Texas Bankruptcy Exemptions: What You Keep

The question people actually want answered before filing bankruptcy is rarely about chapters or schedules. It is simpler than that: what will I lose? In Texas, the answer is usually less than people fear, because Texas exemption law is among the most protective in the country.

Exemptions are the rules that determine which property is beyond the reach of creditors and of a bankruptcy trustee. If an asset is exempt, you keep it. If it is not, a Chapter 7 trustee may sell it and distribute the proceeds, or you may need to pay for the value of it through a Chapter 13 plan.

Texas exemptions or federal exemptions

Texas is one of the states that lets a filer choose between the state exemption scheme and the federal scheme in the Bankruptcy Code. You choose one set. You cannot mix them.

The choice usually turns on home equity. Texas homestead protection is essentially unlimited in dollar terms, so a filer with substantial equity in a home almost always chooses Texas exemptions. A renter with little property but a need to protect cash sometimes does better under the federal scheme, which includes a wildcard exemption that can be applied to any asset. This is one of the first analyses an attorney runs, and getting it wrong is expensive.

The Texas homestead exemption

Chapter 41 of the Texas Property Code protects the homestead by size rather than by value. An urban homestead may consist of up to 10 acres, which for a family in Katy or elsewhere in Harris and Fort Bend counties covers essentially any residential lot. A rural homestead may consist of up to 100 acres for a single adult, or 200 acres for a family.

There is a federal overlay that filers with recently purchased homes need to know about. Section 522 of the Bankruptcy Code caps the homestead exemption at a set dollar amount, adjusted periodically for inflation, for equity acquired within roughly the 1,215 days before filing. The cap does not apply to equity that was rolled over from a prior Texas principal residence. Anyone who bought a home in the last several years and has significant equity should have this analyzed carefully, and the current cap figure verified, before filing.

Homestead protection does not defeat a valid lien. A mortgage, a home equity loan, a properly perfected mechanic's lien, and tax liens all survive the exemption. Bankruptcy can stop a foreclosure sale and, in Chapter 13, provide a way to cure arrears over time, but it does not erase the lien itself.

Personal property exemptions

Chapter 42 of the Property Code protects a package of personal property up to an aggregate value, with a higher ceiling for a family than for a single adult. Within that package, the statute lists categories including:

• Home furnishings, including family heirlooms
• Clothing and food
• Tools, equipment, books, and vehicles used in a trade or profession
• Two firearms
• Athletic and sporting equipment, including bicycles
• Jewelry, subject to a percentage limit within the overall cap
• One motor vehicle for each licensed household member, and for an unlicensed member who relies on someone else to drive
• Livestock and household pets, in specified numbers

The aggregate dollar limits are set by statute and have been raised by the Legislature over time, so the operative figures should be confirmed against the current version of Chapter 42.

Wages, retirement, and insurance

Current wages for personal services are exempt in Texas, which is why wage garnishment for ordinary consumer debt is generally unavailable here. That protection does not extend to child support, spousal maintenance, federal student loans, or federal taxes.

Qualified retirement accounts are protected under both Texas law and the Bankruptcy Code, including 401(k) plans, most pensions, and IRAs subject to a federal cap for traditional …