What Assets Can You Keep During Bankruptcy in Texas? A Guide to Exemptions

Bankruptcy Without Losing Everything—Is It Possible?

For many Texans considering bankruptcy, one of the biggest questions is, “Will I lose everything?” The idea of starting fresh is appealing, but not if it means giving up essential assets. Here’s the good news: Texas offers some of the most generous bankruptcy exemptions in the United States, designed to help you protect essential assets while you work to rebuild financially.

In this guide, we’ll walk you through exactly what you can keep during bankruptcy in Texas. From your home to your car, retirement savings, and personal belongings, we’ll break down Texas exemptions, so you know what’s protected and why. By the end, you’ll have a clear understanding of how Texas law helps keep you secure during this challenging time, allowing you to keep vital assets as you get back on your feet.

Bankruptcy Basics: Chapter 7 vs. Chapter 13

Before diving into exemptions, it’s helpful to understand the two main types of bankruptcy available to individuals in Texas: Chapter 7 and Chapter 13. The type of bankruptcy you choose can affect what you get to keep.

• Chapter 7 Bankruptcy: Often called “liquidation bankruptcy,” Chapter 7 involves selling certain non-exempt assets to pay creditors. However, in Texas, the state exemptions are so generous that many people filing Chapter 7 can keep nearly everything they own.
• Chapter 13 Bankruptcy: Known as “reorganization bankruptcy,” Chapter 13 lets you keep all your assets but requires you to follow a three- to five-year repayment plan for your debts. This option is ideal for those with steady income who want to protect assets like a home or car from potential liquidation.

The Texas Bankruptcy Exemptions: What You Can Keep

Texas bankruptcy law is structured to protect essentials that help you maintain a stable life. Here’s a breakdown of the most commonly used exemptions.

1. Texas Homestead Exemption: Protecting Your Home

The Texas Homestead Exemption is one of the most powerful in the country, and it’s designed to protect your primary residence from creditors. This exemption applies to both Chapter 7 and Chapter 13 bankruptcy and covers a wide range of properties, including houses, condominiums, and even manufactured homes.

Homestead Exemption Details:

• Urban Areas: You can exempt up to 10 acres of land in a city, town, or village.
• Rural Areas: If you live in a rural area, the exemption extends to up to 100 acres for individuals or up to 200 acres for families.

This generous homestead exemption means you won’t have to worry about losing your primary residence in bankruptcy, as long as it meets the acreage requirements. It’s especially beneficial for Texas homeowners who want to secure a stable foundation for their family.

2. Vehicle Exemption: Keeping Your Car

For most Texans, having reliable transportation isn’t a luxury—it’s a necessity. Texas allows you to keep one vehicle per licensed household member under the Texas Vehicle Exemption. This applies even in Chapter 7 bankruptcy, where non-exempt assets are typically sold.

Vehicle Exemption Details:

• The exemption covers one vehicle per licensed household member. If you have a family of four with valid driver’s licenses, you can protect four vehicles.

This exemption is especially helpful for larger households that rely on multiple vehicles for work, school, and daily life. It means you won’t lose access to essential transportation simply because you filed for bankruptcy.

3. Personal Property Exemption: Protecting Everyday Essentials

The Texas Personal Property Exemption is generous in covering personal items, allowing you to retain items essential to everyday living, including household furniture, clothing, and jewelry. These exemptions are capped at a specific dollar amount based on family size.

Personal Property Exemption Details:

• Single Person: Exemptions up to $50,000 worth of personal property.
• Family: Exemptions up to $100,000 worth of personal property.

This exemption allows you to keep most of your furniture, electronics, and even some valuable personal items like family heirlooms or jewelry. Notably, Texas allows you to keep jewelry, firearms, athletic equipment, and other essentials as part of this exemption. In fact, Texans can even keep two firearms under the state’s personal property protection.

4. Retirement Accounts and Pensions

Worried about your retirement savings? You don’t have to be. Most retirement accounts are fully exempt under Texas and federal bankruptcy law, meaning they’re completely protected from creditors. This includes pensions, 401(k)s, and IRAs.

Retirement Account Exemption Details:

• Qualified retirement plans, including 401(k)s, 403(b)s, IRAs, and pensions, are fully protected, allowing you to preserve your retirement savings for your future.

This is an important exemption because it allows Texans to file for bankruptcy without derailing their retirement plans. Many people are surprised and relieved to learn they won’t lose their hard-earned retirement savings.

5. Tools of the Trade: Protecting Your Livelihood

If you rely on specific tools, equipment, or books for work, Texas has an exemption to help you keep these essential items, so you don’t lose the tools you need to earn a living.

Tools of the Trade Exemption Details:

• Covers tools, books, equipment, and even vehicles used in a trade or profession.
• The value of exempt tools is typically protected up to a reasonable amount that reflects their professional use.

This exemption is especially beneficial for small business owners, freelancers, and anyone who uses specialized equipment for work. For example, a carpenter can keep essential tools, while a delivery driver can keep a work vehicle.

Federal vs. Texas Exemptions: Choosing the Right Set for Your Case

In Texas, you have the option to choose between state exemptions and federal exemptions when filing for bankruptcy. However, in most cases, Texas exemptions are more favorable, especially for homeowners and families. Federal exemptions may provide better coverage in certain situations, so it’s wise to consult with a bankruptcy attorney to see which option best suits your needs.

For a deeper understanding of federal bankruptcy exemptions, visit the U.S. Courts Bankruptcy Basics.

Can You Keep Luxury Items in Texas Bankruptcy?

While Texas exemptions are generous, they do have limits. In general, if an asset is considered a luxury item, it may not qualify for protection under state exemptions. For instance, vacation homes, boats, or multiple high-value vehicles that exceed your household’s needs could be subject to sale in Chapter 7 bankruptcy.

However, every case is unique, and what qualifies as “essential” can vary based on circumstances. If you’re concerned about losing a particular item, speak with an attorney to see if it might be protected.

What Happens if Your Assets Exceed Texas Exemption Limits?

If you own assets that exceed Texas’s exemption limits, you have a few options:

1. Chapter 13 Bankruptcy: If you’re concerned about losing property, Chapter 13 bankruptcy might be a better choice. It allows you to keep all your assets while you follow a repayment plan for three to five years.
2. Negotiate with the Trustee: In some cases, you may be able to negotiate with the bankruptcy trustee to buy back certain non-exempt assets, allowing you to keep them.
3. Sell Non-Exempt Assets: For those who prefer Chapter 7 bankruptcy, you may have to sell certain non-exempt assets to repay creditors. However, Texas exemptions are designed to protect the essentials, so you won’t be left without basic necessities.

For more insight on protecting your home and other assets in bankruptcy, check out our article on How to Stop Foreclosure in Texas.

Steps to Take Before Filing for Bankruptcy in Texas

To ensure you’re making the best decisions and maximizing your exemptions, follow these steps before filing:

1. Assess Your Assets: Make a list of your assets, noting their approximate values to determine which might be exempt.
2. Consult a Bankruptcy Attorney: Laws can be complex, and Texas has unique exemptions. Speaking with an attorney will help you understand how to protect your assets.
3. Review Exemptions: Decide whether Texas or federal exemptions work better for your case.
4. Organize Your Documents: Gather financial documents, including property deeds, loan statements, and recent tax returns, to streamline the process.

Texas Makes Bankruptcy Less Intimidating

Bankruptcy can be a daunting process, but Texas laws are structured to help you keep essential assets and rebuild your life. From the homestead exemption that protects your home to the personal property exemption that covers everyday items, these protections make it possible to file for bankruptcy without losing everything.

If you’re considering bankruptcy and want to ensure you keep the assets that matter most, visit Kisch Consumer Law to speak with experienced Texas bankruptcy attorneys. Our team can guide you through the process, help you maximize your exemptions, and make sure you walk away with the protection and peace of mind you deserve.