What happens to my house if I File Bankruptcy?

Bankruptcy is a complex financial decision. Bankruptcy allows you to legally seek relief from debts you can’t pay. Bankruptcy often occurs after major financial setbacks like job loss, the death of a partner, disability, or long-term health issues. While filing for bankruptcy can have significant financial repercussions, sometimes it’s the best option.

If you’re a homeowner, it’s essential to understand bankruptcy and how it could affect your ability to stay in your house. If you’re facing foreclosure and need help, you might be wondering if bankruptcy is the solution. The answer: it depends.

Two types of bankruptcy

The two most common types of bankruptcy are Chapter 7 and Chapter 13 bankruptcy. While there are six different bankruptcy options, Chapters 7 and 13 are the two that apply to most consumers.

Chapter 7:

Businesses and individuals qualify for Chapter 7. There is a maximum income requirement for this type of bankruptcy. When borrowers file a Chapter 7 bankruptcy, they can eliminate all unsecured debt, with a few exceptions. Bankruptcy will not eliminate student loans, taxes, child support, or alimony. Typically, Chapter 7 requires that those filings sell off certain assets to pay off secured debt (like a car loan or a home). A Chapter 7 will not stop a foreclosure, but it can delay the process. A Chapter 7 stays on your credit report for 10 years and can take 6 months to discharge.

Chapter 13:

Individuals, including self-employed people, can apply for a Chapter 13 bankruptcy. Chapter 13 does not have an income requirement, but it does have a maximum debt limit. Chapter 13 does not eliminate debt but creates a repayment plan that takes between 3 to 5 years. Chapter 13 stays on your credit for 7 years. You do not have to sell any items to repay secured debt with this type of bankruptcy. A Chapter 13 bankruptcy can stop foreclosure proceedings.

Do I have to sell my house if I file for bankruptcy?

For some homeowners, filing for bankruptcy might make it easier to keep their homes. Your situation will vary widely based on personal factors, including the type of bankruptcy you choose, the amount of debt you owe, income, and your lender.

Chapter 7 Bankruptcy and your House

There are ways to save your house from foreclosure even if you file for bankruptcy. If you’re current on your mortgage payments, you can sign paperwork agreeing to continue making your mortgage payments.

If you are behind on your monthly payments and want to keep the house, a Chapter 7 bankruptcy isn’t the right choice. Chapter 7 requires you to sell secured assets, like your home, in most cases, to repay the debt. The bank could modify your loan, but they aren’t required to do so.

If you’re behind on your payments and don’t want to keep the home, Chapter 7 will protect you from the lender trying to collect additional income if the house sells for less than what you owe after foreclosure.

Chapter 13 Bankruptcy and your House

Chapter 13 bankruptcy can allow you to keep your home if your income qualifies. Since Chapter 13 is a 3-to-5-year repayment plan, you’ll need to be able to afford the payment set up by the bankruptcy court and your mortgage payments. If you’re current in your monthly payments, everything should remain the same. You’ll continue making your mortgage payments while making your bankruptcy payments.

If you’re behind on your mortgage payments, you can put the missed payments into your bankruptcy repayments. However, you must make enough money to cover both the debt repayment plan and your current mortgage payments in the future.

During a Chapter 13 bankruptcy, you can ask the lender to modify your loan to reduce your monthly payments. While they aren’t required to approve you for a loan modification, a mediator provided by the courts can work with you and the bank to figure out a way to ensure you qualify for a loan modification. The modification could help you avoid foreclosure.

Alternatives to Bankruptcy

If you’re considering bankruptcy just to avoid foreclosure, there are other options. Both foreclosures and bankruptcies can damage your credit for a long time. Other options you have include:

Short sale:

Your lender will need to agree to sell the property for less than what you owe, but many are willing to get at least some money from the property. A short sale can ding your credit, but it doesn’t cause as much damage as a bankruptcy or a foreclosure.

Loan modification:

If you talk with your lender early, you may be able to avoid foreclosure and/or bankruptcy with a loan modification. Loan modifications change loan terms, including monthly payments. Sometimes lowering your monthly payment can make a big difference in your budget.


You may qualify for loan forbearance. A loan forbearance allows you to put off payments on your mortgage for a set amount of time. Your lender may require a lump sum repayment once forbearance ends, or they may allow you to add the missed payments to the end of your loan.

Sell your house for cash:

If you need money to pay off debt and want to avoid bankruptcy and/or foreclosure, consider selling your home for cash. You can use the money to pay off your mortgage. If you sell for more than what you owe, you can use the remaining funds to pay off other debts.

Call us today if you have questions about avoiding foreclosure or want help with a short sale. We can make a cash offer on your home and help you decide if selling for cash is the right decision for your situation.

Recent Articles

Rich results when people are searching sell my house fast

Ways to take advantage of the equity in your property

If you have home equity in your house, you have several options for using the equity to meet your needs. Historically, home values rise over time. While economic factors can temporarily lower property values, it’s common to earn equity in a home after long-term ownership.

Housing Market Trends 2022

While the housing market trends predictions we mention below are likely, especially when considering the current market, it’s impossible to predict the future of the real estate market with 100 percent accuracy.

Chapel Hill, North Carolina

Chapel Hill borders several unincorporated areas of Orange and Durham counties. Chapel Hill has moderate-sized community. The city feels more like a small town than other neighboring areas. This quieter aspect may be a draw for those who want a closer community with easy access to large-city amenities.

Get an offer on your home.


When life closes a door, and you need to sell.

We buy homes at the speed of life. Request your offer today and lets build a solution that works for you.


Further Reading

Debt to Income Ratio

When you’re purchasing a home or an investment property, having a clear picture of your current financial situation is vital.

Content on this site is not intended to create, and does not constitute, an attorney-client relationship between the user or any other person. The information provided should not be used as a substitute for competent legal advice from a lawyer whom user has retained. No content provided any User is intended to provide, and in no event shall it be treated as providing, legal advice.