Texas Bankruptcy Exemptions

Pursuant to the federal United States Bankruptcy Code, every state can exercise discretion over the types of assets that may be exempt in standard bankruptcy proceedings. For example, a state can draft its own bankruptcy property exemptions that the debtor will then need to comply with.

In the alternative, a state can grant debtors the option of choosing between the federal exemption statute or the state bankruptcy exemption guidelines. In states that provide a debtor with both options, the debtor will only be allowed to choose one set of exemptions, the state or the federal.

If a debtor determines they want to use the federal bankruptcy exemptions in their case, then they can only follow what is permitted under that statute. In contrast, if the debtor prefers to apply the state bankruptcy exemptions to their case, they will only be required to abide by the state exemption guidelines.

In the State of Texas, a debtor is permitted to choose whether they want to follow the federal or state bankruptcy laws. An individual may be planning to file for bankruptcy in Texas. In that case, they should consider consulting with a local Texas attorney to determine which set of bankruptcy exemptions may be a better fit for their financial situation.

As of 2021, there are common state bankruptcy exemptions in Texas that apply to different types of property or assets, including the following:

• Homestead exemption: The homestead exemption is the value of equity in a dwelling that is used as an individual’s primary residence. In Texas, an individual who files for bankruptcy will be allowed to protect an unlimited amount of equity in their primary residence, subject to some restrictions;
  • For example, the location and the amount of acreage that is associated with a property will affect the unlimited amount of equity rule under this exemption;
  • This means that if an individual owns more than the allotted amount of acreage or if they own enough acreage to qualify, but their home is located in a city and not a rural area, then this exemption may be limited or may not apply;
• Personal property exemption: An individual who files for bankruptcy as a single adult without a family may qualify for a personal property exemption of up to $50,000. If an individual files for bankruptcy jointly along with their spouse, then this value will double to a maximum amount of $100,000;
  • Personal property that may qualify for an exemption include furniture, books, family heirlooms, tools, equipment, boats and vehicles that are not used as a residence, up to two firearms, jewelry, clothes, sports equipment, pets, alimony, and income;
• Insurance benefit exemption: Certain group insurance benefits may qualify for an exemption, including:
  • Texas state, public school, or state university employees;
  • Benefits for fraternal societies, for example, the Freemasons;
  • Church benefit plans; and
  • Accident, health, life, or annuity benefits;
• Pension or retirement plan exemption: Some assets associated with certain pension or retirement plans that may qualify for an exemption in Texas include:
  • Bonuses from stock, 401ks, Roth IRAs, standard IRAs, ERISA benefits; and
  • Pensions for state, county, district, and municipal employees, such as firefighters, police, teachers, etc.; and
• Public benefit exemption: There may be certain types of benefits that stem from public benefit programs, including:
  • Unemployment;
  • Social Security benefits;
  • Benefits for veterans, workers’ compensation;
  • Many other benefits that qualify as public assistance.

What Are the Federal Bankruptcy Exemptions?

If an individual chooses to file for bankruptcy using the guidelines of the federal bankruptcy exemption statute, the following property or assets may qualify for an exemption:

• Homestead exemption: An individual who requests to have the federal bankruptcy exemptions apply to their case may protect up to $25,150 of equity in their primary residence, including:
  • Co-ops;
  • Mobile homes;
  • Burial plots;
• Benefit exemption: Some benefits that are typically exempt under the federal statute include:
  • Unemployment benefits;
  • Social security benefits;
  • Benefits provided to veterans under the VA program;
  • Various other benefits that qualify as public assistance benefits;
• Retirement account exemption: A retirement account that is not taxed will be eligible for a full exemption;
  • In contrast, retirement accounts, such as Roth IRAs or traditional IRAs, will be restricted to a maximum exemption of $1,362,800;
• Personal property exemption: Certain types of personal property that may qualify for an exemption under the federal statute include:
  • Motor vehicles for up to $4,000;
  • Up to $1,700 for jewelry;
  • An extra $2,525 for tools that are required to perform a job or specific trade;
  • A total of $13,400 maximum for household items, such as clothing, crops, animals, musical instruments, and appliances, with a limit of $625 per household item; and
  • Lost earnings payments, recovery from a wrongful death lawsuit, or up to $25,150 in connection with a personal injury lawsuit, subject to exceptions; and
• Federal wildcard exemption: A debtor will be permitted to use their wildcard exemption for up to $1,325 of any sort of property. In certain cases, the wildcard exemption may include the amount that remains from the homestead exemption;
  • Texas does not have a specific category that is dedicated to the wildcard exemption under state bankruptcy exemption laws.

It is important to note that the federal bankruptcy exemption guidelines are usually updated every three years. This means that the values noted above may no longer be current at the time of this writing, and an individual should consult with an attorney for updated numbers.

It is also important to note that if the debtor is married and intends to file a joint petition for bankruptcy with their spouse, the amounts that are provided in the list above will typically increase in value. Typically, the increase will double the amount if they file jointly.

Can I Be Denied Bankruptcy?

Yes, in some cases, an individual may be denied bankruptcy, although it is uncommon. One reason an individual may be denied bankruptcy is that their income-to-debt ratio does not meet the statutory requirements. This means that the court believes that the debtor makes enough money to pay off their debts, which they will be required to do. An individual may also be denied bankruptcy if they lie about how much their assets are worth or how much income they make during the year.

If an individual conceals financial records or assets, their bankruptcy may be denied. One of the requirements when a debtor files for bankruptcy is that they are completely honest about their financial situation.

A debtor’s bankruptcy may also be denied for technical reasons that are not related to their income or their honesty. Their petition may be dismissed if their paperwork is not filed correctly, filed on time, or if other filing requirements were not satisfied.

Do I Need a Bankruptcy Lawyer?

If you are considering filing for bankruptcy in the State of Texas, it is important to consult with a Texas bankruptcy lawyer. Your lawyer can help you determine which exemptions will be best to use in your case.

Your lawyer will also help ensure that you complete all of the required paperwork on time and properly, which will help ensure your case is not dismissed for technical reasons. Your lawyer can also help you file a claim to protect your assets in Texas if it is not automatically granted, as well as provide legal representation on any matters concerning your bankruptcy petition in court.