Texas has more generous bankruptcy exemptions than many other states. It also allows bankruptcy filers to choose whether they want to use the Texas state bankruptcy exemptions or the federal bankruptcy exemptions. In many cases, the state exemptions are more beneficial to bankruptcy filers who own a home or car. But unlike the federal exemptions, Texas doesn’t offer a wildcard exemption to protect personal property of your choosing.
If you’re struggling with mounting credit card debt, medical bills, or other unsecured debts, you may have heard that bankruptcy can help give you a financial fresh start. But many Texans are worried about losing important property, like their motor vehicle or home, during the process. The good news is that this rarely happens. Most people don’t lose any property when they file Chapter 7 bankruptcy in Texas. That’s because bankruptcy exemptions are there to protect the things you own.
In this article, we’ll explain what bankruptcy exemptions are and how you can use them to protect the things you own when you file Chapter 7 bankruptcy in Texas.
Why Bankruptcy Exemptions Are Important in a Chapter 7 Bankruptcy
When you file Chapter 7 bankruptcy, you have to list all your assets in your bankruptcy paperwork. Your assets become part of your bankruptcy estate. Many of these assets will be covered by exemptions. An exemption is a law that protects certain property from being sold to pay your unsecured creditors. If you have any non-exempt property, the bankruptcy trustee that administers your case can sell it and use the proceeds to pay your creditors. Most Chapter 7 cases are no-asset cases, meaning the debtor filing the case gets to keep all their property since it’s all protected by exemptions.
Some bankruptcy exemptions are unlimited. They cover the full amount of the item they protect. Others have a specific exemption amount.
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Should You Use State or Federal Bankruptcy Exemptions?
The Bankruptcy Code is a federal bankruptcy law that governs many aspects of bankruptcy across the U.S. But states can 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’ state exemptions. 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 also use the federal nonbankruptcy exemptions. Also, to use the Texas bankruptcy exemptions, you must be a Texas resident for at least two years before you file bankruptcy.
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 it 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.
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.
You can protect the following personal property:
Athletic equipment and sporting equipment, including bicycles.
Up to two firearms.
Home furnishings, such as family heirlooms.
Jewelry worth up to $12,500 for single filers (double this if you’re married).
Bibles and other books with sacred or religious writings. (Note that these books aren’t subject to the $50,000 limit.)
Food and clothing.
Alimony and/or child support.
Health aids, like wheelchairs, hearing aids, and canes.
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.
Health savings accounts.
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. And 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.
Wild Card 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 $1,475 plus up to $13,950 leftover from your homestead exemption. That’s a potential total of $15,425.
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 exemption laws in Texas provide 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.
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.
Is Chapter 7 Bankruptcy Right for You?
Only you can decide if filing bankruptcy is the right step to take to deal with your debt. If you want to file bankruptcy, you’ll need to decide if Chapter 7 or Chapter 13 bankruptcy is better for you. Then you’ll have to choose which set of exemptions will benefit you most given the property you own and want to protect.
Luckily, you don’t have to do this alone. You can get legal advice from a bankruptcy attorney. Many offer free consultations. A skilled bankruptcy attorney can guide you through the bankruptcy process and ensure that you receive the maximum benefit from the available exemptions. Upsolve can also help. If you decide to file Chapter 7 bankruptcy, you can use our free filing tool to get your paperwork in order.