Your Home and Bankruptcy (updated for 2023)

You saved your whole life for it. You’ve struggled to pay for your house. Now that you’re having a tough time, you naturally wonder about your home and bankruptcy. Will I keep my house in a Chapter 7 bankruptcy? Can you lose your home if you file bankruptcy? How can I file Chapter 7 and keep my home? If I’m late on house payments, can bankruptcy save my house? Is there a way to remove a second mortgage or HELOC from my house? And can I strip a judgment lien from my home? The answer to all of these is yes, and of course, it depends.

Keep A Home in Chapter 7 Bankruptcy

An important question is whether you can keep a home in Chapter 7 bankruptcy. And the answer is, “it depends.” Firstly, are you current on mortgage payments? You need to be, or the lender won’t be happy there’s a bankruptcy, foreclose, and will take your house. Secondly, do you have equity? If you have home equity, there’s a chance you won’t keep your house in a Chapter 7 bankruptcy.

How Can I File Chapter 7 and Keep My Home

Now, if you’re asking, in the realm of possibilities, how can I file chapter 7 bankruptcy and keep my home, the answer is there is a theoretical way, but see above warning. Yes, there’s a homestead exemption, but in a high real estate market like 2023 for Santa Clarita, Antelope Valley, and Los Angeles, chances are your home equity is very high also.

2023 update: Recently, a new California homestead exemption took effect. This changed the traditional homestead exemption from a small number depending on marital status to something much larger based on which county you live in. Technically, it’s the median (not average) sale price (not home value) of homes in that county the prior year.  Zillow and Redfin tell you home values, not sales prices. Even if they did, they typically average and don’t provide medians. But you have a much greater chance of protecting your home now than you did before.

Still, it’s just that: a chance. There are twists and turns to keep your home about this new law that aren’t in the California homestead exemptions, but the federal ones, and then it starts getting complicated. I wrote about limits to the California homestead exemption. Even bankruptcy attorneys get confused about it.

Even if you have too much equity over your homestead exemption. there’s still hope.  In that case, you might want to consider a Chapter 13 bankruptcy, where you can file bankruptcy and keep your home.

Your Home and Bankruptcy Saving it

Filing bankruptcy can save your home. “Wait, you said if I file bankruptcy I could lose my house!” Yes, I did. But every situation is different. Let’s say you’re late on mortgage payments and want to keep your house. “I’m late on mortgage payments and want to keep my house.” Good. Now, filing bankruptcy can stop collections, stop foreclosure, stop a sale date.

Then, bankruptcy isn’t done. Filing bankruptcy can force your mortgage lender to take your late payments, in much tinier pieces than they’d ever agree to on their own. So yes, filing bankruptcy can help you not only save your home, but keep your home. See the article about Chapter 13 bankruptcy for more information, and then contact AV & Santa Clarita bankruptcy lawyer Hale Antico for a consultation.

Bankruptcy Can Remove a HELOC / Second Mortgage from Your Home

Once bankruptcy saves your house, there’s a way in some situations that it can strip a lien and remove a second mortgage or HELOC without having to pay it all back. This is an incredible opportunity if the numbers are right. This arises more often in a lower real estate market like 2009-2013, but it stills comes up. (by the way, as a general rule, you don’t want to reaffirm mortgages).

Filing bankruptcy can never remove your first mortgage, because that would involve getting a free house. Bankruptcy doesn’t give you a free house or free car. But if you’re willing to make it work, bankruptcy with lienstripping can save your house, help you keep your home, and in some cases remove liens from your home.

Remove a Judgment Lien from Your House

Your house is saved, but it’s got judgment or IRS tax liens wrapping it up. Can bankruptcy remove liens? Yes, filing bankruptcy can remove judgment liens, tax liens, and even IRS liens. In some cases you don’t need to to pay them back, in other situations, you need to repay the underlying debt in full before the lien comes off.

Summing Up

Filing bankruptcy can help you keep your house if you’re at risk of losing it, make you lose it if you want to keep it, and catch up once we’ve kept your home, strip liens for HELOCs, remove judgment liens from your home, and get you back on track, often with more equity than you started with.