According to the federal U.S. Bankruptcy Code, each state may exercise discretion over which types of assets may be exempted in a standard bankruptcy proceeding. 

For instance, a state may either opt to draft its own set of bankruptcy property exemptions that a debtor will then need to review and comply with. Alternatively, a state may grant a debtor the option of choosing between the federal exemption statute or their state’s own bankruptcy exemption guidelines.

In states that offer a debtor both options, however, a debtor will only be permitted to select and adhere to the exemptions of one of the two sets of exemptions provided (e.g., state vs. federal exemptions). 

For example, if a debtor decides they want the federal bankruptcy exemptions to apply in their case, then the debtor must follow only what is allowed under the federal statute. On the other hand, if a debtor would prefer that their state’s bankruptcy exemptions rules apply to their case, then they will need to solely abide by their state’s exemption guidelines. 

Specifically, the state of Texas happens to be a jurisdiction in which a debtor is allowed to choose between whether they want to follow the federal or Texas’s bankruptcy exemption laws. Thus, if you are planning on filing for bankruptcy in the state of Texas, then you should consider consulting a Texas bankruptcy lawyer to find out which set of bankruptcy exemptions may be a better fit based on your current financial situation. 

Finally, as of 2021, some common state bankruptcy exemptions that apply to different kinds of property and/or assets in Texas may include the following:

  • Homestead exemption: The homestead exemption refers to the value of equity in a dwelling that is used as a debtor’s primary residence. In Texas, a debtor who files for bankruptcy will be permitted to protect an unlimited amount of equity in their primary residence, subject to certain restrictions.
    • For instance, the location and the amount of acreage associated with a particular property will affect the unlimited amount of equity rule under this exemption. In other words, if a person owns more than the allotted amount of acreage or they own the proper amount of acreage to qualify, but the home is located in a city and not a rural area, then this exemption may be limited or not applicable.  
  • Personal property exemption: A debtor who files for bankruptcy as a single adult without a family, may qualify for a personal property exemption of up to $50,000. If a debtor files for bankruptcy using a joint petition and along with their spouse, then this value will double to a maximum amount of $100,000 exemption of personal property.
    • Personal property that may qualify for an exemption include furniture, books, family heirlooms, tools, equipment, boats and vehicles (not used as a residence), up to two firearms, jewelry, clothes, sports equipment, pets, alimony, and income.
  • Insurance benefit exemption: Group insurance benefits for Texas state, public school, or state university employees; benefits for fraternal societies (e.g., the Freemasons); church benefit plans; and accident, health, life, or annuity benefits may all qualify for an exemption. 
  • Pension and/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 (e.g., firefighters, police, teachers, etc.).
  • Public benefit exemption: Various types of benefits that stem from public benefit programs, including unemployment, Social Security benefits, benefits for veterans, workers’ compensation, and many other benefits that qualify as public assistance. 

If a debtor chooses to file for bankruptcy using the guidelines of the federal bankruptcy exemption statute, however, then the following property and/or assets may qualify for an exemption:

  • Homestead exemption: A debtor who requests to have the federal bankruptcy exemptions apply to their case may be able to protect up to $25,150 of equity in their primary residence. This includes co-ops, mobile homes, and burial plots. Any portion that remains after applying the homestead exemption can be used for other property for a value of up to $12,575.
  • 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, and/or various other benefits that qualify as public assistance benefits. 
  • Retirement account exemption: Any retirement accounts that are not taxed will be eligible for a full exemption. In contrast, retirement accounts (e.g., Roth IRAs or traditional IRAs) will be restricted to a maximum exemption of $1,362,800.
  • Personal property exemption: Some 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 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).
  • Federal wildcard exemption: A debtor will be permitted to use their wildcard exemption for up to $1,325 of any sort of property. In some cases, the wildcard exemption may include the amount remaining from the homestead exemption (i.e., $12,575). Note that Texas does not have a specific category dedicated to the wildcard exemption under its state bankruptcy exemption laws.

Keep in mind that the federal bankruptcy exemption guidelines are typically updated approximately every three years. Thus, the above values will no longer be current as of April 2022 next year.

Lastly, it should be noted that if a debtor is married and intends to file a joint petition for bankruptcy with their spouse, then the amounts provided in the above list will generally increase in value. This is usually by about twice the value that a debtor receives if they choose to file independently from their spouse. This is true regardless of whether the federal or state bankruptcy property exemptions apply to a specific bankruptcy case.

Do I Need a Bankruptcy Lawyer?

As is evident from the above information, issues and disputes concerning state bankruptcy exemption guidelines can become quite complicated. Despite the fact that the state of Texas permits a debtor to choose between state bankruptcy exemption guidelines or the federal exemption statute, it still can be difficult to determine which law would afford a debtor greater protections over their property and assets in a bankruptcy case.

Therefore, if you intend to file for bankruptcy in Texas and need assistance in figuring out which state bankruptcy exemptions may apply to your assets, then it may be in your best interest to contact a Texas bankruptcy lawyer immediately for further legal guidance. 

An experienced bankruptcy lawyer in Texas will be able to answer any questions you may have about the exemption laws in your state as well as those you have about the overall bankruptcy process. Your lawyer will also be able to review and discuss the types of assets that may be exempt based on the chapter of bankruptcy you declare.

In addition, your lawyer will be able to ensure that you divide your assets in accordance with Texas state bankruptcy exemption laws and can help you in securing certain items of property. 

Finally, your lawyer can also assist you in filing a claim to protect your assets if Texas does not automatically grant its residents a right to some exemptions and will be able to provide legal representation on any matters concerning your bankruptcy petition in court.