Individuals and businesses with insurmountable debt can file for a Chapter 7 bankruptcy, also known as a liquidation bankruptcy. Although assets may need to be sold to pay down the debt, not everything has to be liquidated. This is where exemptions come in, which are provided for by both federal and state law. Exemptions allow debtors to use the bankruptcy process while protecting certain property.
Having the right attorney in your corner will make the difference in how successful your bankruptcy is. If you’re considering Chapter 7 and would like to know more about exemptions, or you’d like to learn more about bankruptcy in general, reach out to Toronjo & Prosser Law.
The Basics Of Chapter 7 Bankruptcy
Before determining which property may qualify for an exemption, it’s helpful to learn a few basic facts about Chapter 7 bankruptcy. This type of bankruptcy involves liquidating assets and property to pay off debt. A bankruptcy trustee will be assigned to assist with this process. Debtors who have unsecured debt (i.e. not secured by collateral) are often drawn to Chapter 7 bankruptcy because it’s the quickest and easiest type.
Here are a few examples of the debts that can be taken care of with Chapter 7 bankruptcy:
- Credit card bills
- Medical bills
- Utility bills (electric, water, etc.)
- Unsecured judgments
- Collection agency debts
- Personal loans
- Payday loans
There are a number of criteria required to file for Chapter 7. For instance, individuals have to meet the income limitations. That means the debtor’s household income must be lower than the median income in Texas. If the debtor’s income is higher, he or she must pass a means test. This evaluation will take into consideration the amount of the debtor’s disposable income and debt.
Not all property has to be liquidated to complete a Chapter 7 bankruptcy. Many assets can be claimed as exempt from liquidation.
Overview Of Chapter 7 Bankruptcy Exemptions
Debtors who are considering Chapter 7 often worry that they will have to sell everything to qualify for bankruptcy. In reality, however, much of the debtor’s property and income can be counted as exempt. Exempt means that the asset does not have to be sold and creditors cannot reach it through bankruptcy.
Texas residents can choose to claim either state or federal Chapter 7 bankruptcy exemptions. However, they cannot choose exemptions from both lists; rather, they must select one or the other set of exemptions that best fits their particular debt circumstances. A bankruptcy attorney can help with this.
The following are bankruptcy exemptions available under Texas law for Chapter 7 filers:
Homestead. The Texas homestead exemption allows debtors to protect an unlimited amount of equity in their primary residences. It is a generous exemption compared to other states, but there are certain criteria that must be met:
- For urban homes, the property must not be more than 10 acres
- For rural homes, the property must not be more than 100 acres (or 200 acres for a family)
- If the property was acquired within 1215 days prior to the filing of Chapter 7, the amount of exempt equity is capped at $125,000
Personal property. The following are exempt without limit:
- Current wages, except court-ordered support
- Prescribed medical aids such as hearing aids, wheelchairs, and canes
- Alimony, support, and separate maintenance
- Bibles or other sacred or religious books
- Burial plots
The following are exempt up to the current limits of $50,000 for an individual (or $100,000 for a family), except as otherwise noted:
- Athletic and sporting equipment, including bicycles
- Up to two firearms
- Home furnishings, including family heirlooms
- Jewelry, up to the current limits of $12,500 for single filers (or $25,000 for married filers)
- Animals, including domestic animals, pets, and their food
- Certain cattle, livestock, and fowl
- Farming or ranching vehicles and implements
Motor vehicles. Filers may exempt the total value of one vehicle per licensed household member. If a household member doesn’t have a driver’s license but owns a car that someone else drives on their behalf, that vehicle is also exempt.
Pensions and retirement accounts. Most pensions and retirement plans are exempt. Included are plans that are tax-exempt under the Tax Code. If you’re not sure whether your specific plan qualifies, check with an attorney or your fund manager.
Insurance. Included in this category are fraternal benefit societies (e.g. Freemasons or Elks) benefits; life, health, accident, and annuity benefits; and Texas state employee group life insurance.
Miscellaneous exemptions. These include:
- College savings plans
- Crime victim awards
- Survivors benefits for public officers killed on duty
- AFDC, welfare, and foster care benefits
- Medical assistance
- Interest in specific partnership property
- Unemployment benefits
- Workers’ compensation
The federal exemptions are similar to those included in the Texas exemptions. It should be noted that each of these is subject to certain values that are periodically adjusted for inflation:
- Real property used as a primary residence (not as investment property)
- Motor vehicle
- Home furnishings
- Household goods and appliances
- Musical instruments
- Health aids
- Life insurance policies
- Personal injury awards
- Retirement benefits
- Support benefits
While many of the Texas exemptions are more generous than their federal counterparts, the wild card is a notable exception. Available only under federal exemptions, the wild card can be applied to any asset up to the set value cap (currently $1,475) plus up to a certain limit (currently $13,950) that was not used for the homestead exemption. That adds up to a potential exemption of $15,425 under current limitations.
Contact Our Dallas Chapter 7 Bankruptcy Exemptions Attorney
In deciding whether to choose the Texas or federal exemptions, you will want to consider the nature of your assets, the dollar caps per asset, and your overall bankruptcy goals. Toronjo & Prosser Law is here to help you protect as much of your property as you can so you can be better positioned at the conclusion of your bankruptcy. Contact us today to schedule your confidential consultation.