Chapter 7 bankruptcy: A chance for a fresh financial start

On Behalf of | Feb 6, 2024 | Chapter 7

Chapter 7 bankruptcy, often called liquidation bankruptcy, provides a pathway for individuals in Texas to discharge most of their unsecured debts, such as credit card debt, medical bills and personal loans. This form of bankruptcy is designed for individuals who don’t currently have the financial means and/or ability to pay back their debts over time.

To qualify for Chapter 7 bankruptcy in Texas, individuals must pass the means test, which compares their income to the median income for a household of their size in Texas. If their income is below the median, they can file for Chapter 7. If it’s above, they might still qualify based on their disposable income and expenses, but otherwise, they may have to consider Chapter 13 bankruptcy, which involves a repayment plan.

Exempt assets in Texas

Texas offers generous exemptions allowing debtors to protect significant assets from the risk of being sold in bankruptcy. (Although it’s important to note that very, very few filers ever have any of their non-exempt assets sold as part of this process.) Debtors can choose between Texas state and federal exemptions but can’t mix and match between the sets. Texas exemptions include:

  • Homestead exemption: Texas law allows for an unlimited homestead exemption for the equity in a primary residence, as long as it doesn’t exceed 10 acres in a city, town or village or 100 acres elsewhere. There’s a 1,215-day ownership requirement for this exemption to take effect.
  • Personal property: Filers can exempt up to $50,000 of personal property for a single filer and $100,000 for a family. This includes furniture, clothing, jewelry, tools of the trade, two firearms, athletic and sporting equipment and a certain amount of livestock.
  • Motor vehicles: There isn’t a specific dollar limit for the exemption. The exemption covers one vehicle per licensed driver.
  • Retirement accounts: Retirement accounts, including IRAs, 401(k)s and defined benefit plans, are fully exempt under Texas law, protecting future financial security.

Other exemptions include specific life insurance policies, health aids, college savings plans and specific types of livestock and pets.


When a filer’s case is successful, most of their unsecured debts will be discharged, meaning that the debtor is no longer legally required to pay them. Some debts, such as alimony, child support, most student loans and certain taxes, can’t be discharged in bankruptcy, however.

Filing for Chapter 7 bankruptcy in Texas can offer a fresh start for those overwhelmed by debt who qualify for this opportunity. Seeking legal assistance can provide valuable guidance to help filers make informed decisions about their financial future.