Exemptions: Laws That Let You File Bankruptcy and Keep Your Stuff

By | February 28, 2012

One common misunderstanding about bankruptcy is the belief that when you file you have to give up your possessions. In Texas, that is usually not the case. Chapter 13 bankruptcy involves no liquidation, meaning the trustee does not take any of your assets when you file. All money paid to creditors in this type of bankruptcy comes from future income of the debtor(s).

On the other hand, in Chapter 7 bankruptcy a trustee may or may not liquidate some of your assets. When you file bankruptcy you are required to list all of your assets. These assets are protected by laws known as exemptions. Exemptions are laws that prevent creditors from seizing certain types of property in order to pay debts. Each state has its own set of exemptions and Federal bankruptcy law has a separate set of exemptions that is available to bankruptcy filers in states which have adopted these rules.

In Texas, you have the option of using either the Texas state exemptions or the Federal bankruptcy exemptions. The Texas exemptions are very good at protecting homesteads, which are the homes we live in. Texas exemptions are not very good at protecting cash, balances in bank accounts, and other types of financial accounts. Federal exemptions protect less equity in a homestead but are very flexible and allow the debtor to protect a certain amount of personal property of any type. The amount exempted depends on whether the case is an individual filing (single person or married person filing individually) or a joint filing (married people) and whether the filer is seeking to exempt a portion of their homestead.

The bottom line is that between these two sets of exemptions, there is very little liquidation occurring in Chapter 7 cases filed in Texas. Before filing bankruptcy it is a good idea to consult with an experienced bankruptcy attorney. Be sure to tell them what you own so that they can determine if liquidation will take place in your case.