How to keep your property.
Texas law provides a long list of property that is not available to creditors. The property is exempt from the claims of most creditors, but some creditors may have rights to the property due to the nature of the debt that defeat the exemption. Child support obligations are an example of debts that are allowed to have rights to personal property that would otherwise be exempt. Federal debts may also have superiority over the state laws exempting property. Texas law allows a debtor to keep property by claiming the property as an exempt asset.
In bankruptcy additional exemptions provided by the bankruptcy code may be available and elected. The bankruptcy code may also limit Texas State exemptions.
EXEMPT PROPERTY UNDER TEXAS LAW
The most common exemptions under Texas law are collected in Chapters 41
(real property) and Chapter 42 (personal property) of the Texas Property Code.
Other exemptions for personal property are scattered throughout the Texas
statutes.
Real Property Exemptions: Chapter 41 of the Property Code
Texas exempts only two types of real property: (1) one or more cemetery plots:
and (2) a homestead. Texas Property Code § 41.001(a).
Urban and Rural Homesteads
Either families or single adults may claim homesteads. The homestead may be
either rural or urban. Texas Property Code § 41.002(a). An urban homestead
may be used as a home and business. The size of an urban homestead is the
same for families or single adults: it may consist of up to ten acres on one or
more contiguous lots, including any improvements on the land. Texas
Property Code § 41.002(a). A rural homestead for a family is limited to 200 acres
and includes any improvements on the land. A rural homestead for a single
person is limited to 100 acres and any improvements on the land. Texas Property
Code § 41.002(b).
Encumbrances on Homesteads
Although homesteads are generally exempt from creditors’ claims, they are
subject to certain liens. The most common liens to which homesteads are subject
are: (1) a lien for purchase money; (2) a lien for taxes due on the property; and
(3) a lien for work and materials furnished in building improvements on the
property, but only if the work and labor were furnished pursuant to a written
contract. Texas Property Code § 41.001(b).
Proceeds form the Sale of a Homestead
If a person sells the homestead, the proceeds from the sale are exempt for six
months after the sale. Texas Property Code § 41.001(c).
Personal Property Exemptions under Chapter 42 of the Property Code
Chapter 42 of the Property Code contains two different types of exemptions for
personal property: (1) an "aggregate" exemption for certain kinds of personal
property, limited by the combined value of the property; and (2) unlimited
exemptions for other kinds of personal property.
Aggregate Exemptions Authorized by Sections 42.001(a)
Under section 42.001(a) of the Texas Property Code, families and single adults
may exempt certain kinds of personal property from the claims of creditors as
long as the combined fair market value of the property does not exceed: (1)
$60,000 for a family; or (2) $30,000 for a single adult. Generally, a debtor may
pick and choose what particular items of property to include within the aggregate
exemption as long as the items fall within the specified categories and the total
value of the property does not exceed the $60,000 or $30,000 cap. If the
combined value of the items in the different categories exceeds the value cap,
the debtor must designate which items to exempt. Texas Property Code §
42.003.
Types of Personal Property that May Be Included in the Aggregate
Exemption:Section 42.002(a) of the Property Code
With one exception, the kinds of personal property that may be included in the
aggregate exemption are listed in section 42.002(a) of the Property Code. The
kinds of personal property listed in section 42.002(a) that may be included within
the aggregate exemption are:
1. home furnishings and family heirlooms;
2. provisions for consumption;
3. farming or ranching vehicles and implements;
4. tools, equipment, books and apparatus, including boats and motor
vehicles, used in a trade or profession;
5. clothes;
6. jewelry, as long as it does not exceeds 25% of the value of the
aggregate exemption;
7. two firearms;
8. athletic and sporting equipment, including bicycles;
9. a motor vehicle for each member of a family or single adult who (A)
holds a driver’s license or (B) does not hold a drivers license but
relies on another person to operate the vehicle for the unlicensed
person;
10. the following animals, including forage on hand for their
consumption: (A) horses, mules, or donkeys, including a saddle ,
blanket and bridle for each one; (B) 12 head of cattle; (C) 60 head
of other types of livestock; and (D) 120 fowl;
11. household pets;
In addition to the kinds of personal property listed in section 42.002(a),
a debtor may also include within the aggregate exemption unpaid
commissions for personal services as long as the amount does not
exceed 25% of the value cap. Texas Property Code § 42.001(d).
"Commissions for personal services" are compensation owed to an
employee. They do not include compensation owed to independent
contractors.
Unlimited Exemptions under Property Code Section 42.001(b)
In addition to the kinds of personal property that may be exempted under the
aggregate exemption of section 42.001 (a), a debtor may also exempt, without
regard to value, the following kind of property:
1. current wages for personal services;
2. professionally prescribed health aids of the debtor or a dependent
of the debtor; and
3. alimony, support, or separate maintenance received or to be
received by the debtor for the debtor’s support or a dependent of
the debtor.
"Current wages" are wages owed to an employee. Once the wages have been
paid to the employee, they are not "current wages" for purposes of section
42.001(a) and they are no longer exempt.
Retirement Plans under Section 42.0021
In addition to the exemptions under sections 42,001 and 42.002, a debtor is
entitled to an exemption for his rights in a variety of retirement plans. Texas
Property Code § 42.0021(a). The exemption includes the debtor’s right to
payments under, or the right to assets held in, the following types of plans.
1. stock bonus, pension, profit-sharing plans, and similar plans,
including retirement plans for self-employed individuals;
2. annuities purchased with assets distributed from such plans;
3. retirement annuities or accounts described in section 403(B) or
408(B) of the IRS Code
4. individual retirement accounts or annuities, including a simplified
employee pension plan; and
5. government or church plans or contracts that qualify under the
federal Employee Retirement Income Security Act of 1974.
When a debtor receives distributions from these plans, the distributions are
exempt from seizure for 60 days if the distributions qualify as a nontaxable
rollover contribution. Texas Property Code § 42.0021(c).
Limitations to the Exemptions under Sections 42.001 and 42.002.
The exemptions in sections 42.001, 42.002, and 42.021 are subject to a
contractual landlord’s lien or other security interest in the property. Texas
Property Code § 42.001.
Limitations to the Exemptions under Sections 42.001, 42.002 and 42.0021
The exemptions in Chapter 42.001, 42.002, and 42.0021 are subject to a lien for
child support. Texas Property Code § 42.005.
Exemption for College Savings Plan
A debtor is entitled to an exemption for college savings plans authorized under
the following statutes: (1) any plan established by Subchapter F of Chapter 54 of
the Education Code; (2) any plan established by Subchapter G of Chapter 54 of
the Education Code; and (3) any qualified state tuition plan that satisfies the
requirements of section 529 of the Internal Revenue Code. Texas Property Code
§ 42.0022.
Personal Property Exemptions under Other Statutes
As noted earlier, the most common personal property exceptions are listed in
Chapter 42 of the Property Code. The Texas legislature, however, has enacted a
patchwork system of exemptions for moneys received from various sources.
These other exemptions fall into two broad categories: (1) retirement plans and
other benefits for public employees; and (2) public or private moneys paid to
people in need or for other humanitarian purposes. Most of these statutes are too
complex to explain in detail, so only the title of the program and statute are listed.
Public Employee Benefit Programs: Municipal Employees
Texas Municipal Retirement System. Texas
Government Code § 851.006
Municipal Retirement System in Municipalities of
460,000 to 500,000. Texas Revised Civil Statutes art.
6243n § 11(d).
Municipal Pension System in cities over 1,500,000.
Texas Revised Civil Statutes art. 6243h § 220.
Public Employee Benefit Programs: County Employees
Texas County and District Retirement System. Texas
Government Code § 841.006.
Public Employee Benefit Programs: State Employees
Employees Retirement System of Texas. Texas
Government Code art. 3.50-2 § 10.
Texas Employees Uniform Group Insurance Benefits
Act. Texas Insurance Code § 1550.011
Public Employee Benefit Programs: Education System Employees
Teacher Retirement System of Texas. Texas
Government Code § 821.005.
Texas Public School Retired Employees Group
Benefits. Texas Insurance Code art. 1575.006.
State University Employees Uniform Insurance
Benefits Act. Texas Insurance Code § 1601.008.
Public Employee Benefit Programs: Judicial System Employees
Judicial Retirement System of Texas Plan One. Texas
Government Code § 831.004.
Judicial Retirement System of Texas Plan Two. Texas
Government Code § 836.004.
Public Employee Benefit Programs: Police Officers and Fire Fighters
Police Officers’ Pension System in Cities of 50,000 to
400,000 Populations. Texas Revised Civil Statues art.
6243j § 20.
Police Officers Pension System in Certain
Municipalities. Texas Revised Civil Statutes art.
6243g-4 § 28.
Policemen’s Relief and Retirement Fund. Texas
Revised Civil Statutes art. 6243d-1 § 17.
Firefighters Relief and Retirement Fund in Cities of
450,000 to 500,000. Texas Revised Civil Statutes art.
6243e.1 § 1.04.
Firefighters’ Relief and Retirement fund in
Municipalities of at least 1,600,000 Population. Texas
Revised Civil Statutes art. 6243e.2(1) § 15.
Texas Local Fire Fighters Retirement Act. Texas
Revised Civil Statutes art. 6243e § 5.
Pension System for Police Officers and Firefighters in
Certain Cities. Texas Revised Civil Statutes art.
6243a-1 § 8.03.
Police and Firefighter Retirement System in
Municipalities of 750,000 to 1,000,000. Texas
Revised Civil Statues art. 6243o § 1.05.
Retirement Health Trust for Firefighters and Police
Officers. Texas Revised Civil Statues art. 6243q §
1.05.
Humanitarian Exemptions
Financial Assistance to Survivors of Law Enforcement
Officers and Firefighters. Texas Government Code §
615.005.
Financial Assistance and Service Programs (Aid to
Families with Dependent Children). Texas Human
Resources Code § 31.040.
Medical Assistance Program. Texas Human
Resources Code § 32.036.
Crime Victims Compensation Act. Texas Code of
Criminal Procedure art. 56.49
Workers’ compensation Benefits. Te xas Labor Code §
408.201.
Unemployment Benefits. Texas Labor Code §
207.075.
Benefits Provided by Fraternal Benefit Societies.
Texas Insurance Code § 885.316.
Church Benefit Plans. Texas Revised Civil Statutes
art. 1407a § 6.
Exemptions for Certain Insurance and Annuity
Benefits. Texas Insurance Code § 1108.51.
Chapter 7
A debtor must be eligible to file Chapter 7. Eligibility to file Chapter 7 requires that the debtor not have a significant ability to repay creditors based upon a means test required by the bankruptcy code. If a debtor is not eligible for Chapter 7 they may be eligible for another type of bankruptcy.
Why do I want to file Chapter 7? A Court Order called the Automatic Stay normally stops collection of most debts upon the filing of the Bankruptcy Case. Chapter 7 is a very good method of discharging debts that are unsecured or if secured that the collateral is surrendered. Discharge means the debt can not be collected. There is no provision in Chapter 7 to make payments over time to cure an arrearage on a secured debt such as a mortgage. Chapter 7 is a bankruptcy in which the Debtor surrenders any property that is not exempt or property that is exempt that there is a secured debt. The creditors are paid from the proceeds of the surrendered property. A trustee is appointed. The trustee conducts a meeting of creditors in which the debtor and the documents filed in the case are reviewed and in which questions can be asked of the debtor. The trustee is responsible for the liquidation of the bankruptcy estate. Lawsuits may be filed by creditors claiming the debt owed to them should not be discharges or the discharge should not be granted. These lawsuits have timelines in which they must occur. After these periods have passed the discharge is granted to the debtor.
Income tax refunds, inheritances, law suit settlements, and other windfalls received within 180 days of filing bankruptcy may be determined by the Bankruptcy Court to belong to the bankruptcy estate.
The Bankruptcy code makes it a crime to hide assets or be untruthful in the bankruptcy filing.
CHAPTER 13
Frequently, there are debts that are not benefited by the filing of a Chapter 7. These debts might include past due debt in a foreclosure, taxes that have not matured sufficiently to be dischargeable in Chapter 7. Alternatively, the debtor may have means to repay creditors and not be allowed to obtain a discharge under Chapter 7.
Why would I file Chapter 13? Chapter 13 provides the ability to cure many debt problems by completing a plan of reorganization under Chapter 13 of the U.S. Bankruptcy Code. A Court Order called the Automatic Stay normally stops collection of most debts upon the filing of the Bankruptcy Case and may stop foreclosure, repossession, levies, lawsuits, and other collections. A plan of reorganization is a repayment plan normally consisting of monthly payments with a normal duration of a minimum of 36 months and a maximum duration of 60 months. A plan of reorganization will classify creditors based on the U.S. Bankruptcy Code. The classification is just like looking at an old time parfait dessert. The highest level gets treated best and the lowest levels may get treated to payments as the debtor can afford them. The Debtor is not allowed to borrow without court approval during the Chapter 13. The plan of reorganization will include all sources of income other than social security income. The debtor will only be allowed expenses that are authorized under the bankruptcy code means test. Many of the expenses allowed are determined under the standards determined by the Internal Revenue Service guidelines for repayment of tax debts. The Court has jurisdiction under Chapter 13 for cases that do not exceed debt limits. Cases that exceed the debt limits will need to usually file under Chapter 11. In exchange for the ability to repay his creditors over time the debtor must provide his creditors at least the amount that they would have received in Chapter 7. A meeting of creditors will be held in the bankruptcy case. Questions will be asked regarding the documents filed in the bankruptcy at the meeting of creditors. The debtor is required to repay his creditors under the plan of reorganization thirty days after the filing of the bankruptcy and every month afterwards.. The Standing Chapter 13 Trustee administers the plans for the benefit of the Court. The Chapter 13 Trustee charges a fee of 10% of the total amount disbursed in the Chapter 13. The Standing Chapter 13 Trustee’s fees are collected as part of the plan of reorganization.
Income tax refunds, inheritances, law suit settlements, and other windfalls are usually considered as income in Chapter 13.
The Bankruptcy code makes it a crime to hide assets or be untruthful in the bankruptcy filing.
Chapter 11. Chapter 11 is a more complex form of bankruptcy. This form of bankruptcy is beyond the scope of this article and needs to be discussed in person.