Bankruptcy and Exemptions

Many people have the misconception is that the government is going to come and seize all their property once their debt is discharged through bankruptcy. This is simply not true.

Most people that file for bankruptcy keep all of their property. The reason they are able to do this is because there are exemptions provided under federal and under state law that protect property. The laws contain notations that allow people that are insolvent to keep certain pieces of property, like the Homestead Exemption clause.

For example, the Homestead Exemption in Texas allows people who have paid off their property to keep that house regardless of its value. In addition, the law in Texas allows you to keep one vehicle per licensed driver and certain household goods, such as furniture, electronics, and personal knickknacks.

Texas does not allow you to exempt cash, but since Texas allows for federal exemptions as well, a person can choose which exemptions they want to adhere to, the state or the federal.

Under the federal laws, you can exempt a portion of the equity in your home. It’s not limitless like in a state exemption - however, if you don’t have excess equity in your home the federal exemption can be used as a sort of a wild card.

This would allow you to apply the exemption toward anything - like cash - which normally would not be allowed. Simply put, filing for bankruptcy won’t require giving up everything you own, thanks to state and federal exemptions.