Can You Keep Your House in a Chapter 7 Bankruptcy in Phoenix?
If you’re struggling with debt and considering bankruptcy, one of your biggest worries is likely whether you will lose your home. It’s a fair concern that deserves a clear answer. The good news is that in Phoenix, you can keep your house in a Chapter 7 bankruptcy, but it depends on several key factors.
Understanding your rights, the exemptions available in Chapter 7, and how foreclosure protection works can make all the difference. Let’s break it down so you know where you stand and what to do next.
What Is Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is often called liquidation bankruptcy. It’s designed to eliminate unsecured debts like credit cards, medical bills, and payday loans. In exchange, the bankruptcy trustee may sell (or “liquidate”) non-exempt assets to repay creditors.
But here’s the twist: most Chapter 7 filers don’t actually lose their property, thanks to a set of laws known as bankruptcy exemptions.
So, does that mean you can file Chapter 7 and still keep your home? Yes, if your home equity is protected under Arizona’s exemptions and you’re current on your mortgage.
Understanding Chapter 7 Exemptions in Arizona
Every state has its own rules for bankruptcy exemptions, and Arizona law applies to bankruptcies filed in Phoenix. When it comes to your house, the most important exemption is the homestead exemption.
As of 2025, Arizona allows you to exempt up to $425,200 of equity in your primary residence. Equity is the difference between your home’s current market value and what you owe on your mortgage or any other liens.
That’s a significant number, and it’s often more than enough to protect your home in a Chapter 7 case.
Here’s how it works:
- If your home is worth $500,000 and you owe $150,000 on your mortgage, your equity is $350,000.
- Since $350,000 is under the $425,200 exemption limit, your home is protected.
- The bankruptcy trustee can’t touch it, and you don’t have to sell it.
It’s important to remember, though, that if your equity exceeds the exemption limit, the trustee could force a sale. But this is the case only if doing so would yield a significant return for creditors after paying off your mortgage and giving you your exempt portion.
Staying Current Is Crucial
One major caveat is that the exemption doesn’t shield you from foreclosure if you’re behind on your mortgage. Bankruptcy wipes out personal liability for the loan but not the lien itself. That means your lender can still foreclose if you stop making payments.
To keep your house in Chapter 7 bankruptcy in Phoenix, you must continue paying your mortgage. If you’re behind, Chapter 7 might not be your best option. In that case, Chapter 13 may be more appropriate, as you can catch up on missed payments through a structured repayment plan.
Can Chapter 7 Stop Foreclosure?
Yes, but only temporarily. When you file any type of bankruptcy, the court issues an automatic stay that immediately halts foreclosure proceedings, even if they’ve already started. This gives you some breathing room to assess your options. However, in Chapter 7, this pause is usually short-lived.
Unless you can get funds quickly, the lender may petition the court to lift the stay and resume foreclosure.
Remember: The automatic stay does not eliminate your mortgage debt or cancel foreclosure. It’s only a temporary shield, not a permanent solution.
Working with a Phoenix Bankruptcy Lawyer
This is where a seasoned Phoenix bankruptcy lawyer comes in. Trying to navigate bankruptcy on your own is risky, especially when your home is on the line. An attorney can help you:
- Calculate your exact equity
- Ensure you qualify for Chapter 7 exemptions
- Advise whether Chapter 7 or Chapter 13 is the better fit
- Protect you from creditor harassment
- Prepare and file all legal documents correctly
Most importantly, an attorney can help you develop a long-term game plan to regain financial control while keeping your house.
Alternatives and Personal Bankruptcy Options
Bankruptcy isn’t a one-size-fits-all solution. If Chapter 7 doesn’t protect your home, you may have other personal bankruptcy options to consider:
Chapter 13 Bankruptcy
Ideal for homeowners behind on payments, Chapter 13 creates a 3- to 5-year repayment plan that lets you:
- Catch up on mortgage arrears
- Protect your home from foreclosure
- Pay off secured debts over time
Unlike Chapter 7, you don’t have to give up any property with Chapter 13 if you can stick to the plan.
Loan Modification or Forbearance
If your income is stable, your lender might be open to modifying your loan terms or granting temporary forbearance. This isn’t part of the bankruptcy process, but it can be used in conjunction with it.
Sell the Home Before Filing
If your equity far exceeds Arizona’s exemption and you’re okay parting with the property, you might consider selling it before filing. This lets you control the sale and keep the proceeds (up to the exemption amount) to start fresh elsewhere.
Talk to a Phoenix Chapter 7 Bankruptcy Lawyer Today
To answer the big question: Yes, you can keep your house in a Chapter 7 bankruptcy in Phoenix, but only if your equity falls within the exemption limits and you stay current on your mortgage.
If you have any questions about Arizona bankruptcy laws, talk to Cy Hainey at Hilltop Law Firm today. Cy is a bankruptcy attorney who’s been helping people in Phoenix get debt relief for over a decade.
Call (602) 466-9631 to schedule a FREE consultation with our Phoenix bankruptcy attorney today. If you’re interested in a free Zoom meeting, someone from the Hilltop Law Firm office will be happy to help you set up your virtual meeting in advance.