How Do Homestead Exemptions Protect My Property During Bankruptcy?

 Posted on November 25, 2024 in Asset Protection

One of the most common concerns debtors have when filing for bankruptcy is what happens to their assets. Filers often worry that their personal belongings, furniture, cars, and homes may be in jeopardy of being sold to pay off creditors. However, Texas law offers fairly liberal exemptions for bankruptcy filers that allow them to keep certain assets. The homestead exemption, for example, protects a filer’s property against creditors throughout bankruptcy. This exemption is subject to provisions, however, which is why you should consult a Texas bankruptcy attorney about how you can best protect your assets while discharging your debts.

What Is the Texas Homestead Exemption?

The Texas homestead exemption gives people who file for bankruptcy unlimited protection for the equity in their homes. Equity refers to the portion of a property that the owner has paid off and therefore owns. For example, if your home is worth $500,000 and you owe $200,000 on the mortgage, your equity in the home is $300,000.

In Texas, the law provides certain conditions under which a bankruptcy filer can protect all of his or her home equity against creditors:

• Primary residence: The home must be your primary residence. Vacation homes are not protected by the exemption.

• Size: The homestead exemption protects home equity in urban dwellings up to 10 acres. Properties in rural areas are covered up to 100 acres, or 200 acres for families.

• Residency and ownership requirements: The debtor must have lived in the home for 730 days, or two years, before filing for bankruptcy to qualify for the exemption. He or she must also have bought and owned the property at least 1,215 before filing for bankruptcy. Otherwise, the filer will have to use the federal exemption which only protects equity up to $189,050.

How Does the Texas Homestead Exemption Work in Bankruptcy?

The Texas homestead exemption applies differently depending on which type of bankruptcy you file:

• Chapter 7: In Chapter 7 bankruptcy, your assets are liquidated to satisfy your debts. This means your assets are sold and the proceeds are used to pay back creditors. If your home meets the criteria, the Texas homestead exemption protects it from liquidation.

• Chapter 13: In Chapter 13 bankruptcy, the court approves a repayment plan in which you pay back your debts over three to five years. Since no assets need to be liquidated and you retain possession of your home, there is no need for a homestead exemption.

Contact a New Braunfels, TX Bankruptcy Lawyer

Bankruptcy can be a lifeline to people who are drowning in debt, but it comes at certain costs. Find out how to protect your property and assets by contacting the Law Offices of Chance M. McGhee. Our clients receive personalized bankruptcy strategies tailored to their needs along with excellent legal representation. Get a free consultation with a Boerne, TX bankruptcy attorney now by calling 210-342-3400 today.