Chapter 7 vs Chapter 13 Bankruptcy and Your Indiana Home
Marion County and Indianapolis homeowners considering bankruptcy face a critical question: Chapter 7 liquidation or Chapter 13 reorganization — and what each means for your home. Understanding the difference before filing can save your house or help you exit cleanly. This is general educational information — consult a licensed Indiana bankruptcy attorney for advice specific to your situation.
Chapter 7 Bankruptcy and Your Indiana Home
Chapter 7 bankruptcy liquidates non-exempt assets to pay creditors. Indiana's homestead exemption under IC 34-55-10-2 protects up to $19,300 in home equity (as of 2024 — verify current amount with a licensed attorney). If your equity exceeds the exemption, the trustee may sell your home to pay creditors. Chapter 7 does not stop foreclosure permanently — it provides an automatic stay that temporarily halts foreclosure, but the lender can file for relief from stay. Chapter 7 discharges unsecured debt in 3–6 months.
Chapter 13 Bankruptcy and Your Indiana Home
Chapter 13 bankruptcy creates a 3–5 year repayment plan to catch up on mortgage arrears and keep the home. It is the primary tool for stopping foreclosure and saving a home in Indiana. The automatic stay halts foreclosure immediately upon filing. The homeowner must make current mortgage payments plus a plan payment to catch up on arrears. Chapter 13 requires regular income and is more complex than Chapter 7.
When Selling Before Bankruptcy Makes Sense
If you have significant equity and cannot afford to keep the home even with a Chapter 13 plan, selling before filing bankruptcy may be the better option. A pre-bankruptcy sale allows you to capture equity, pay off the mortgage, and potentially protect proceeds up to the homestead exemption. Selling after filing requires court approval (a motion to sell). Consult a licensed Indiana bankruptcy attorney before making this decision.
Bankruptcy Automatic Stay and Indiana Foreclosure
Filing either Chapter 7 or Chapter 13 triggers an automatic stay under 11 U.S.C. § 362 that immediately halts all collection actions including foreclosure. However, lenders can file a motion for relief from stay in Chapter 7 cases. In Chapter 13, the stay remains in place as long as the debtor makes plan payments. The automatic stay is a powerful tool but not a permanent solution without a viable repayment plan.
Selling Your Indiana Home Instead of Filing Bankruptcy
For homeowners whose primary problem is an unaffordable mortgage — not other unsecured debt — selling the home may resolve the financial crisis without the long-term credit impact of bankruptcy. A cash sale to Bartolini Cash Buyers can close in 7 days, pay off the mortgage, and potentially leave proceeds for a fresh start. This avoids the 7–10 year credit impact of bankruptcy and the complexity of court proceedings.
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