diff --git a/scripts/update.sh b/scripts/update.sh
index 0348571..4292414 100755
--- a/scripts/update.sh
+++ b/scripts/update.sh
@@ -3,13 +3,18 @@
 # update.sh - Main update orchestrator
 # =============================================================================
 # Performs a full system and service update:
-#   1. Pulls latest changes from the git repository (git reset --hard + pull)
-#   2. Updates Ubuntu system packages (apt-get update && upgrade)
-#   3. Delegates to apply_update.sh for service updates
+#   1. Backs up user-customizable directories (e.g., python-runner/)
+#   2. Pulls latest changes from the git repository (git reset --hard + pull)
+#   3. Restores backed up directories to preserve user modifications
+#   4. Updates Ubuntu system packages (apt-get update && upgrade)
+#   5. Delegates to apply_update.sh for service updates
 #
 # This two-stage approach ensures apply_update.sh itself gets updated before
 # running, so new update logic is always applied.
 #
+# Preserved directories: Defined in PRESERVE_DIRS array in utils.sh.
+# These directories contain user-customizable content that survives git reset.
+#
 # Usage: make update  OR  sudo bash scripts/update.sh
 # =============================================================================
 
@@ -19,6 +24,20 @@ set -e
 source "$(dirname "$0")/utils.sh"
 init_paths
 
+# Global variable to track backup path for cleanup
+BACKUP_PATH=""
+
+# Cleanup function for interrupted updates
+cleanup_on_exit() {
+    local exit_code=$?
+    if [ -n "$BACKUP_PATH" ] && [ -d "$BACKUP_PATH" ]; then
+        log_warning "Cleaning up backup directory: $BACKUP_PATH"
+        rm -rf "$BACKUP_PATH"
+    fi
+    exit $exit_code
+}
+trap cleanup_on_exit INT TERM
+
 # Path to the apply_update.sh script
 APPLY_UPDATE_SCRIPT="$SCRIPT_DIR/apply_update.sh"
 
@@ -44,10 +63,40 @@ if ! command -v git &> /dev/null; then
 else
     # Change to project root for git pull
     cd "$PROJECT_ROOT" || { log_error "Failed to change directory to $PROJECT_ROOT"; exit 1; }
-    git reset --hard HEAD || { log_warning "Failed to reset repository. Continuing update with potentially unreset local changes..."; }
-    git pull || { log_warning "Failed to pull latest repository changes. Continuing update with potentially old version of apply_update.sh..."; }
-    # Change back to script dir or ensure apply_update.sh uses absolute paths or cd's itself
-    # (apply_update.sh already handles cd to PROJECT_ROOT, so we're good)
+
+    # Backup user-customizable directories before git reset (uses PRESERVE_DIRS from utils.sh)
+    if ! BACKUP_PATH=$(backup_preserved_dirs); then
+        log_error "Backup failed. Aborting update to prevent data loss."
+        exit 1
+    fi
+
+    if [ -n "$BACKUP_PATH" ]; then
+        log_info "Backup created at: $BACKUP_PATH"
+    fi
+
+    # Git operations
+    if ! git reset --hard HEAD; then
+        log_error "Git reset failed."
+        restore_preserved_dirs "$BACKUP_PATH"
+        exit 1
+    fi
+
+    if ! git pull; then
+        log_error "Git pull failed."
+        restore_preserved_dirs "$BACKUP_PATH"
+        exit 1
+    fi
+
+    # Restore user-customizable directories after git pull
+    if ! restore_preserved_dirs "$BACKUP_PATH"; then
+        log_error "Failed to restore user directories from backup."
+        log_error "Backup may still be available at: $BACKUP_PATH"
+        BACKUP_PATH=""  # Prevent cleanup from deleting it
+        exit 1
+    fi
+
+    # Clear backup path after successful restore
+    BACKUP_PATH=""
 fi
 
 # Update Ubuntu packages before running apply_update
diff --git a/scripts/utils.sh b/scripts/utils.sh
index af132aa..3ffa405 100755
--- a/scripts/utils.sh
+++ b/scripts/utils.sh
@@ -12,6 +12,7 @@
 #   - Validation helpers: require_command, require_file, ensure_file_exists
 #   - Profile management: is_profile_active, update_compose_profiles
 #   - Doctor output helpers: print_ok, print_warning, print_error
+#   - Directory preservation: backup_preserved_dirs, restore_preserved_dirs
 #
 # Usage: source "$(dirname "$0")/utils.sh" && init_paths
 # =============================================================================
@@ -603,3 +604,120 @@ wt_parse_choices() {
     local cleaned="${choices//\"/}"
     read -ra arr <<< "$cleaned"
 }
+
+#=============================================================================
+# DIRECTORY PRESERVATION (for git updates)
+#=============================================================================
+# Directories containing user-customizable content that should survive git reset.
+# Used by update.sh to backup before git operations and restore after.
+PRESERVE_DIRS=("python-runner")
+
+# Backup preserved directories before git reset
+# Usage: backup_path=$(backup_preserved_dirs) || exit 1
+# Returns: 0 on success (prints backup path), 1 on failure
+# Default backup location: secure temp directory via mktemp
+backup_preserved_dirs() {
+    local backup_base=""
+    local has_content=0
+
+    # Check if any directories need backup
+    for dir in "${PRESERVE_DIRS[@]}"; do
+        if [ -d "$PROJECT_ROOT/$dir" ] && [ -n "$(ls -A "$PROJECT_ROOT/$dir" 2>/dev/null)" ]; then
+            has_content=1
+            break
+        fi
+    done
+
+    # No content to backup
+    if [ $has_content -eq 0 ]; then
+        echo ""
+        return 0
+    fi
+
+    # Create secure temporary directory
+    backup_base=$(mktemp -d /tmp/n8n-install-backup.XXXXXXXXXX) || {
+        log_error "Failed to create backup directory"
+        return 1
+    }
+    chmod 700 "$backup_base"
+
+    # Backup each directory
+    for dir in "${PRESERVE_DIRS[@]}"; do
+        # Validate directory name (no path traversal)
+        if [[ "$dir" =~ \.\.|^/ ]]; then
+            log_error "Invalid directory name in PRESERVE_DIRS: $dir"
+            rm -rf "$backup_base"
+            return 1
+        fi
+
+        if [ -d "$PROJECT_ROOT/$dir" ] && [ -n "$(ls -A "$PROJECT_ROOT/$dir" 2>/dev/null)" ]; then
+            log_info "Backing up $dir/ before git reset..."
+            if ! cp -rp "$PROJECT_ROOT/$dir" "$backup_base/$dir"; then
+                log_error "Failed to backup $dir/. Aborting to prevent data loss."
+                rm -rf "$backup_base"
+                return 1
+            fi
+        fi
+    done
+
+    echo "$backup_base"
+    return 0
+}
+
+# Restore preserved directories after git pull
+# Usage: restore_preserved_dirs <backup_base_path>
+# Returns: 0 on success, 1 on failure
+restore_preserved_dirs() {
+    local backup_base="$1"
+
+    # Nothing to restore
+    if [ -z "$backup_base" ]; then
+        return 0
+    fi
+
+    if [ ! -d "$backup_base" ]; then
+        log_warning "Backup directory not found: $backup_base"
+        return 0
+    fi
+
+    # Safety checks for PROJECT_ROOT
+    if [ -z "$PROJECT_ROOT" ]; then
+        log_error "PROJECT_ROOT is not set. Refusing to restore."
+        return 1
+    fi
+
+    if [ "$PROJECT_ROOT" = "/" ] || [ "$PROJECT_ROOT" = "/root" ] || [ "$PROJECT_ROOT" = "/home" ]; then
+        log_error "PROJECT_ROOT is set to a dangerous path: $PROJECT_ROOT"
+        return 1
+    fi
+
+    for dir in "${PRESERVE_DIRS[@]}"; do
+        # Validate directory name
+        if [[ "$dir" =~ \.\.|^/ ]] || [ -z "$dir" ]; then
+            log_error "Invalid directory name: $dir"
+            continue
+        fi
+
+        if [ -d "$backup_base/$dir" ]; then
+            log_info "Restoring $dir/ after git pull..."
+
+            # Remove the git-restored version
+            if [ -d "$PROJECT_ROOT/$dir" ]; then
+                if ! rm -rf "$PROJECT_ROOT/$dir"; then
+                    log_error "Failed to remove $PROJECT_ROOT/$dir"
+                    return 1
+                fi
+            fi
+
+            # Restore from backup
+            if ! mv "$backup_base/$dir" "$PROJECT_ROOT/$dir"; then
+                log_error "Failed to restore $dir/ from backup"
+                return 1
+            fi
+        fi
+    done
+
+    # Cleanup backup directory
+    rm -rf "$backup_base"
+    return 0
+}