What Do I Stand to Lose If I File for Chapter 7 Bankruptcy in Texas?

Many consumers are worried about filing for Chapter 7 Bankruptcy because they are afraid of what they may lose. Chapter 7 Bankruptcy is sometimes referred to as a liquidation bankruptcy. The bankruptcy trustee appointed to the case may sell off assets to pay down some of the consumer’s debts. However, this does not happen in every case.

So, what do you stand to lose if you file for Chapter 7 Bankruptcy in Texas? Possibly nothing. Besides debt, stress, and anxiety. While this isn’t always the case, most Chapter 7 bankruptcies do not involve liquidating any assets. According to the American Bankruptcy Institute, 96% of Chapter 7 cases are closed without collecting any funds or distributing them to creditors.

Here is what you need to know about keeping your assets during the bankruptcy process.

What Does Chapter 7 Bankruptcy Do?

Chapter 7 Bankruptcy allows you to discharge many common debts, including:

• Credit card debt
• Medical debt
• Personal loans
• Unpaid bills
• Deficiency judgments

Once your debt is discharged, you no longer have to pay it off. This can provide significant financial relief if you are having trouble paying your bills or meeting your financial needs.

Other ways that a Chapter 7 bankruptcy may be able to help include:

• Preventing foreclosure on your home
• Stopping repossession of a car or other property
• Restoring your driver’s license if it was suspended due to non-payment of fines
• Preventing termination of utilities because of missed payments
• Stopping harassment from debt collectors

Texas Bankruptcy Exemptions

There are certain property exemptions under law. Texas bankruptcy exemptions allow you to keep a lot of your property, and maybe even all of it.

Texas provides greater exemptions than many other states. Unlike some other states, Texas allows you to choose whether to use the state or federal exemptions. A lawyer can work with you to determine the best path forward.

Texas bankruptcy exemptions include:

• Homestead property – While some states only protect a certain amount of equity in your home, Texas’ homestead exemption allows consumers to protect an unlimited amount of equity in their homestead. A homestead is a primary residence. There are acreage limits, though, for Texas’ homestead exemption protects the property if you own ten acres or less if you reside in an urban area of 100 acres if you live in a rural area. If you sell your property, you can only keep the profits for six months after the sale.
• Personal property – Texas also provides various exemptions for personal property. Generally, you can exempt personal property up to $50,000 if you are filing single or $100,000 if you are married and filing your case jointly. These exemptions include:
  • Home furnishings
  • Athletic and sporting equipment, including bicycles
  • Jewelry up to $12,500
  • Bibles, which are not subject to the $50,000 limit
  • Burial plots
  • Clothing
  • Two firearms
  • Food
  • Animals, including pets and their food, two horses, donkeys, or mules, tack, twelve cattle head, 60 other livestock head, and 120 fowl
• Motor vehicle – You can exempt the full value of one vehicle per each household member who is licensed.
• Health aids and health savings accounts – You can exempt health aids, including hearing aids, wheelchairs, and canes, as well as health savings accounts.
• Insurance – State or federal law may exempt life insurance policies and other insurance benefits. This may include protections for accident, health, and annuity benefits. It could also protect insurance benefits of state college and university employees in Texas or group insurance benefits for other employees. However, you might need to report the cash value of these policies when you file for bankruptcy.
• Benefits – Most types of benefit plans can be protected under state and/or federal law, including:
  • Retirement plans
  • Employee pension and retirement benefits for district and county employees
  • Pensions and retirement benefits for teachers
  • Retirement accounts for state employees, municipal employees, and elected officials
  • IRAs, Roth IRAs, and Keoghs
  • ERISA-qualified government or church benefits
  • Retirement benefits and pensions for judges
  • Firefighter and police retirement benefits and pensions
  • Other tax-deferred retirement benefits
  • Survivor benefits for public service workers
  • Workers’ compensation benefits
  • Unemployment benefits
  • Crime victims’ compensation
• Support payments – You can also protect child support and spousal support payments.

One exemption that Texas does not offer that other jurisdictions might is a wildcard exemption. This is a catchall exemption to protect other property that does not otherwise fall under another category of protected exemptions, up to a certain amount. If you need this exemption, you might choose to file under the federal wild exemption, which provides up to $15,425 of protection. Another potential exemption under federal law that you may wish to use is a lawsuit settlement exemption in case you receive a settlement for a legal claim such as a personal injury claim.

An experienced bankruptcy lawyer can analyze your particular situation and recommend which exemptions will best suit your situation.

Qualifying for Chapter 7 Bankruptcy

Not everyone is eligible for Chapter 7 bankruptcy in Texas because you have to be able to show that you cannot afford to pay off your debts based on your current income and expenses. For most people, this is accomplished by passing the means test. The means test is based on the median income for a household of the same size as yours in Texas.

In 2023, the median annual income is the following for the following types of household sizes:

• 1 – $55,441
• 2 – $74,636
• 3 – $80,733
• 4 – $90,386

Contact a Knowledgeable Bankruptcy Lawyer for Help

The bankruptcy process is complex. Deciding to file for bankruptcy is an important decision. You might want to discuss your options with a knowledgeable Texas bankruptcy lawyer before filing. A lawyer can explain whether you qualify for bankruptcy, the types of exemptions you may be eligible for, and the overall impact this decision may have on your finances. Contact our firm today for a full assessment of your situation.