Texas bankruptcy exemptions protect your property in bankruptcy, and becoming familiar with bankruptcy exemptions before filing will help you determine whether your assets will be at risk.
Bankruptcy helps struggling people get back on their feet by lessening their debt burden, not stripping them of everything they own. Exemptions allow bankruptcy filers to keep things needed to maintain a home and employment.
But paying creditors is also an important consideration. Bankruptcy exemptions balance these interests by letting filers keep necessary property but not unnecessary luxury items. Creditors receive bankruptcy funds when a bankruptcy filer owns "nonexempt" property not covered by a bankruptcy exemption.
You'll compare your property to Texas's exemption laws. In most states (not all), debtors can use exemption laws to keep property from a creditor's reach in and outside bankruptcy.
Example. Big Creditor sued Ronin and received a $5,000 money judgment. When Big Creditor attempted to "levy" or remove money from Ronin's bank account, Ronin objected in court. Because the state's exemption law allowed Ronin to protect $1,500 of funds in a bank account, Big Creditor could seize only $3,500.
Example. When Maria filed for bankruptcy, she also had $5,000 in her checking account. She listed the state's $1,500 cash exemption in her bankruptcy petition and gave the nonexempt $3,500 to the bankruptcy trustee.
Yes, but you have two choices in Texas. You can use Texas state exemptions and federal nonbankruptcy exemptions. Or you can use federal bankruptcy exemptions. You'll find both lists below. In many cases, married filers can double the exemption amount when filing together when they both own the property. Check with a local bankruptcy lawyer for specifics.
Texas bankruptcy filers can protect home equity using the Texas homestead exemption, equity in a car using the Texas motor vehicle exemption, and more.
The Texas homestead exemption is as generous as a homestead exemption comes. You can protect an unlimited amount of equity in your principal residence. Learn more about qualifying for the homestead exemption and protecting your home in bankruptcy.
The Texas motor vehicle exemption is also generous—the law allows you to exempt the entire value of one motor vehicle per licensed household member. If you have a household member who doesn't have a license, you can still exempt that vehicle if the unlicensed person relies on someone else to operate the vehicle. However, you must include the motor vehicles in the $50,000/$100,000 personal property exemption cap--more below. (Tex. Prop. Code § 41.002(a)(9).)
The personal property you exempt (things other than real estate) cannot exceed $50,000 if you are a single adult or $100,000 if you have a family. For example, if all your personal property is worth $125,000, you can exempt only $100,000 if you are the head of a family. The remaining $25,000 will be nonexempt. By contrast, a single person would be limited to $50,000 of personal property.
You'll include these items in the $50,000/100,000 cap:
These items are also exempt, but you don't need to count them as part of the $50,000/100,000 cap:
Most tax-exempt pensions and retirement accounts are exempt, even if you choose the Texas exemptions instead of the federal exemptions because federal law lets filers keep tax-exempt retirement accounts in bankruptcy. These retirement accounts include 401(K)s, 403(b)s, profit-sharing and money purchase plans, SEP and SIMPLE IRAs, and traditional and Roth IRAs to $1,512,350 per person. (11 USC 522(b)(3)(C); (n); amounts valid for bankruptcy cases filed between April 1, 2022, and March 31, 2025.)
You can check with your fund to determine if it qualifies for tax-exempt status. Additionally, Texas provides that the following pensions and retirement accounts are exempt under Texas law:
You can search for Texas exemption laws on the Texas Constitution and Statutes homepage. However, most statutes don't include updated amounts, and understanding statutory requirements can be challenging. It's best to consult a local bankruptcy lawyer.
The exemption set best for you will depend on the property you own. You can't select exemptions from both lists, so choose the most advantageous set. You'll find some of the federal exemptions below. Federal exemption amounts will be adjusted on April 1, 2025.
If your retirement account is exempt from taxation, it's exempt in bankruptcy. The limit for IRAs and Roth IRAS is $1,512,350.
The federal wildcard exemption is $1,475 plus $13,950 of any unused portion of your homestead exemption and can be used to exempt any property of your choosing. (11 USC § 522(d)(5).)
One of two things will happen. You'll either lose nonexempt property or pay to keep it, depending on whether you file for Chapter 7 or Chapter 13. Here's how it works.
In Chapter 7, the bankruptcy trustee sells nonexempt property and distributes the proceeds to creditors. In Chapter 13, filers pay the value of the nonexempt property to unsecured creditors. Learn about secured and unsecured debt in bankruptcy.
The procedural differences are necessary because filers can keep all property in Chapter 13 but not in Chapter 7. Without different systems, creditors would receive less in Chapter 13 than in a Chapter 7 case.
Example. Suppose you couldn't exempt a motorcycle in Chapter 7, and the Chapter 7 trustee sold it and paid unsecured creditors $10,000 after deducting sales costs. If you filed for Chapter 13, you'd pay unsecured creditors at least $10,000 through the Chapter 13 repayment plan to keep the motorcycle.
Chapter 7 works for people who can't afford to repay creditors. Chapter 13 filers typically earn too much to qualify for Chapter 7 and must pay into a five-year repayment plan. Before filing for bankruptcy, you'll take a "means test" to determine whether you qualify for Chapter 7 or 13.
Occasionally, people qualifying for Chapter 7 file for Chapter 13 to prevent a home foreclosure, car repossession, or wage garnishment. The Chapter 13 plan allows the filer to catch up on back payments over time, a benefit not available in Chapter 7.
Most Chapter 7 cases close after four months, although the Chapter 7 bankruptcy trustee sometimes needs additional time to sell property or resolve a dispute. Chapter 13 cases take three to five years to complete.
You can file for bankruptcy in Texas after living there for over 180 days. However, you must live in Texas for at least 730 days before using Texas exemptions. Otherwise, you'd use the previous state's exemptions.
Suppose you hadn't lived in one state the entire two years before filing. In that case, you'd use the exemptions of the state you lived in the longest during the 180 days before the two years immediately preceding your filing. (11 U.S.C. § 522(b)(3)(A).)
If you don't exempt your property carefully, you could lose it. Answers to these questions might help you steer clear of typical issues.
Do I automatically get to keep my exempt property? Generally, no. Here's the procedure you'll need to follow: Select the exemption set that best protects your property, list the exempt assets and applicable exemption laws on Schedule C: The Property You Claim as Exempt, and file it with your other required paperwork.
Will someone check my bankruptcy exemptions? The bankruptcy trustee, the court-appointed official tasked with managing your case, will review Schedule C to ensure you have the right to protect the claimed property. A trustee who disagrees with your exemptions will file an objection with the court. The judge will decide whether you can keep the property.
Example. Jeff owns a rare, classic car worth $15,000, but the state vehicle exemption will only partially protect it. Believing that the car qualifies as art, Jeff exempts it using his state's unlimited artwork exemption. The trustee reviews Schedule C, disagrees with Jeff's characterization, and files an objection with the court. After consideration, the judge will likely side with the trustee, determining that the vehicle doesn't qualify as a piece of art.
Most trustees will likely try to work out the matter informally by discussing it at the 341 meeting of creditors or by phone or email. If you can't resolve the problem, the trustee will file a motion with the bankruptcy court.
It's worth noting that it's not a good idea to finesse exemptions. Not only are you obligated to supply correct information on your bankruptcy forms, but purposefully making inaccurate statements could be fraudulent. Bankruptcy fraud is punishable by up to $250,000, 20 years in prison, or both.
Chapter 13 bankruptcy filers will almost always want to hire a bankruptcy lawyer. Chapter 13 is too complicated for most people to navigate successfully.
Chapter 7 filers also benefit from hiring a bankruptcy lawyer. Still, it's more feasible to represent yourself if you have a relatively simple Chapter 7 case. But you should know that Chapter 7 filers can't dismiss a Chapter 7 matter without court approval, so it's prudent to consult a bankruptcy lawyer about potential issues. The extra step could help prevent unexpected property loss.
You can expect to pay $1,500 to $2,500 for the average Chapter 7 case and more for a Chapter 13 matter. Bankruptcy lawyers with more experience will charge higher fees than those practicing in large cities because of the costs associated with doing business.
Even so, most bankruptcy matters won't require a top-tier lawyer. But because of the specialized nature of bankruptcy rules, you will want someone who has filed many cases.
At the time of writing, filing fees are $338 for Chapter 7 and $313 for Chapter 13, and costs for mandatory credit counseling and debt management courses run $50 to $75.
No, not in a Chapter 7 case. Chapter 7 lawyers won't file your matter before you've paid in full because the bankruptcy court would erase any outstanding balance with other dischargeable debts. You can pay Chapter 13 attorneys' fees in installments through the Chapter 13 plan.
Did you know Nolo has made the law easy for over fifty years? It's true, and we want to ensure you find what you need. Below, you'll find more articles explaining bankruptcy and how it works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!
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We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.
Updated August 29, 2023