Protecting your home is a top priority for most bankruptcy filers. Chapter 7 provides strong homestead protections in most states.
How the Homestead Exemption Works
Your state's homestead exemption protects a specified amount of equity in your primary residence. Equity is the difference between your home's value and what you owe on it. If your equity falls within the exemption, the Chapter 7 trustee cannot sell your home.
State Exemption Amounts
Homestead exemptions vary dramatically by state:
- Unlimited: Texas, Florida, Kansas, Iowa, South Dakota, Oklahoma (with acreage limits)
- High ($200K+): Massachusetts, Minnesota, Nevada, Rhode Island
- Moderate ($50K-$200K): California, New York, Michigan, Illinois
- Low (under $50K): Some states offer lower protections, but the federal exemption of approximately $27,900 (2024) is available in states that allow the federal option
You Must Stay Current on the Mortgage
Chapter 7 does not eliminate mortgage liens. Even after discharge, the lender retains its lien on the property. If you stop making mortgage payments, the lender can foreclose -- the bankruptcy discharge only eliminates your personal liability for the debt, not the lien itself.
When Chapter 13 Is Better for Homeowners
If you are behind on mortgage payments, Chapter 13 may be the better option. Chapter 13 allows you to cure mortgage arrears over 3-5 years while keeping the home. Chapter 7 does not have this catch-up mechanism. If foreclosure is imminent, Chapter 13 is typically the recommended path.