Exemptions for Texas Bankruptcy Filing

Sometimes people hesitate to file for bankruptcy because they worry they will have to sell their home, car, or other important assets. Bankruptcy isn’t designed to make anyone homeless. Understanding your options for Texas bankruptcy exemptions can give you the peace of mind to protect your property and still get out of debt.

How Bankruptcy Exemptions Work

Filing for bankruptcy is a debt relief strategy, but it is also a promise. When you petition for bankruptcy, you are promising to use what you have to satisfy the debts you owe, while the court promises to forgive the rest of the dischargeable debt. How this works depends on the type of bankruptcy you file:

  • In Chapter 7: Your non-exempt assets will be sold or liquidated, and the proceeds distributed to your creditors.
  • In Chapter 13: The value of the non-exempt property you keep is included in your repayment plan, directing how your debts will be paid down over time.

However, both types of bankruptcy carve out protections for exempt property. This is real and personal property covered by one of the federal or Texas bankruptcy exemptions. For many Chapter 7 families, bankruptcy exemptions are broad enough to cover all of your assets, protecting you from losing anything you need for daily living while still relieving you from the burden of paying off past debt. For others, they are a shield that protects the property most important to you.

What is Protected by Federal Bankruptcy Exemptions

No matter how long you’ve lived in Texas, you can always apply the federal bankruptcy exemptions to your petition. Each exemption applies to a specific type of property. Some property has a dollar amount limit, while other types are simply protected as a whole. The federal bankruptcy exemptions for 2019 through April 2022 include:

Federal Bankruptcy Exemption

Value Limit

Homestead exemption

$25,150 in equity on real property; or

$12,575 extra wildcard exemptions for renters

Motor vehicle

$4,000

IRAs and Roth IRAs

$1,362,800

Personal items including household goods, furnishings, appliances, clothing, computers, animals, instruments, etc.

$13,400 (with a limit of $625 per item)

Jewelry

$1,700

Tools of the trade

$2,525

Loan values, dividends & life insurance policy interest

$13,400

Tax-preferred retirement accounts (i.e. 401(k)s)

Unlimited

Prescription health aids

Unlimited

Public benefits including SSI, VA, SSDI, unemployment compensation, and illness benefits

Unlimited

Spousal maintenance (alimony) & child support

Unlimited

Wrongful death awards to dependents

Unlimited

Crime victim compensation

Unlimited

Unmatured life insurance policies

Unlimited

Personal injury awards

$15,000 plus pain and suffering, future earnings, and actual financial losses

Wildcard Exemption

$1,325

The wildcard exemption is a catch-all for any other category that goes above its limit. For example, if you owned a vehicle worth $4,250, you could apply the motor vehicle exemption plus $250 of your wildcard exemption to cover the difference and keep your car.

Remember, also, that these values are per petitioner. If you are married filing jointly and both seeking bankruptcy, the family can apply twice the value for each exemption.

How Texas Bankruptcy Exemptions are Different

Texas bankruptcy exemptions are similar to the federal exemptions in many ways. But there are some significant differences that could make a difference in protecting your family’s assets. For example, you can file for bankruptcy in Texas once you have lived here for at least 6 months, but the Texas bankruptcy exemptions won’t apply until you have lived here for at least 2 years (730 days).

Texas Homestead Exemption

The Texas homestead exemption is far more generous than its federal counterpart. Instead of an equity value, the Texas bankruptcy exemption on property measures that property is size. You can protect up to 10 acres of property in a city, town, or village, or up to 100 acres of country land and farms (couples filing jointly can double this amount). This exemption applies no matter how much that property is worth.

Texas Motor Vehicle Exception

Similarly, the Texas bankruptcy exemptions apply to one motor vehicle per licensed household member, regardless of value. However, the total values of these vehicles get added into the personal property exemption (explained below).

Retirement Assets & Insurance

Just like under federal law, most retirement assets are considered exempt property in a Texas bankruptcy. This includes pensions and tax-exempt retirement accounts. Many life, health and accident insurance benefits are also exempt.

Personal Property Under Texas Bankruptcy Exemptions

The Texas bankruptcy laws create one large pool worth $50,000 per individual or $100,000 per family in exemptions to cover personal property items:

  • Motor vehicles (described above)
  • Home furnishings (including family heirlooms)
  • Farm vehicles and implements
  • Tools of the trade, equipment, and commercial vehicles
  • Jewelry (up to $12,500 per person or $25,000 per family)
  • 2 firearms
  • Athletic equipment
  • Pets and farm animals (limited to 2 horses, mules or donkeys; 12 head of cattle; 60 head of other livestock; 120 fowl)

Other Texas Bankruptcy Exemptions

In addition to the personal property pool listed above, Texas residents may also exempt:

  • Current wages (except to continue paying court-ordered support)
  • College savings plans
  • Prescribed health aids
  • Spousal maintenance (alimony) and child support
  • Bibles and other sacred religious books
  • Burial plots
  • Crime victims’ awards and public officers’ survivor benefits
  • Welfare benefits
  • Medical assistance
  • Specific partnership property interest
  • Unemployment and workers compensation benefits

How to Choose Between Federal and Texas Exemptions for Bankruptcy Filing

Texas bankruptcy exemptions are somewhat unique. Ours is one of the few states where you, as the petitioner, can choose whether to apply the federal bankruptcy exemptions or the state statutes. However, you don’t get to pick and choose; there is no “a little of column A and a little of column B.” Instead, you and your bankruptcy attorney will need to weigh each option to see whether federal or Texas bankruptcy exemptions as a whole shield more of your assets.

The differences between the federal and Texas bankruptcy exemptions can mean the difference between keeping your property and losing it to your creditors. I’m Attorney Patrick T. Williams and I have been helping Houston-area residents make the right choices on their bankruptcy exemptions for over 20 years. I want to help you file for bankruptcy while protecting as much of your property as possible, so you and your family can start fresh, but not from square one. Please call me or fill out an online consultation form to get started.

Categories: Bankruptcy

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