Chapter 7 vs Chapter 13 Bankruptcy: Which Saves Your California Home?
Key Takeaway
Chapter 13 is designed to save your home; Chapter 7 is not. If keeping your home is the priority, Chapter 13 lets you catch up on missed payments over 3-5 years. Chapter 7 wipes out unsecured debt but typically leads to losing your home unless you're current on payments.
Bankruptcy can stop foreclosure - but which chapter should you file? This guide compares Chapter 7 and Chapter 13 bankruptcy specifically for California homeowners facing foreclosure, including eligibility requirements, how each affects your home, and long-term consequences.
Important Disclaimer
This article provides general information only. Bankruptcy is a complex legal process with serious consequences. Always consult with a licensed bankruptcy attorney before making decisions. We are not attorneys and cannot provide legal advice.
Quick Comparison: Chapter 7 vs Chapter 13
| Factor | Chapter 7 | Chapter 13 |
|---|---|---|
| Keeps Your Home? | Usually No* | Yes (if payments made) |
| Stops Foreclosure? | Temporarily | Yes (3-5 years) |
| Catch Up on Payments? | No | Yes (3-5 year plan) |
| Income Requirement | Below median or pass means test | Regular income required |
| Timeline | 3-6 months | 3-5 years |
| Debt Discharged | Most unsecured debt | Some (after plan completion) |
| Credit Report Impact | 10 years | 7 years |
| Attorney Cost | $1,500-$2,500 | $3,000-$6,000 |
| Can File Again After | 8 years (Ch. 7) / 4 years (Ch. 13) | 2 years (Ch. 13) / 6 years (Ch. 7) |
*Chapter 7 can allow you to keep your home if you're current on payments and have equity within California's homestead exemption limits.
Understanding Each Chapter
Chapter 7 Bankruptcy ("Liquidation")
Best for: Fresh start, little income, willing to surrender homeChapter 7 eliminates most unsecured debts (credit cards, medical bills, personal loans) but does not help you catch up on missed mortgage payments. The automatic stay temporarily stops foreclosure, but the lender can request "relief from stay" to continue foreclosure.
Eligibility: Must pass the "means test" - household income below California median or allowable expenses leave insufficient funds to repay debts. Cannot have filed Chapter 7 in past 8 years.
Pros
- Fast process (3-6 months)
- Wipes out most unsecured debt
- Lower attorney fees
- No repayment plan required
- Fresh start for finances
- May keep exempt property
Cons
- Does not save your home (usually)
- Automatic stay is temporary
- Cannot catch up on missed payments
- Stays on credit 10 years
- May lose non-exempt assets
- Income limits apply
Chapter 13 Bankruptcy ("Reorganization")
Best for: Keeping your home, regular income, catching up on paymentsChapter 13 creates a 3-5 year repayment plan that lets you catch up on missed mortgage payments while making current payments. The automatic stay stops foreclosure for the duration of the plan, giving you years to get back on track.
Eligibility: Must have regular income sufficient to fund repayment plan. Secured debts must be under $2.75 million, unsecured under $465,275. Cannot have filed Chapter 13 in past 2 years or Chapter 7 in past 4 years.
Pros
- Keep your home
- 3-5 years to catch up on payments
- Immediate stop to foreclosure
- May strip off junior liens
- Keep all property
- 7 years on credit (not 10)
- Can convert to Chapter 7 if needed
Cons
- Must complete 3-5 year plan
- Higher attorney fees
- Requires regular income
- Court supervision of finances
- Strict budget for years
- Miss payments = dismissal
How Each Chapter Affects Your Home
Chapter 7 and Your Home
In Chapter 7, your home situation depends on two factors:
- Are you current on mortgage payments? If yes, and you want to keep your home, you can "reaffirm" the debt and continue paying. If no, Chapter 7 won't help you catch up.
- How much equity do you have? California's homestead exemption protects up to $300,000-$600,000 in home equity (depending on circumstances). Equity beyond the exemption could be used to pay creditors.
California Homestead Exemption (2025)
California protects home equity up to the greater of:
- $300,000, OR
- The median sale price in your county (up to $600,000)
This exemption applies in bankruptcy and can protect significant equity. Consult an attorney for your specific situation.
Chapter 13 and Your Home
Chapter 13 is specifically designed to help homeowners keep their homes:
- Automatic stay: Immediately stops foreclosure when you file
- Cure arrears: Spread missed payments over 3-5 years while making current payments
- Lien stripping: In some cases, remove junior liens (second mortgages, HELOCs) if your home is worth less than your first mortgage
- Modify terms: Some loans may be modified through the plan
Which Chapter Should You File?
Decision Guide: Chapter 7 vs Chapter 13
Want to keep your home and have regular income?
File: Chapter 13 - This is the only bankruptcy chapter that lets you catch up on missed payments while keeping your home.
Cannot afford your home long-term?
Consider: Chapter 7 - Wipes out other debts and gives you a fresh start. You may still have time to sell your home and capture equity before foreclosure.
Income too high for Chapter 7?
File: Chapter 13 - If you don't pass the means test, Chapter 13 is your only bankruptcy option. The higher income also means you can fund a repayment plan.
Need immediate stop to foreclosure auction?
File: Either Chapter - Both create an automatic stay that immediately stops foreclosure. However, Chapter 13 provides longer protection.
Have significant unsecured debt beyond mortgage?
Consider: Chapter 7 - If credit cards, medical bills, and other unsecured debts are overwhelming, Chapter 7 eliminates them quickly. Chapter 13 requires paying some portion back.
Previously filed bankruptcy recently?
Consult attorney: Waiting periods apply. You may be limited in which chapter you can file and whether automatic stay applies.
Warning: Strategic Bankruptcy Limitations
Filing bankruptcy solely to delay foreclosure without genuine intent to reorganize finances is considered abuse of the system. Courts can:
- Dismiss your case with prejudice (can't refile)
- Limit automatic stay to 30 days for repeat filers
- Deny automatic stay entirely if bad faith is shown
- Impose sanctions on you and your attorney
Bankruptcy should be part of a genuine financial recovery plan, not just a delay tactic.
Credit Impact Comparison
| Factor | Chapter 7 | Chapter 13 |
|---|---|---|
| Initial Credit Drop | 150-240 points | 130-200 points |
| Time on Credit Report | 10 years | 7 years |
| Can Rebuild Credit After | Immediately (secured cards) | During plan (limited) |
| Buy Home After | 2-4 years | 1-2 years after discharge |
| Perception by Lenders | More negative | Shows effort to repay |
Alternatives to Bankruptcy
Before filing bankruptcy, consider these alternatives that may resolve your foreclosure without the long-term credit consequences:
- Loan Modification: Permanently reduces your payment. Less credit impact than bankruptcy.
- Forbearance: Temporary payment reduction while you recover financially.
- Sell Your Home: Capture your equity and avoid foreclosure entirely. Cash buyers can close in 7-14 days.
- Reinstatement: Pay all missed payments plus fees to bring loan current.
- Short Sale: If underwater, sell for less than owed with lender approval.
Explore All Your Options
Bankruptcy isn't always the best solution. We can help you understand all alternatives - including selling your home to protect your equity. Free consultation with licensed California professionals.