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Choosing between Texas and federal bankruptcy exemptions

On Behalf of | Nov 1, 2020 | Bankruptcy

Many people in Texas who are contemplating filing a bankruptcy petition usually have at least two principal questions; “Will I lose my house?” and “Will I lose any other assets?”

The answers to these two questions depend upon laws enacted by the Texas legislature and by the United States Congress. Each statute allows a debtor to declare certain assets exempt from the claims of creditors. The two lists are not identical, and the debtor must use one list or the other.

Federal exemptions

Federal law allows debtors to declare approximately $20,000 of equity in their homestead exempt from creditors. (This amount does not include the balance owing on any loans secured by a mortgage on the property.)  Likewise, federal law allows a debtor to protect $3,775 of value in one automobile. All funds in most retirement plans that are exempt from taxation under the Internal Revenue Code are also exempt from creditors’ claims. This exemption has a number of conditions that must be satisfied to claim the exemption. The debtor’s aggregate interest in jewelry, personal property and up to $7,500 of unused exemption of property identified in 11 U.S.C. §522(d)(1). The debtor may also declare up to $8,000 in household furnishings, books, animals crops or musical instruments.

Texas exemptions

Residents of Texas may use the federal exemptions or the state exemptions. While the two lists cannot be combined, a debtor may certain federal exemptions in addition to state exemptions. State exemptions include sporting equipment, family heirlooms, home furnishings, food, clothing, and jewelry. Burial plots and health aids may also be declared exempt. Life insurance and certain insurance available to public employees are also exempt. Earned but unpaid wages are also exempt.

Make an informed decision

The lists of both Texas and the federal bankruptcy code contain detailed exceptions and qualifications. Anyone who wants to know whether certain exemptions can be claimed, or whether the federal exemptions should be chosen instead of the Texas list may wish to consult an experienced bankruptcy attorney for advice.