If I File For Bankruptcy, Do I Get My House For Free?

Many people believe that if they file for bankruptcy, they no longer have to make payments on their house and they can continue to live there for free.  This is a common misconception and misapplication of a Homestead Exemption. 

People often think that a Homestead Exemption, which protects your home from bankruptcy and other legal proceedings, can be extended to a house they still owe money on.  It cannot.  Homestead Exemption only applies to houses that are paid in full, that have no liens or mortgages outstanding. 

So, if you have a mortgage and have not paid off your house, the fact that you have filed for bankruptcy does not mean that you get your house for free. 

You still must make payments on that house.  You will not necessarily lose your house, even if you are filing a Chapter 7, or “liquidation” bankruptcy, as long as you continue to make your mortgage payments on a regular and consistent basis. 

This is the purpose of the Homestead Exemption. 

Failure to make any payments on your property will result in eventual loss.  While each state has some form of Homestead Exemption, the specifics do vary.  Check to see if the Homestead Exemption in your state will help you keep your home before filing for bankruptcy.