One of the most common concerns for spouses declaring bankruptcy in Indiana is the possibility of losing their homes. This is completely understandable, especially if you have a special connection to your family residence. You may have heard that Indiana’s homestead exemption could allow you to keep your home, even if you declare bankruptcy. But is this true? How much protection does the homestead exemption in Indiana give you?

Indiana’s Homestead Exemption is Relatively Weak

Unfortunately, Indiana does not offer its residents a particularly strong homestead exemption. In fact, the state’s homestead exemption is one of the weakest in the entire nation. While certain states offer no upper limits for homestead exemptions, Indiana caps this bankruptcy protection at approximately $22,750 per individual (as of 2026). This exemption may change from year to year based on inflation. A married couple who files for divorce jointly can claim a homestead exemption of $45,500. 

That being said, this exemption could still theoretically allow you to keep your home when you file for Chapter 7 bankruptcy. For example, you and your spouse might have a condo worth $175,000. If you made a down payment of $30,000 and you have paid off an additional $15,000 throughout the years with your mortgage payments, you have “home equity of $45,000. Because your home equity falls within the homestead exemption, you could declare bankruptcy and keep your primary residence in this situation. 

You Can Always Downsize

The homestead exemption is supposed to ensure you always have a roof over your head. While it might be relatively low in Indiana, it should allow spouses to keep enough cash for a down payment on a new property, even if they have to sell a more expensive property and downsize during bankruptcy. For example, you might sell your home in order to pay your debts. You would keep $45,500 in this scenario, and you can use this cash to put a down payment on a less expensive property (perhaps a condo). 

Consider Chapter 13 Bankruptcy Instead

If keeping your home is important to you and the homestead exemption does not cover your home equity, consider Chapter 13 bankruptcy instead of Chapter 7 bankruptcy. A Chapter 13 bankruptcy allows you to keep your assets as long as you adhere to a repayment plan approved by the bankruptcy court and your creditors. This option is also called a “wage-earner’s” bankruptcy. 

Although keeping your home may be a priority, you might also want to consider the challenges associated with Chapter 13 bankruptcy. Your repayment plan could be challenging, and making the difficult decision to liquidate your primary residence may make the bankruptcy process quicker and easier, with few lasting obligations. Sometimes, selling your home is the most logical way to address debt. 

Can a Bankruptcy Lawyer in Indiana Help Me Keep My Home?

A bankruptcy lawyer in Indiana may be able to help you keep your home, even if the homestead exemption does not seem like it’s enough to protect you in this situation. There are always other options, such as a Chapter 13 bankruptcy instead of a Chapter 7 bankruptcy. Contact Christopher L. Arrington, Attorney at Law, for further guidance.