Like all states, Texas has a set of exemptions you can use to protect property when filing for bankruptcy, such as a home, car, and retirement account. In this article, you'll learn:
If you have more questions, read How Bankruptcy Works in Texas. Not only will you find answers, but it includes helpful checklists and a link to an interactive bankruptcy quiz. Or, try the start-to-finish bankruptcy guide, What You Need to Know to File for Bankruptcy in 2021.
You can protect property covered by an exemption regardless of whether you file for Chapter 7 or 13. But each chapter treats nonexempt property—things not covered by an exemption—differently.
The different approaches ensure that creditors receive the same amount regardless of the chapter filed.
Texas is one of the few states that let you choose between state and federal bankruptcy exemptions. You won't be able to select exemptions from each list—you must pick the system that will work best overall. If you choose the Texas exemptions, you can also use the federal nonbankruptcy exemptions.
Here are some commonly-used Texas exemptions. Keep in mind that married couples filing together in a joint bankruptcy can double most exemption amounts if both spouses have an ownership interest in the exempt property.
The Texas homestead exemption is as generous as homestead exemptions come. You can protect an unlimited amount of equity in your principal residence. It applies to properties on 10 acres or less in a city, town, or village or 100 acres or less in the country (families can double this to 200 acres). (Tex. Prop. Code §§ 41.001 - 41.003; Tex. Const., Art. 16, §§ 50, 51.)
Learn more about qualifying for the Texas homestead exemption.
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).)
Find out how the motor vehicle exemption works in a Chapter 7 case.
The personal property you exempt (things other than real estate) cannot exceed a total of $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 of it if you are the head of a family. The remaining $25,000 will be nonexempt. By contrast, a single person would be limited to a total of $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. These pensions and accounts include particular pensions or retirement funds that receive special tax exemptions under the U.S. Tax Code. You can check with your fund to find out if it qualifies for tax-exempt status or read more about your retirement account in bankruptcy.
Additionally, Texas provides that the following pensions and retirement accounts are exempt under Texas law:
You can file for bankruptcy in Texas after living there for more than 180 days. However, you must live in Texas much longer before using Texas exemptions—at least 730 days before filing, to be exact. Otherwise, you'd use the previous state's exemptions.
But suppose you weren't living in any particular state during the two years before filing for bankruptcy. In that case, you'd use the exemptions of the state you lived in for most of the 180 days before the two-year period that immediately preceded your filing. (11 U.S.C. § 522(b)(3)(A).) Learn more about filing for bankruptcy after moving to a new state.
Also, to claim the total value of the Texas homestead exemption, you must have purchased and owned the property for at least 1,215 days before the bankruptcy filing. If you can't meet this requirement, your homestead exemption is limited by federal law to $170,350 (this figure will adjust on April 1, 2022).
If you don't exempt your property carefully, you could lose it. Answers to these questions might help you steer clear of common issues.
Do I automatically get to keep exempt property? Generally, no. Here's the procedure you'll need to follow: You'll 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 exemptions? The bankruptcy trustee—the court-appointed official tasked with managing your case—will review Schedule C to ensure that 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 won't adequately protect it. Believing that the car qualifies as art—at least in his mind—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.
What if I make a mistake? Most trustees won't file an objection unless it's clear that the debtor is trying to pull something over on the court. At least not without trying to resolve the issue first. If there's a minor exemption problem, the trustee will likely call you to work out the matter informally.
It's worth noting that it's not a good idea to finesse exemptions. Not only do you have an obligation to supply correct information on your bankruptcy forms, purposefully making inaccurate statements could be considered fraudulent. Bankruptcy fraud is punishable by up to $250,000, 20 years in prison, or both.
This isn't an exhaustive list of Texas exemptions, and the amounts change periodically. Check statutes on the Texas Constitution and Statutes website or consult with a local bankruptcy lawyer. You can also learn about finding state statutes in Laws and Legal Research.
You might not know this, but Nolo has been making the law easy for DIYers for over fifty years. If you have questions, use the links we've included throughout for more details. Otherwise, you'll find the answers to almost all of your bankruptcy questions at nolo.com/legal-encyclopedia/bankruptcy.
This overview cannot provide all of the information you'll need to file a bankruptcy case. For more detailed information, consider buying a self-help book such as How to File Chapter 7 Bankruptcy by Attorney Cara O'Neill and Albin Renauer J.D.
Updated July 15, 2021