Personal Bankruptcy and Homeownership

If you own a home, and are considering filing for bankruptcy, you are probably wondering how bankruptcy will affect your homeownership. How your mortgage is handled in bankruptcy really depends on several factors, including whether your file for Chapter 7 or Chapter 13, as well as what state you live in.

In general, to avoid foreclosure, you must ask the bankruptcy courts permission to "reaffirm" your mortgage loan and lease agreement and continue to make your home payments. Following is some chapter-specific information.

Chapter 7

Chapter 7 bankruptcy typically involves liquidation of all nonexempt assets. Exempt assets are listed on your Statement of Financial Affairs and are protected against seizure by your unsecured creditors. State and federal law dictates which assets can be claimed as exempt—depending on what state you live in, you may be able to choose either the state or the federal law. Some states allow for homestead exemptions, which exempts equity in your home from repossession. 

Chapter 13

If you file Chapter 13, you are likely to keep your home, assuming you don’t have a significant non-exempt equity. You can keep other non-exempt assets if you follow your payment plan. However, if you aren’t able to maintain your payment plan, your non-exempt assets may be liquidated to pay creditors.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.