Bankruptcy is a legal process that allows people and entities to be discharged from paying all or part of their debts to creditors. It’s a common fear that filing for bankruptcy will result in the loss of one’s hard-earned assets. While it is true that some property may have to be sold off, there are exemptions offered by federal and state law. Fortunately, the exemptions provided under Texas law are very favorable.
Bankruptcy is governed by federal law. Individuals seeking protection from creditors are permitted to file for bankruptcy under Chapter 7, which provides for liquidating part of their assets in order to satisfy part of their outstanding debts. (Some types of debts, like student loans, are not able to be discharged via bankruptcy.)
Exempt assets are shielded from liquidation, and here is where state law comes in. Homeowners in particular will find Texas law more advantageous than federal law. State law allows an individual to protect all the equity in their home no matter the amount. Federal law, however, only permits an individual to exempt a maximum of $23,675 their home’s equity. Stated simply, under Texas law, Chapter 7 filers get to keep their home.
Texas is also more generous with regard to the personal property exemption, allowing a single adult individual to keep $50,000 worth of such property as bank accounts, furniture, clothing and jewelry. The limit for this exemption under federal law is only $12,625. Additionally, Texas law permits an individual to exempt the full value of one vehicle per licensed household member, while federal law only permits an exemption of $3,775 of the value of a vehicle.
Texas law also allows individuals to exempt most tax exempt pensions and retirement assets. Under federal law, many of these are exempt as well, but if an individual has an IRA or Roth IRA, only $1,280,000 of these retirement assets are exempt.
In enacting these favorable exemptions, the Texas legislature did not want to encourage debtors to move to here in order to safeguard their assets. Accordingly, an individual must have resided in Texas for 40 months to qualify for the state law exemptions. By contrast, an individual must have lived in Texas for 24 months to use federal exemptions.
To learn more about how Hayes, Berry, White & Vanzant, LLP in Denton, Gainesville, Flower Mound and Celina can assist you with protecting your assets during your Texas bankruptcy, call us at 940-230-2386 or contact us online for a free consultation.
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