Is your home or ranch exempt from liquidation in a bankruptcy?

On Behalf of | Apr 30, 2020 | Uncategorized

Chapter 7 bankruptcy is arguably the most aggressive form of bankruptcy available to individuals dealing with unsustainable levels of debt. Without making an effort to repay their debts, individuals can theoretically discharge unsecured debt such as credit card balances and medical debt through Chapter 7 proceedings.

Provided that you can pass the Texas means test, you can ask the courts to discharge your debt in Chapter 7 bankruptcy. In order to protect companies from falling victim to individuals who accrue massive debt and then discharge it to avoid repaying it, the courts limit your income when you file for Chapter 7 bankruptcy, which is why you must pass a means test. They also require the liquidation of assets if you have possessions of significant value.

Concerns about the courts requiring the liquidation of a home or ranch are one reason why people may avoid filing bankruptcy when they would definitely benefit from the end of collection efforts and the discharge of their debt. Thankfully, Texas has strong protections for homeowners and ranchers when it comes to how much home equity or acreage they can exempt from liquidation in a Chapter 7 bankruptcy.

How do bankruptcy exemptions work?

The purpose of bankruptcy is to help you regain control over your financial circumstances, and not force you into abject poverty. As such, there are certain assets that are exempt from liquidation in order to ensure you can have a basic standard of living after filing bankruptcy.

Common exemptions include some amount of home furnishings, your personal wardrobe, vehicles and some amount of equity in your home. Provided that you give the courts accurate information regarding your assets and their value, you can potentially protect the items that matter the most to you from liquidation and sale in bankruptcy.

How much property can you exempt in Texas chapter 7 proceedings?

Texas allows you to use either the federal or state exemptions. If you choose the federal exemptions, you must use them for every category. The same is true for a few select Texas state exemptions.

For those who choose to use the Texas exemptions, the law will allow them to protect an unlimited value in their home, with limits instead on the size of their property. Those living in a city or village can have up to 10 acres and a home exempted, while those in rural areas can exempt up to 100 acres.

Depending on the value of your home and other assets that you own, you can make a strategic choice regarding which kind of exemption will offer you more benefits during Chapter 7 bankruptcy.