Chapter 7 Bankruptcy: Selling Your House in California
If you own a house in California and you’re thinking about Chapter 7, the first question is usually whether you’ll lose it. Most of the time the answer comes down to one comparison: how much equity you have versus how much of it the California homestead exemption protects. Equity inside the exemption stays yours. Equity well above it is what a Chapter 7 trustee is appointed to find, and selling the house is how they reach it.
This guide walks through how that works before you file, while the case is open, and after the discharge, with a worked example at the end.
What the Chapter 7 trustee actually does
When you file Chapter 7, nearly everything you own becomes part of the “bankruptcy estate,” including your house. The court appoints a trustee whose job is to review your assets, decide what’s protected by exemptions, and turn anything that isn’t protected into money for your creditors. Chapter 7 is a liquidation chapter. That’s the key difference from Chapter 13, where you keep your property and repay creditors through a three-to-five-year plan.
A trustee doesn’t sell houses for the sake of it. Trustees are paid partly from what they recover, and a sale costs money: agent commissions, escrow, transfer taxes, and the trustee’s own fees. If paying off the mortgage, any liens, your exemption and the sale costs would leave little or nothing for creditors, the trustee will usually “abandon” the house back to you and move on. If there’s a real cushion of unprotected equity, expect the trustee to look hard at selling.
California’s two exemption systems: 704 vs. 703
California doesn’t let filers use the federal bankruptcy exemptions. Instead you choose one of two state systems, and you can’t mix them. For a homeowner with real equity, this choice matters more than almost anything else on the forms.
| System 1 (CCP 704) | System 2 (CCP 703.140) | |
|---|---|---|
| Home equity protection | Homestead exemption under CCP 704.730 (hundreds of thousands of dollars) | About $36,750 for a residence |
| Wildcard | None | About $1,950 plus any unused part of the $36,750 |
| Usually best for | Homeowners with meaningful equity | Renters, or owners with little equity and other assets to protect |
The System 2 amounts are adjusted every three years by the Judicial Council; the figures above are the ones that took effect April 1, 2025. If you own a home with substantial equity, System 1 is almost always the one that protects it.
How much the homestead exemption protects
Under Code of Civil Procedure section 704.730, the homestead exemption is the greater of $300,000 or the countywide median sale price for a single-family home in the prior calendar year, with that median capped at $600,000. Since January 1, 2022, both the $300,000 floor and the $600,000 cap adjust each year for inflation using the California Consumer Price Index.
No state agency publishes an official table of the adjusted numbers, so you’ll see slightly different figures from different sources. Bankruptcy practitioners’ 2026 calculations put the range at roughly $371,000 at the low end to about $744,000 at the top. In Los Angeles County and most coastal counties, where single-family medians sit well above the cap, filers generally qualify for the top of that range. Inland counties with lower medians land somewhere in between. We break the formula down further in our guide to the California homestead exemption and home equity.
A couple of limits to know about. To use California’s exemptions at all, you generally need to have lived in California for the 730 days before filing. And federal law can cap the homestead amount if you bought the home relatively recently (within 1,215 days, or about three and a third years, of filing). Your attorney will check both.
Selling before you file
Selling before filing can make sense, but it’s not automatically the better move, and this is where people get hurt. The homestead exemption protects equity in your home. Once you sell, that equity turns into cash in a bank account, and cash is mostly not protected in a Chapter 7. So if you sell, then file a month later with $400,000 in the bank, the trustee may be able to take most of it.
Selling first tends to work when the plan is to use the proceeds to pay off debts and avoid bankruptcy entirely, or when your equity is so far above the exemption that a trustee sale is nearly certain and you’d rather control the price and timing yourself. Two traps to avoid:
- Paying back family or friends first. Payments to insiders within a year before filing can be clawed back by the trustee as preferences.
- Selling cheap or moving money around. Transferring the house to a relative or selling well under value before filing can be undone as a fraudulent transfer, and it can put your discharge at risk.
Sit down with a bankruptcy attorney before you list. The order in which you sell, pay debts and file changes the outcome.
Selling during an open Chapter 7 case
Once you’ve filed, the house belongs to the bankruptcy estate, so you can’t simply list it and close escrow on your own. One of two things usually happens:
- The trustee sells it. The trustee hires an agent (often with court approval of the employment), markets the home, and files a motion to approve the sale. Creditors get notice and a chance to object, and the bankruptcy judge signs an order before escrow closes. Title companies will insist on that order.
- The trustee abandons it, or agrees to a sale. If there’s no meaningful non-exempt equity, the trustee can abandon the property, which returns control to you. In some cases the debtor and trustee agree on a sale, or the debtor buys out the estate’s interest in the equity, again with court approval.
When the trustee sells, the money is paid out in a set order: costs of sale, then the mortgage and any valid liens, then your homestead exemption amount paid to you in cash, and only then anything left over to the trustee for creditors. If a non-filing spouse or co-owner is on title, the trustee can in some situations sell the whole property and pay the co-owner their share.
Selling after the discharge
A typical no-asset Chapter 7 wraps up in about four months. If the trustee abandoned the house or the case closed with the house exempt, you own it again free of the discharged personal debts and can sell like anyone else. Two things survive bankruptcy, though: your mortgage lien and any valid judgment liens that weren’t removed during the case. Those still get paid at closing. If a judgment lien impaired your homestead exemption, your attorney may have been able to file a motion to avoid it during the case, so ask about that before you sell.
A worked example
Here’s a simplified example using rounded numbers for a home in Los Angeles County, assuming the filer qualifies for roughly the top of the 2026 homestead range (about $744,000) and uses System 1.
| Home A | Home B | |
|---|---|---|
| Market value | $950,000 | $1,400,000 |
| Mortgage balance | $420,000 | $300,000 |
| Estimated sale costs (about 8%) | $76,000 | $112,000 |
| Net equity after sale costs | $454,000 | $988,000 |
| Homestead exemption | ~$744,000 | ~$744,000 |
| Left for creditors (before trustee fees) | $0 | ~$244,000 |
Home A is fully protected, so a trustee has no reason to sell it. Home B has roughly $244,000 of unprotected equity, which makes a trustee sale very likely. The owner of Home B would still walk away with about $744,000 in cash from a trustee sale, but they’d lose control over price, timing and terms, and the trustee’s fees come out of the pot too. That’s the kind of situation where talking to an attorney about a pre-filing sale, a Chapter 13, or a negotiated buyout with the trustee is worth the time.
Common questions
Do I need to record a homestead declaration to be protected in bankruptcy?
No. The automatic homestead exemption applies to the home you live in. You claim it on your bankruptcy schedules. A recorded declaration mainly matters in other creditor situations, such as forced judgment sales outside bankruptcy.
Can I keep living in the house while the trustee sells it?
Usually until closing, as long as you cooperate with showings and keep the property in reasonable shape. The trustee can ask the court to order you out if you don’t.
Is Chapter 13 a better fit if I have too much equity?
Often. In Chapter 13 you keep the house and pay creditors at least what they’d get in a Chapter 7 liquidation, spread over the plan. It’s a common route for owners with equity above the exemption who want to stay.
If selling is the right call
If you and your attorney decide a sale makes sense, whether before filing, through the trustee, or after discharge, a buyer who can close on a predictable timeline takes a lot of pressure off. We either buy directly or bring a vetted cash buyer, we buy as-is, and we can work around trustee, attorney and court approval timelines. You can see more about selling a house during bankruptcy on our main page. Call us at (424) 435-2326 or request a no-obligation offer online.