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 and Roth IRAs that is adjusted periodically. Life insurance benefits and annuity proceeds have their own protections under the Texas Insurance Code, and college savings plans have specific treatment as well.

A common and costly mistake is withdrawing from a protected retirement account to pay unsecured debt shortly before filing. The money was safe where it was; once it lands in a checking account, it is usually just cash, and cash is not a protected category under Texas exemptions.

Cash and tax refunds

Texas exemptions do not include a general cash exemption. A large balance in a bank account on the filing date, or a sizable pending tax refund, can be an asset the trustee is interested in. Timing the filing around a refund, and around ordinary living expenses that will be spent anyway, is a routine part of planning.

Chapter 7 and Chapter 13

In Chapter 7, non-exempt property can be liquidated. Most consumer Chapter 7 cases in Texas are no-asset cases precisely because the exemptions are broad. In Chapter 13, nothing is sold. Instead, unsecured creditors must receive at least what they would have received in a Chapter 7 liquidation, so non-exempt value shows up as a higher plan payment rather than a lost asset. Chapter 13 is also the tool for curing mortgage arrears and keeping a vehicle with a loan.

What to avoid before filing

Do not transfer property to relatives to protect it. Do not pay one favored creditor a large sum shortly before filing. Do not take on new debt you do not intend to repay. Each of these can be unwound, and some can jeopardize a discharge. Converting non-exempt assets to exempt ones is permitted within limits, but it is fact-sensitive and should not be attempted without advice.

Filers should also make sure a bankruptcy filing does not disrupt other matters, since support obligations handled under family law are not dischargeable, and real property questions may overlap with real estate issues. You can read more about our bankruptcy practice, or reach us through the contact page.

Frequently asked questions

Can I keep my house if I file bankruptcy in Texas?

Texas homestead protection under Chapter 41 of the Property Code is measured by acreage rather than by dollar value, covering up to 10 acres urban, or 100 acres rural for a single adult and 200 for a family. Federal law caps the exemption for equity acquired within roughly 1,215 days before filing, and liens such as mortgages and tax liens survive bankruptcy.

Do I have to choose between Texas and federal bankruptcy exemptions?

Yes. Texas filers may elect either the Texas exemption scheme or the federal scheme in the Bankruptcy Code, but the two cannot be combined. The choice usually turns on how much home equity is involved and whether a wildcard exemption would be more useful.

Are wages and retirement accounts protected in Texas?

Current wages for personal services are exempt in Texas, which is why garnishment for ordinary consumer debt is generally unavailable, though that protection does not extend to child support, spousal maintenance, federal student loans, or federal taxes. Qualified retirement plans and IRAs are protected, with a federal cap applying to IRAs.

This is general information, not legal advice. Prior results do not guarantee a similar outcome.