One of the most frightening things about filing for bankruptcy is the potential for your assets to end up liquidated by the courts to pay your debts. For those with lower incomes, who pass the state means test, Chapter 7 bankruptcy can offer relief from unsecured debts, including credit card debt and medical debts. However, the courts will look at your assets to see if you have the ability to repay some of those debts before granting a discharge.
It’s only natural to worry about how filing for bankruptcy could impact your home equity or status as a homeowner in the state of Texas. Certain assets are exempt from the liquidation process in bankruptcy. Thankfully, Texas has some of the most generous homestead exemption laws in the country. If you qualify for Chapter 7 bankruptcy, your interest in your home or ranch is protected to a certain degree
Texas doesn’t have financial limits on the equity you can exempt
Most states have a flat figure for the amount of equity you can exempt in Chapter 7 bankruptcy. Any amount of equity over that limit can end up refinanced and liquidated to repay creditors. This can leave people with lower income in a precarious position. Thankfully, Texas has very lenient policies that focus more on the amount of land owned, rather than on the amount of equity in the property.
You can claim the home you live in, as well as an amount of acreage, as exempt from the bankruptcy proceedings. For properties that qualify as urban, the limit is not more than 10 acres of land. For those who own rural homes, there is a limit of 100 acres for a single person or 200 acres for a family. That amount is generous, as you could own the property outright and not lose any of the value or equity in the property. The value in your homestead property does not factor into the exemption process, only the number of acres.
What constitutes an urban and rural property in Texas?
In order to qualify as a rural property, your land has to meet certain requirements. It cannot exist inside the limits of a municipality or a platted subdivision. Also, it may not have more than two municipal services, such as electric power, natural gas, sewer, storm sewer and water. Homes that have local fire departments, law enforcement and at least three of those services will be subject to urban property limits, not rural property limits.
It’s also important to note that the Texas state exemption limits only apply to people who have lived in the state for at least 40 months. For those who recently moved to Texas, the standard federal exemption will apply instead of the Texas state exemption.