do so if you are behind in your payments. Even if the lender doesn’t file a motion asking the court to lift the stay, the lender can wait until after the Chapter 7 case ends to continue foreclosing.

Tip. If you’re uncertain whether you can afford your house payments after bankruptcy, consider surrendering your home or filing for bankruptcy after foreclosure. You'd do better financially to file for Chapter 7 after the lender takes ownership of the house because you can discharge all debts related to the home in bankruptcy. If you file for Chapter 7 before foreclosure, you might be left with obligations you could have otherwise eliminated in bankruptcy, like a foreclosure deficiency balance if the home sells for less than you owe and homeowner association fees.

Paying HOA Dues in Chapter 7 Bankruptcy

If you keep your home in Chapter 7, you’ll want to continue paying homeowner association ("HOA") dues, including those you were behind on when you filed. Even though you can discharge your personal liability for HOA dues owed before your filing date, the HOA will typically 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.

However, suppose you surrender your house in Chapter 7. Your discharge will eliminate your personal liability for any unpaid HOA fees due as of your filing date. But it won't eliminate any dues that accrue after you file your case. You’ll remain responsible 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 through the foreclosure sale, the HOA can come after you to collect any unpaid dues that accrue after filing for Chapter 7 bankruptcy, even if you 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, 2024. She filed for Chapter 7 bankruptcy on February 15, 202, stating her intention to surrender the property in her petition. Although she received her discharge on May 15, 2024, the bank didn’t foreclose and sell her house until June 15, 2024. Caroline will be on the hook for any HOA fees due between her bankruptcy filing date of February 15 and the foreclosure sale on June 15. Unless the foreclosure proceeds pay the fees, 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 or negotiating with the HOA to waive any fees that come due after you surrender the property. If those options aren’t possible, wait to file bankruptcy until your mortgage lender or HOA forecloses the property.

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