In Most Cases, Yes
Most Michigan homeowners who file Chapter 7 bankruptcy are able to keep their home — provided they are current on their mortgage payments and their home equity falls within Michigan's homestead exemption. Bankruptcy eliminates your personal liability on unsecured debts, not your secured mortgage obligation.
Michigan's Homestead Exemption
Michigan law allows you to exempt up to $40,475 in home equity (as of 2024) from the bankruptcy estate. If you are 65 or older, or disabled, the exemption increases to $60,725. If your equity is within this limit, the trustee cannot force a sale of your home. If your equity exceeds the exemption, the trustee may sell the property and pay you the exempt portion.
You Must Stay Current on Your Mortgage
Chapter 7 discharges your personal obligation to repay the mortgage debt, but it does not eliminate the lender's lien on the property. If you want to keep your home, you must continue making mortgage payments. If you are behind on payments, Chapter 7 only provides a temporary pause through the automatic stay — it does not give you a way to catch up. Chapter 13 is the better option if you are facing foreclosure.
Reaffirmation Agreements
Your lender may ask you to sign a reaffirmation agreement, which means you agree to remain personally liable for the mortgage even after bankruptcy. This is optional in most cases. Your attorney can help you decide whether reaffirming the debt is in your best interest.
What If I'm Behind on Payments?
If you are behind on your mortgage and at risk of foreclosure, Chapter 13 is almost always the better choice. It allows you to catch up on missed payments through a structured repayment plan over 3 to 5 years, while the automatic stay halts foreclosure proceedings immediately upon filing.
Key Takeaways
- Most Michigan homeowners keep their home in Chapter 7
- Michigan's homestead exemption protects up to $40,475 in equity
- You must stay current on mortgage payments to keep the home
- Chapter 13 is better if you are behind on payments or facing foreclosure
- A reaffirmation agreement is optional — ask your attorney first