What Are the Texas Bankruptcy Exemptions?

Why Are Exemptions Important in a Chapter 7 Bankruptcy?

An exemption is a law that protects certain property from being sold to pay your unsecured creditors. When you file Chapter 7 bankruptcy, you have to list everything you own in your bankruptcy paperwork. All of this becomes part of your bankruptcy estate. Many of these items will be covered by exemptions.

If you have any non-exempt property, the bankruptcy trustee can sell it and use the proceeds to pay your creditors. Most Chapter 7 cases are no-asset cases, meaning you get to keep all your belongings because they’re all protected by exemptions.

Some bankruptcy exemptions are unlimited and cover the full value of the item they protect. Others have a specific exemption amount.

If this feels confusing and you’re just looking for help filing your Chapter 7 case, you can see if you’re eligible to use Upsolve’s free filing tool. This will walk you through the process step by step. Upsolve has helped over 13,000 people discharge more than $700 million of debt through Chapter 7. All for free.

Should You Use State or Federal Bankruptcy Exemptions?

The Bankruptcy Code is the federal law that governs many aspects of bankruptcy across the U.S., and it includes a list of exemptions. But states can choose to set their own exemptions. Texas is one of a minority of states that allows filers to choose which set of exemptions they want to use: the federal bankruptcy exemptions or Texas’s state exemptions. To use the Texas bankruptcy exemptions, you must be a Texas resident for at least two years before you file bankruptcy.

You can’t use some federal bankruptcy exemptions and some state exemptions. You have to choose one set of exemptions to use for all the assets in your bankruptcy case. 

While you can’t protect property using both sets of exemptions, if you choose Texas state exemptions, you can still use the federal non-bankruptcy exemptions.

Some states have more generous exemptions than others. Many filers find that the Texas bankruptcy exemptions are more generous than the federal exemptions for many items. But if you have certain assets that aren’t covered by a state exemption — like lawsuit proceeds — you may want to use the federal bankruptcy exemptions and take advantage of its generous wildcard exemption.

Texas Bankruptcy Exemptions

The state of Texas’ bankruptcy exemptions are some of the most generous in the country. Let’s take a look at some of the most commonly used state exemptions.

Real Property: The Texas Homestead Exemption

The Texas homestead exemption allows filers to protect an unlimited amount of equity in a home they use as a primary residence. While this is extremely generous compared to other states, Texas’ homestead exemption does include some acreage restrictions. They vary depending on where your home is located. 

• If you reside in a city, town, or village, the Texas homestead exemption protects your property if you own 10 acres or less. 

• If you live in a rural area, you can protect up to 100 acres. 

Texas also allows you to keep the profits from the sale of a property for six months following the sale. 

Source: Tex. Prop. Code §§ 41.001 - 41.003; Tex. Const., Art. 16, §§ 50, 51

Personal Property Exemptions

Your home or real estate is called real property, and most of the other things you own are classified as personal property. Personal property includes motor vehicles, home furnishings, clothes, jewelry, household goods, livestock, and other items. 

There are many personal property bankruptcy exemptions in Texas. If you’re filing bankruptcy as a single person, these exemptions can’t exceed a total of $50,000. If you’re married and filing your case jointly, you get to double that amount. Remember that this amount includes your motor vehicle.

You can protect the following personal property, which counts toward the $50,000 cap:

• Athletic equipment and sporting equipment, including bicycles

• Up to two firearms

• Home furnishings and family heirlooms

• Jewelry worth up to $12,500 for single filers (double if you’re married and filing jointly)

• Food and clothing

• Animals, including domestic animals and pets and their food. This includes two horses, donkeys, or mules, plus tack; 12 head of cattle; 60 head of any other livestock; and 120 fowl. 

You can also exempt the following items, which aren’t counted toward the $50,000 cap:

• Bibles and other books with sacred or religious writings 

• Health aids, like wheelchairs, hearing aids, and canes

• Alimony and/or child support

• Burial plots

Source: Tex. Prop. Code §§ 42.002 (a)(1), 42.002 (a)(2)(5), 42.002 (a)(3), 42.002 (a)(4), 42.002 (a)(6), 42.002 (a)(7), 42.002 (a)(8), 42.002 (a)(10)(11)

Motor Vehicle Exemption

Like the homestead exemption, the Texas motor vehicle exemption is very generous. It allows filers to exempt the complete value of one car per licensed household member. So for every member in your home with a driver’s license, one motor vehicle is exempt.

If a member of your household doesn’t have a driver’s license but owns a car that someone else operates on their behalf with a license, that car is also exempt. This often applies to individuals with disabilities. The motor vehicle exemption does not have a specific amount, but the amount you exempt is included in the total personal property exemption, which is capped at $50,000 for single filers and $100,000 for married joint filers.

Source: Tex. Prop. Code § 41.002(a)(9)

Wildcard Exemption

While Texas law provides generous bankruptcy exemptions for your house, car, and other personal property, it doesn’t have a wildcard exemption. A wildcard exemption allows you to protect any asset of your choosing. In many cases, Texas’ exemptions are more generous than federal bankruptcy exemptions. But the wildcard exemption is an exception.

If you choose to use federal bankruptcy exemptions, you can use the federal wildcard exemption to protect up to $1,675 plus up to $15,800 leftover from your homestead exemption. That’s a potential total of $17,475.

Money Benefits

Both federal and state laws allow you to protect most retirement plans and pensions that are tax-exempt. So, if your retirement account or pension is exempt from tax under the U.S. Tax Code, it’ll likely qualify for bankruptcy exemptions. An experienced bankruptcy lawyer in Texas can review your retirement fund or pension to determine if it’s eligible for bankruptcy exemptions and tax exemptions. 

State bankruptcy law in Texas provides exemptions for retirement accounts and pensions that federal law doesn’t. This includes the following kinds of accounts:

• Employee pension and retirement benefits for district and county employees

• IRAs, Keoghs, and Roth IRAs

• ERISA-qualified church or government benefits

• Survivor benefits for firefighters, police officers, and emergency medical staff

• Police and firefighter retirement and pension benefits

• Pension and retirement benefits for judges

• Retirement accounts for elected officials, municipal employees, and state employees

• Retirement benefits and pensions for school teachers

• Other tax-deferred retirement benefits 

Texas exemptions also protect certain types of public assistance and benefits like unemployment compensation and workers’ compensation. Crime victims' compensation is also protected. 

Insurance Exemptions

Many life insurance policies or other insurance benefits can be exempt under state or federal law. In most cases, you have to report the cash value of these assets when filing bankruptcy. In Texas, the following are usually exempt:

• Life, accident, health, or annuity benefits that are due to or have been paid to beneficiaries or insured individuals

• Fraternal benefit society benefits, including benefits from the Freemasons, Elks, and Knights of Columbus

• Uniform group insurance benefits for Texas employees

• Group insurance benefits for public school employees in Texas

• Benefits of employees of state colleges and universities in Texas

Lawsuit Settlement Exemptions

If you’ve received a settlement from a legal claim, it’s not likely exempt under state law. Federal exemptions offer some protection for personal injury and wrongful death awards. You can also use the federal wildcard exemption to protect a certain portion of these funds. Also, any pending legal claims are considered assets when you file for bankruptcy. You’ll have to disclose this information in your bankruptcy paperwork. 

Texas vs. Federal Bankruptcy Exemptions Compared

When you’re trying to decide between using the state or federal bankruptcy exemptions, you’ll want to look at your most important property to see which option does a better job of protecting that property.

Here’s a quick comparison of some of the most commonly used bankruptcy exemptions and how they’re protected by Texas state law versus federal bankruptcy law.

Need Help Filing Chapter 7 Bankruptcy in Texas?

If you’ve decided that Chapter 7 is the right next step in your debt relief journey, you can see if you’re eligible to use Upsolve’s free filing tool. We’ve helped over 13,000 people get rid of over $700 million of debt.

If you want some personalized advice about your bankruptcy case, you can schedule a free consultation with an experienced bankruptcy attorney. A skilled bankruptcy attorney can guide you through the bankruptcy process and ensure that you receive the maximum benefit from the available exemptions.