Chapter 7 vs. Chapter 13 bankruptcy: what happens to your home

Bankruptcy is a federal court process to wipe out debts or pay them through a plan. For a family that owns a home, the big question is what happens to the house and the mortgage. The answer depends on the chapter used, on your state’s exemption rules and on whether you are current on your payments. This guide explains what the federal courts and the law say, so you arrive better prepared to talk with legal aid. It is not legal advice for your case.

Before filing, the window to take credit counseling with an approved agency

180 days²

How long a Chapter 13 plan lasts to catch up

3 to 5 years²

The longest a bankruptcy can appear on your credit report

10 years⁸

Chapter 7 and Chapter 13: two different paths

Families usually use one of these two chapters of the Bankruptcy Code. They work very differently:

Chapter 7 is a liquidation. The court appoints a trustee who administers the case and sells the property that is not exempt. What the law protects is not sold.¹ Between 21 and 40 days after filing there is a meeting of creditors: you must attend and answer questions about your money and your property. The wiping out of the debts, called the discharge, generally comes 60 to 90 days after the date first set for that meeting.¹ If your monthly income is higher than your state’s median, a means test applies to see whether you can use this chapter.¹

Chapter 13 is a payment plan. It is for people with regular income. You propose a plan to pay your creditors over three to five years, and you start paying the trustee within 30 days.² If you stop making plan payments, the court may dismiss the case or convert it to Chapter 7.²

What each chapter does with your home

Liquidation

Chapter 7

• The trustee sells the property that is not exempt
• The discharge comes in a few months
• The mortgage stays on the home: if you do not pay, the lender can foreclose
• To keep secured property, you can reaffirm the debt

Payment plan

Chapter 13

• You pay a three- to five-year plan
• You catch up on past-due mortgage payments over time
• You must keep paying each new mortgage payment on time
• It also protects people who signed debts with you

Which one fits depends on your income, your property and your state's law: review it with legal aid before filing.

What happens to your home and your mortgage

The automatic stay. Filing under either chapter automatically stops most collection actions against you and your property.¹ This can pause a foreclosureforeclosureForeclosure is the process by which the lender or servicer takes back the property after the homeowner fails to make mortgage payments. The rules and timelines depend on each state; all of them include advance notices and, in general, time to catch up or ask for an alternative, such as a repayment plan or a loan modification. If you fall behind, call your servicer and a HUD-approved housing counseling agency early: foreclosure counseling is free and exists for exactly this.See the full definitionClose for a while, but it does not solve the debt by itself.

In Chapter 7, the lien stays. The discharge wipes out your personal obligation on many debts, but it does not remove the lienlienA lien is a legal right a creditor holds in your property to make sure you repay a debt. It usually prevents the property from being sold until the debt is paid, and if you do not pay, the creditor may be able to take the property. Your mortgage is a lien on your home: when you pay it off, the lien is released and that shows up in your county's property records. There are other kinds, such as a federal tax lien, which is the government's legal claim against all your property when you do not pay a tax debt.See the full definitionClose on the home. A secured creditor can keep the right to seize the property that backs the debt.¹ In plain terms: if you do not keep paying the mortgage, the lender can still foreclose. If you want to keep secured property, you can reaffirm the debt: you sign an agreement under which you stay liable and the creditor does not take the property while you keep paying.¹

In Chapter 13, you can catch up. According to the federal courts, the most significant feature of this chapter is that it gives you a chance to save your home from foreclosure, because it lets you pay mortgage arrears over time within the plan. The condition is clear: you must make on time every mortgage payment that comes due during the plan.² And if someone signed a debt with you, Chapter 13 has a special protection for that person.²

The guide The foreclosure process step by step explains the timeline in your state, so you know how much time you have.

The homestead exemption: how much of your home is protected

In bankruptcy, an exemption is the part of your property that the law does not let anyone sell to pay creditors. The homestead exemption protects your interest in the home where you or someone who depends on you lives.⁷ Do not confuse it with the property tax homestead exemption: the names are similar, but they are different rules.

The Bankruptcy Code lets you use the federal exemption list or your state’s list, unless your state does not allow the federal one. The state that counts is generally where you lived for the 730 days before filing.⁷ The federal homestead exemption has a cap that is adjusted over time: since April 1, 2025 it is $31,575. In a joint case, for example a married couple, the rule applies separately to each debtor.⁷ Many states have their own lists, with different caps. That is why the question “do I keep the house?” is answered case by case, with your state’s law in hand.

Example with real numbers

How the protected part of a home is thought through

An example in words, not a real case or a calculation for your state.

Value of the home

What it could sell for today

Minus what you owe on the mortgage

The lien stays on the home

What is left is your interest (equity)

That is what the exemption can protect

Homestead exemption

Federal or your state's, depending on where you lived the last 730 days

What gets reviewed with legal aid

Whether your interest in the home fits within the exemption that applies to you

The rules come from 11 U.S.C. §522 and the federal courts.⁷¹ Use the family budget to see whether you can keep paying the mortgage each month.

Run it with your numbersFamily budget

The required credit counseling course

Before filing a Chapter 7 or 13 bankruptcy, you must receive credit counseling from an approved agency within the 180 days before.² If you do not complete it before filing, the case could be dismissed. After filing there is a second course, debtor education, which you generally must complete to receive the discharge.⁵

The Justice Department’s U.S. Trustee Program publishes the list of approved agencies at justice.gov/ust. Many offer services in other languages and the list can be filtered for Spanish. In some places counseling is only by internet or telephone. Cases in Alabama and North Carolina are not under this program: there you ask the district’s Bankruptcy Administrator.⁴

If you cannot pay for the course: an approved agency must waive its fee in whole or in part if you show you cannot pay it. You are presumed unable to pay if your household’s current income is less than 150% of the poverty guidelines.⁶ Ask for the waiver before you start. Note: this course is not the same as a debt management plandebt management planA debt management plan is a payment plan that a credit counseling organization, usually a nonprofit, sets up with you. According to the CFPB, you make a single payment to the organization each month or pay period, and it pays your creditors. The plan does not erase your debts: it aims to lower your total monthly payment, for example with more time to repay or lower interest rates, if your creditors agree. The organization may charge fees. Before you send any money, the CFPB recommends confirming with your creditors that they accepted the plan.See the full definitionClose, even though some agencies offer both.

From the first step to the discharge

1. 1. Look for free legal aid

   Before deciding

   Ask whether bankruptcy makes sense and which chapter to use in your state.³

2. 2. Take credit counseling

   Up to 180 days before

   With an agency on the Justice Department list; it can be in Spanish.²

3. 3. File the case

   Day 1

   Most collection actions stop automatically.¹

4. 4. Attend the meeting of creditors

   21 to 40 days later

   You answer questions about your money and your property.¹

5. 5. Take the debtor education course

   After filing

   It is generally required to receive the discharge.⁵

6. 6. Receive the discharge

   Chapter 7, a few months; Chapter 13, at the end of the plan

   In Chapter 13 it comes after all plan payments are made.²

What it costs and what is not wiped out

In Chapter 7, the courts charge a $245 filing fee, a $75 administrative fee and a $15 trustee surcharge. With the court’s permission you can pay in installments, and if your income is less than 150% of the poverty level and you cannot pay even in installments, the court may waive them.¹ In Chapter 13, the filing fee is $235 plus the $75 administrative fee.²

Not every debt is wiped out. In Chapter 7, debts that are not discharged include child support and alimony, and certain taxes.¹ If you have those debts, you still owe them after the case.

Your credit and your next mortgage

A bankruptcy case can appear on your credit reportcredit reportA credit report is a statement that has information about your credit activity and current credit situation: your loans and cards, the balances, whether you have paid on time, accounts in collection and who has checked your credit. Credit reporting companies, also called credit bureaus, compile it from what banks and creditors report; your credit score is computed from it. When you apply for a mortgage, the lender pulls your report from the three bureaus. You have the right to see it for free and to dispute anything that is wrong.See the full definitionClose for up to 10 years from the order for relief, and the report must say which chapter it was under, if the source provides it. That 10-year limit does not apply when the report is used for credit of $150,000 or more.⁸ Check your report with the guide How to read your credit report.

Buying a home again is possible, with waiting periods:

• FHA: a Chapter 7 does not disqualify you from an FHA loan if at least two years have passed since the discharge, and in that time you re-established good credit or chose not to take on new credit. Twelve to 24 months may be enough if the bankruptcy was caused by circumstances beyond your control and you have managed your money responsibly since. With a Chapter 13, you can qualify once at least 12 months of the plan have passed, with every payment on time and written permission from the court.¹⁰
• Conventional (Fannie Mae): after a Chapter 7 the wait is four years from the discharge or dismissal, or two if you document extenuating circumstances. After a Chapter 13, two years from the discharge (no exceptions) or four from the dismissal. With more than one case in the past 7 years, five years. You also need to have re-established traditional credit.⁹

Use the credit plan to put in order the steps that bring you closer to those dates.

If this is your situation

You owe several months of mortgage

Chapter 13 lets you catch up over time, if you pay each new payment on time.²

You cannot pay for the course or the fees

The agency must waive its fee if you cannot pay, and the court may waive Chapter 7 fees.⁶¹

You prefer the course in Spanish

The Justice Department list can be filtered for Spanish.⁴

You pay child support

That debt is not wiped out in Chapter 7; it is still owed after the case.¹

You want to buy a home again

FHA generally asks for two years after a Chapter 7 discharge.¹⁰

Free help and how to avoid scams

You can file bankruptcy without an attorney, but the federal courts strongly recommend the advice of a qualified attorney, because the process takes an understanding of legal issues. Bankruptcy petition preparers can only enter information into forms: they cannot give legal advice or take the money for court fees. If you cannot afford an attorney, you may qualify for free legal services.³

The Legal Services Corporation funds legal aidlegal aidLegal aid is the free civil legal help that nonprofit organizations and their lawyers provide to low-income people in civil, not criminal, matters. In housing, that includes representing families facing eviction or foreclosure, alongside matters such as custody, child support, protection from domestic violence and access to benefits. In the United States, the Legal Services Corporation, created by Congress, funds a nationwide network of these organizations; its finder points you to the one in your area. Each sets its own income limits.See the full definitionClose offices in every state; on its website you find the nearest one with your address or city.¹¹ The guide Free legal aid explains how to ask for it. If your problem is the mortgage, a HUD-approved housing counselorHUD-approved housing counselorA HUD-approved housing counselor works at an agency HUD has approved to provide housing counseling: independent, expert advice customized to your situation about buying a home, renting, a missed mortgage payment, a foreclosure or credit problems. The agencies usually charge little or nothing; many serve in Spanish and offer the homebuyer education course several assistance programs require. They are not lenders or real estate agents and sell you nothing. Your county page lists the official agencies with phone numbers.See the full definitionClose can review the options with you, often for free.¹² See the guide to HUD-approved housing counselors.

Be wary of anyone who promises to “save the house” for an upfront payment or for you to sign the deed over to them. The guide Loan modification and foreclosure rescue scams explains the warning signs.

Costly mistakes

• Mistake: Filing bankruptcy without having taken credit counseling.

  Instead: Take it with an approved agency within the 180 days before; otherwise the case could be dismissed.⁵

• Mistake: Believing Chapter 7 erases the mortgage on the home.

  Instead: The lien stays; if you do not pay, the lender can still foreclose.¹

• Mistake: Stopping mortgage payments during the Chapter 13 plan.

  Instead: You must make each new payment on time; if the plan fails, the case may be dismissed.²²

• Mistake: Asking a petition preparer for legal advice.

  Instead: They can only fill in forms; look for free legal aid.³

• Mistake: Forgetting the second course after filing.

  Instead: Debtor education is generally required for the discharge.⁵

• Mistake: Paying the course fee without asking for a waiver.

  Instead: The agency must waive it if you cannot pay.⁶

What to do this week

1. Make a list of your debts and set apart the mortgage, child support and taxes.¹
2. If you are behind on the mortgage, call your servicer and a HUD-approved housing counselor.¹²
3. Find a free legal aid office with the LSC search tool.¹¹
4. If you decide to go ahead, take credit counseling with an agency on the Justice Department list, in Spanish if you want.⁴
5. Check your credit reports and put your steps in order with the credit plan.⁸
6. Read Debt collection: your rights if you are getting calls about a debt.