Summary: There are exemptions available to allow you to protect property. There are state and federal exemptions. Exemptions depend on what you have, want to keep, and how much it is worth. Most assets can be protected.
Will You Lose Property if You File Bankruptcy?
Most people are able to keep all of their property when they file for bankruptcy. State and federal laws provide what are called “exemptions” or protection. Exemptions are used to protect property from liquidation or sale in bankruptcy. Each state has its own set of exemption laws.
In Texas, usually, residents can choose either the federal exemptions or the Texas state exemptions.
Which exemptions (federal or state) are best depends on what property you own, want to keep, and how much it is worth. If you have a large amount of home equity, the Texas exemptions may be best. If you have a nest egg of cash, federal exemptions may be better. Most assets can be protected.
Texas state exemptions
- Rural homestead up to 200 acres for family.
- Urban homestead up to 10 acres for family.
- One vehicle per licensed driver.
- Household goods up to $100,000 for a family.
- Qualified 401(k), IRA, or other pension plans.
- Annuity with certain limits.
- Life insurance – cash value.
- Segregated social security funds.
- Child support or alimony.
- Farming tools and equipment.
- Other exemptions.
Federal exemptions
The primary federal bankruptcy exemptions are listed below. Keep in mind, the amounts periodically change. Deciding what exemptions to use is one of the most important parts of planning to file bankruptcy. If you don’t have a lot of equity in your home, federal exemptions may work. The federal exemptions have the advantage of a “wildcard” exemption. This is an exemption that you may be able to use to protect any property that is not already protected under some other exemption. Examples of assets you may need the wildcard for: cash, stocks, extra cars, boat, rental real estate, or businesses.
The dollar limits on the federal exemptions change periodically. Where both husband and wife file together, you can double the dollar limit on most exemptions. Some of the federal exemptions include:
Current, as of May 2020
- Homestead – up to $25,150 in equity in your home (double for a joint filing) can be used to exempt the debtor’s homestead. Where the debtor owns no homestead, he can use up to $11,500 plus an additional $1,325 (double for a joint filing) to exempt any real or personal property.
- Household Goods – $625 per single item for a total of $13,400 (double for a joint filing).
- Motor vehicle up to $4,000. This does not mean your car or truck has to less than $4,000. This is the equity in the vehicle. If it’s more than $4,000, you may be able to use the “wild card” on the difference.
- Wild Card – $1,325 of any property plus up to $12,575 of unused portion of the homestead exemption.
- Right to receive disability, illness, or unemployment benefits; unemployment, public assistance, and veterans benefits.
- Alimony and child support needed for support.
- Personal injury recoveries to $25,150 (not to include pain and suffering or pecuniary loss). Wrongful death recoveries for the death of a person debtor depended on for support.
- Implements, books, and tools of trade to $2,300.
- Most retirement funds and benefits.
- And more.
Various rules and restrictions apply to the use of exemptions in bankruptcy. The most important thing is to list all of your assets in bankruptcy. Failure to disclose assets is a sure way to lose them. Your attorney can help you plan before filing, so you don’t lose assets.
Consult a knowledgeable bankruptcy attorney who can advise you on the details of what property you may exempt. If the property is not exempt, a debtor may also be able to file a Chapter 13 bankruptcy and pay the property’s liquidation value. Before transferring or selling any assets, you should consult with a bankruptcy attorney.
Keeping property if you just moved to Texas
So, you’re not from Texas, but you got here as fast as you could? If you are a new Texas resident, the exemptions you use to protect property may be different. To use the Texas exemptions, you must have lived in Texas for the last 730 days. You only have to be here for about 3 months to file bankruptcy in Texas but to use the Texas exemptions, you have to be here longer.
There’s a formula that applies for exemptions if you have lived in multiple states right before filing. Trust me — you don’t want to read about it. All of this can be extremely technical. You need to consult with a bankruptcy attorney to know exactly what date you can file bankruptcy in Texas and what exemptions can be used by you. The exemptions that apply are critical because this is how you protect your property from liquidation in a Chapter 7 bankruptcy. Exemptions will also affect how large your required plan payment is in a Chapter 13 bankruptcy.