One of the biggest concerns when filing for Chapter 7 bankruptcy is whether you will be able to keep your property. What will happen to your house? Can you keep your car? What about retirement accounts, family heirlooms, jewelry, artwork, or even your furniture?
Understanding Texas bankruptcy exemptions for 2021 can help you get a clear picture of how Chapter 7 may affect you and whether now might be the right time to file.
What Are Exemptions?
Bankruptcy exemptions protect certain property from liquidation in Chapter 7 bankruptcy proceedings. If these exemptions did not exist, everything that a person owned would be subject to sale, the proceeds of which would be used to pay off debt. Then, any remaining debt would be discharged.
This may be a simplified look at the Chapter 7 bankruptcy process, but it provides insight into the reasoning behind exemptions and why they are so important.
Bankruptcy exemptions protect most personal items and can even protect one’s car and home. Each state has its own implementation of bankruptcy exemptions. Some states, like Texas, allow debtors to seek protection under federal bankruptcy exemptions instead.
Bankruptcy Exemptions in Texas
Texas is considered one of the most generous states when it comes to bankruptcy exemptions. Perhaps the most generous exemption applies to one’s home. In Texas, a debtor’s homestead is protected from liquidation under Chapter 7 bankruptcy—no matter its value. The only requirements are that the property cannot be larger than 10 acres in a city, town, or village, or larger than 100 acres elsewhere. The debtor must also have lived in Texas for at least 40 months to claim an exemption for a home valued at more than $146,450.
Other Texas bankruptcy exemptions include:
- Personal property valued at up to $50,000 for a single debtor or $100,000 for a family
- One motor vehicle per household member (no limit on the value of the vehicle)
- Pensions and retirement benefits (no limit on the value)
In many cases, debtors in Texas can keep all of their property when they file Chapter 7. The only exceptions may be people with significant assets and personal property, multiple homes, and more than one motor vehicle.
Federal Bankruptcy Exemptions
As mentioned earlier, Texas allows debtors to choose federal bankruptcy exemptions instead of state exemptions. Few debtors choose to do so, however, because Texas has such favorable bankruptcy laws. Under federal law, up to $12,625 in personal property is protected from liquidation. The federal homestead exemption is limited to $23,675 of equity in one’s home. The value of a motor vehicle cannot exceed $3,775 to be protected. There is even a cap on IRAs and Roth IRAs. Most debtors are better off taking advantage of Texas bankruptcy exemptions.
What Exemptions Apply to You? Talk to an Attorney!
If you are considering Chapter 7, it is important to understand exactly how your property will be affected. You will also need to know if you qualify in the first place by passing the means test, and you should get an in-depth view of how bankruptcy may affect your credit score, your current financial situation, and your future stability. Making the right choice now means you can experience all of the advantages that bankruptcy has to offer with fewer pitfalls.
As a Fort Worth bankruptcy lawyer, I know exactly how state and federal exemptions affect my clients’ Chapter 7 filings. I am committed to protecting debtors’ rights and interests in all types of bankruptcy proceedings.
Call (817) 576-1889 today to talk about your situation, questions, and concerns.