Can I Keep My Home If I File for Bankruptcy?

The vast majority of people who file for bankruptcy protection are able to keep their homes. They are able to do so because, given their circumstances, they select the right chapter of bankruptcy to file, treat the debt on the property appropriately, and claim their exemptions correctly. The guidance of an experienced bankruptcy attorney will ensure that your home is protected when you file.

To determine the correct bankruptcy chapter to file, several factors come into play:

The Four Key Factors

1. Value

The value of the home must be determined and scheduled accurately in the bankruptcy petition. In most cases, a publicly accessible valuation is sufficient, which may come from a property tax assessment or an internet search on sites such as Zillow or Redfin. If, after review, it is a close call, then a more detailed current market analysis or full appraisal may be necessary. Determining an accurate value is essential because that will be a factor in determining whether or not there is any unprotected equity in the property.

2. Mortgages & Liens

Once the value is determined, you must identify the balance owed on any debts against the home. This will not only include your primary mortgage, but also any second mortgages or home equity loans (HELOCs) and any statutory or judicial liens placed against the property.

• Statutory liens often come from the Internal Revenue Service, your state income tax authority, unpaid property taxes, and certain unpaid utilities (commonly water bills).
• Judicial liens occur when a creditor has obtained a judgment in a collection lawsuit and has then recorded it against the home.

3. Exemptions Available

You will have a homestead exemption available to claim in your bankruptcy. How much that is depends on where you live — some jurisdictions use the federal homestead exemption ($31,575 per debtor as of 4/1/2025), while many other states have elected to use their own state homestead exemptions. State homestead exemptions range wildly, from 100% of the value of the home to relatively nominal amounts.

4. Allowed “Costs of Sale”

When a home is sold, there are standard costs incurred, such as the commission paid to a real estate agent and closing costs attributable to the seller. In bankruptcy, we also consider what a Chapter 7 Trustee would receive in fees associated with liquidating (selling) the asset. Most jurisdictions have a standard percentage of value that they use to estimate these costs.

The Net Equity Formula

Once these four factors are determined, we have a straightforward math problem to determine whether or not there is unprotected equity in the home — a vital determination in bankruptcy:

Value – (Mortgages & Liens + Allowed Exemptions + Allowed Costs of Sale) = Net Equity

Example 1: Home Worth $350,000

You own a home worth $350,000, with a first mortgage balance of $200,000, a HELOC balance of $50,000, and $10,000 in past-due taxes attached to the property. Using the federal homestead exemption and a 10% cost of sale:

$350,000 – ($250,000 + $10,000 + $31,575 + $35,000) = +$23,425 Net Equity

Example 2: Home Worth $300,000

Using the same debts and exemptions, but with a home worth $300,000:

$300,000 – ($250,000 + $10,000 + $31,575 + $30,000) = –$21,575 Net Equity

Why This Matters: Chapter 7 vs. Chapter 13

The net equity calculation directly determines which chapter of bankruptcy is right for you:

• Positive net equity (Example 1): If you file for Chapter 7, the bankruptcy trustee could — and likely would — sell the property to liquidate that equity and send the proceeds to your creditors. To protect the home, you would need to file for Chapter 13.
• Negative net equity (Example 2): There is no reason for the trustee to sell the property in Chapter 7, as there would be no proceeds for creditors. Your home would be protected in Chapter 7.

This is the first and most important determination that must be made before filing for bankruptcy if you own a home, as this calculation will often dictate whether you file for Chapter 7 or Chapter 13.

Too many times, I have seen self-represented people file for Chapter 7 with equity in their homes, expecting to keep them — only to have them sold by the bankruptcy trustee. Once the case is filed, it is rare that the person can dismiss the bankruptcy or convert the case to Chapter 13 to protect the home.