There is no limit on the amount of mortgage debt you can discharge in Chapter 7 bankruptcy. However, Chapter 13 is a bit more complicated. There is a cap on the amount of secured debt that can be included in a Chapter 13 case. In 2026, that limit is $1,580,125. That cap includes all secured debt as of the time of filing. And, it includes mortgage debt even if you plan to surrender your house in the bankruptcy case.
There’s also a big caveat. With very limited exceptions, mortgage debt cannot be discharged unless you surrender the house or the debt has already become unsecured through foreclosure, a short sale or a deed in lieu of foreclosure. In other words, you can’t discharge your mortgage debt but keep your house.
Mortgages And Foreclosure
In order to understand how mortgages are handled in bankruptcy, you need a basic understanding of how mortgages and foreclosures work. A mortgage loan is the loan you take out to purchase your home, to refinance your home, or to borrow against the equity in your home. It’s a secured debt, meaning it’s linked to a specific piece of property as “security.” A mortgage loan gives the bank a “lien,” or a legal right to take the property if you default on your mortgage loan. That’s what’s happening when the bank forecloses on your home.
When the bank forecloses on a home, it then sells that home at auction. Sometimes the home sells for more than you owe. If that’s the case, you’re entitled to what’s left over after the balance is paid off and the costs of the sale are paid. Sometimes, the home sells for less than you owe. The difference between the sale price and the amount of the debt is called the “deficiency balance.”
Depending on the type of foreclosure proceeding, you may or may not be required to pay the deficiency. California offers two different types of foreclosure proceedings: nonjudicial and judicial. A nonjudicial foreclosure doesn’t require the lender to go to court in order to foreclose. If a home is sold through a nonjudicial foreclosure, the lender does not have the right to collect a deficiency. In other words, you’re off the hook for any difference between the amount you owe and the sale price.
A judicial foreclosure is processed through the court system. In general, judicial foreclosures do allow for deficiencies. That means the lender can sue you for the difference between the amount of the debt and the sale price of the home. However, that debt is unsecured because the lender has already taken back the property that served as collateral. The vast majority of foreclosures in California are nonjudicial.
If you have a second mortgage on your home–say, for a home equity loan you took out for a remodeling project–that lender has a junior lien. That means they only get paid out of the proceeds from the foreclosure sale if there’s money left after the first mortgage holder is paid in full. So, if your lender forecloses and the home sells for more than you owe on your primary mortgage, the lender that holds your second mortgage will get the difference. If there’s money left after the second lender is repaid, that will go to the third lender, and so on until all of the debts are paid. If there’s anything left at the end of the chain, it goes to you.
Technically, a junior lienholder can initiate foreclosure proceedings. However, that rarely happens because they would have to pay the original mortgage holder in full before collecting any proceeds from the sale.
When your home is sold through the foreclosure process, the second (and subsequent) lenders lose their lien on the home. That means they lose their claim to ownership of the property. However, they do still hold a debt and can sue you directly for repayment.
Bankruptcy After Foreclosure
If you’ve lost your home to foreclosure or have already surrendered your home to the mortgage holder, any debt you still owe to the lender is unsecured. For example, if your lender went through the judicial foreclosure process and got a deficiency judgment against you, that debt is unsecured just like credit card debt and medical bills and such.
That means the debt can be discharged in Chapter 7 bankruptcy, and is counted as unsecured debt in Chapter 13. The distinction in Chapter 13 matters for two reasons, one that helps the debtor and one that can hurt. In a Chapter 13 plan, some unsecured debt can often be discharged. In some cases, all unsecured debt is discharged. That’s the good news. The bad news is that the unsecured debt limit in Chapter 13 is much lower than the secured debt limit: $526,700 in 2026. That means you may not be able to file Chapter 13 if the deficiency balance and your other unsecured debts add up to more than $526,700.
Can Bankruptcy Help Me Keep My House?
The scenarios above show you how mortgage debt is treated in bankruptcy if you have already lost your home, or if you plan to surrender your home. But what if your goal is to keep your house? The answer is different depending on the type of bankruptcy you file. Generally, Chapter 7 may give you a brief reprieve, but Chapter 13 can often provide a long-term solution.
Mortgages In Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, you’ll divide up your assets into exempt and nonexempt piles. Non-exempt property can be sold by the trustee to partially pay creditors. However, that rarely happens. California offers two different sets of exemptions to protect your property, and you can choose based on the type of assets you want to protect. So most filers are completely protected and don’t have to surrender any property at all. Most unsecured debts remaining after this process are discharged, meaning that you are no longer legally required to pay them.
Your mortgage, however, is a secured debt. If you want to walk away from that debt completely, you’ll have to surrender your home. If you surrender your home in bankruptcy, the bank will take possession of it and sell it just like in a foreclosure. However, bankruptcy wipes out your personal liability for the debt. That means you won’t have to pay a deficiency if the home sells for less than you owe.
If you have a second or other junior mortgage, your bankruptcy discharge will wipe out your personal liability for that, too. However, the liens will typically remain, meaning the lienholders retain a right to foreclose if you don’t make payment.
But if you’ve fallen behind on your mortgage and want to keep your house, Chapter 7 is rarely a full solution. While the automatic stay entered in most bankruptcy cases freezes collection action–including foreclosure–it’s a temporary pause. At the latest, the automatic stay terminates with your bankruptcy case, which will typically only last 4-6 months. In most cases, the lender won’t even have to wait that long. Instead, they’ll file a motion for relief from the automatic stay, asking the bankruptcy court to allow them to proceed with collections, including foreclosure. These motions are usually granted.
Mortgages In Chapter 13 Bankruptcy
Chapter 13 bankruptcy works differently, and is often a better option for a homeowner who is behind on mortgage payments but wants to keep the house. That’s because in Chapter 13, you can catch up past-due mortgage payments over time.
In Chapter 13 bankruptcy, you’ll give the court a full report of your income and expenses. You’ll work with the court and your bankruptcy attorney to come up with a payment plan based on your earnings, your debts, and the value of any nonexempt assets. You’ll make payments for 3-5 years, after which many remaining unsecured debts can be discharged. Your payments will go to your secured debts, such as your mortgage and auto loans, first. Whatever is left each month will go to your unsecured creditors.
In order to keep your home in Chapter 13, you’ll need to show the court that you can afford to make your regular payments and also payments for any arrears. If you can make those payments, the bank is required to let you keep the home.
If you have a second or other junior mortgage, you may be eligible for “lien stripping.” If your home is “underwater,” meaning it’s worth less than you owe, any junior liens can be stripped away. That means the holder of your second mortgage loses its claim on your home and your second mortgage debt becomes regular unsecured debt. That unsecured debt will be discharged in bankruptcy. However, a second or subsequent lien can only be stripped if it is left entirely unsecured after the first mortgage (or other senior liens) are accounted for.
What should I do about my mortgage?
As you can see, the treatment of mortgages in bankruptcy can get a little complicated. If you’re struggling with debt and you have a mortgage, contact us today for a free consultation and case evaluation with one of our experienced California bankruptcy attorneys. We can explain your options and what to expect for your mortgage. We can also help you decide on the best course of action for your unique goals and needs.