Can I Keep My Land If I File for Bankruptcy?

You don’t give up everything when you file for bankruptcy, and keeping land is possible. Whether you can keep it will depend on several factors, including how you use the property, the equity in the land, your state’s exemption laws, and the bankruptcy chapter you file. Keep reading to learn more about property and exemptions in bankruptcy.

Keeping Your Land Using Exemptions

You’ll use bankruptcy exemptions to protect property regardless of the bankruptcy chapter you file. The homestead and wildcard exemptions are used most frequently to protect land.

Homestead Exemption

Most states allow residents to protect a certain amount of equity in real property, but the amount varies widely from state to state. The homestead exemption is limited because it protects property primary residences only. So you’ll have to live on your land to use this exemption. Also, the homestead protection might be limited depending on if it's located in a city or agricultural area, the types of buildings on it, and its use.

You can use Nolo’s state bankruptcy exemption charts to find exemption amounts that apply to your state.

Wildcard Exemption

If you don’t use your land as your primary residence, you won’t be able to protect it with the homestead exemption. And exemptions for unimproved land don’t exist. But you might have other options.

A wildcard exemption allows you to protect any property of your choosing. Unfortunately, not many states offer generous wildcard exemptions. However, you might fare better if your state allows you to choose between the state and federal exemption systems. The federal system offers a more generous wildcard exemption than most states.

States that allow debtors this exemption choice include Alaska, Arkansas, Connecticut, the District of Columbia, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin.

How Chapter 7 or 13 Helps (or Hurts) Your Ability to Keep Land

If your state's bankruptcy exemptions don't fully protect your land's equity and you'd lose it in Chapter 7, you might be able to keep it by filing for Chapter 13. The two chapters work differently and provide unique benefits. The following overviews of Chapters 7 and 13 explain why.

Your Land in Chapter 7 Bankruptcy

Chapter 7 bankruptcy is known as “liquidation” bankruptcy. In exchange for wiping out qualifying debt, you agree that the bankruptcy trustee appointed to your case can sell any property not protected by a bankruptcy exemption. The trustee uses the funds to pay your creditors.

If you own land free and clear, you must protect the entire value with a bankruptcy exemption. If it’s financed, you’ll need an exemption to protect the equity—the remaining amount after selling the property and paying off the mortgage.

Learn more about protecting property with bankruptcy exemptions.

Your Land in Chapter 13 Bankruptcy

You don’t have to give up property in Chapter 13—even if it is wholly or partially nonexempt. But keeping it can be expensive. You’ll have to pay the value of the nonexempt portion through your three- to five-year repayment plan. If the nonexempt part of the land is worth a lot of money, you’ll end up with a high monthly payment. You’ll have to prove you have sufficient income to make the payment before the bankruptcy judge will confirm (approve) the plan.