Sections of Texas Bankruptcy Code
Insurance 21.22,3.50-4(11) (a), 3.50-4(11),1575.006, 1551.01, 13.50-3(9) (a)
Property 42.002(a) (12)
Texas bankruptcy law provides an exemption with an unlimited dollar amount for insurance benefits to the debtor who is the beneficiary or the insured of any insurance policy. Insurance benefits are defined to include any money or benefits of any kind to be paid to the debtor whether he/she is a beneficiary or the insured. This includes insurance for life, health, accident; plus mutual and fraternal insurance companies or any plan or program of annuities/benefits being used by an employer.
Under Texas bankruptcy law insurance benefits cannot be seized to pay the debts of the beneficiary or the insured even if the beneficiary can be changed. The Texas bankruptcy law will not allow this exemption if 1) the creditor is trying to cover insurance premium payments fraudulently made by the debtor filing for bankruptcy; or 2) if the creditor is attempting to foreclose on its interest in the policy or if the policy was used to secure the debt of the beneficiary or insured.
Retired public school employees group insurance, Texas employee uniform group insurance and
Texas state college or university employee benefits are completely exempt under this bankruptcy law.
It is important to understand that if you cash in an insurance policy before you file for bankruptcy in Texas, the proceeds may not be exempt from seizure under the law depending on the circumstances.
In Trautman vs. Milligan, the court decided that proceeds to the owner of an insurance policy did not fall under this Texas bankruptcy exemption. The debtor in this case owned a whole-life insurance policy that he cashed in and claimed that the check was exempt under this bankruptcy statute. But the courts decided against him because when he surrendered the policy he was acting as the owner of the whole-life insurance policy, not the insured or the beneficiary. This bankruptcy exemption only covers the insured or the beneficiary.