Chapter 7 Bankruptcy in Texas

Chapter 7 Bankruptcy in Texas: What You Need to Know

Texas Bankruptcy Chapter 7 ExemptionsLast updated March 29, 2017.

The state of Texas takes pride in doing things differently than the rest of the country. However, when it comes to bankruptcy, Texans will find some similarity in the process regardless of which region they file in.

The bankruptcy code is federal law, meaning it applies uniformly nationwide. For this reason, the experiences of debtors from one jurisdiction to the next are often very similar. For example, regardless of where you file your case, the bankruptcy court will immediately prevent creditors from continuing with collection efforts. From Alabama to California to Michigan, filing Chapter 7 bankruptcy will stop foreclosure, phone calls, lawsuits and other harassment by debt collectors. Similarly, Chapter 7 will discharge your unsecured debts such as medical bills and credit card debt.

The discharge eliminates debts in a similar fashion regardless of the city or state you file in. Having said that, each state as well as the federal government has enacted legislation that dictates what property debtors can keep through the Chapter 7 bankruptcy process. These laws are known as exemption laws and they can have a big impact on your bankruptcy case.

See also: How to Screw Up Your Bankruptcy Discharge

Texas Bankruptcy Exemptions: Among the Most Generous in the Country

Although Texas law allows residents to choose the federal exemptions, Texas bankruptcy exemptions are among the most generous in the country and it is rare for a debtor not to utilize their protections. For example, the Texas homestead exemption allows debtors to protect an unlimited amount of value in their home provided the property does not exceed 10 acres in a city town or village or 100 acres elsewhere.

This means that debtors in Texas can file for Chapter 7 bankruptcy and keep their home, regardless of its value. Be aware however, that there is a residency requirement in order for the Texas homestead law to apply. According to legalconsumer.com:

Under the new bankruptcy law, you must have lived in the state for at least 40 months (three years and four months) before you can claim any homestead protection greater than $146,450. (If your state’s exemption offers less than this amount, the law is irrelevant to you.) The law is poorly worded but seems to say that if you move from one home to another in the same state, you can claim that state’s homestead protection.

Since the Texas homestead exemption allows for protection greater than $146,450, you must have been living in Texas for 40 months before the law applies. In addition to the residency requirement for utilizing the Texas homestead exemption, bankruptcy law generally requires that the debtor have lived in a state for the last two years before that state’s exemption laws will apply.

This requirement is designed to prevent debtors from picking up and moving from their home state to state with more favorable laws in order to protect more property in a bankruptcy filing.

If you’ve recently moved to Texas, the state that you live in previously is likely to supply the law in your bankruptcy case. If you have questions, make sure to meet with a qualified bankruptcy attorney.

Other Texas Exemptions

In addition to the homestead, Texas law allows each debtor with a driver’s license to protect the equity in a motor vehicle. This means that if you can drive a car, you have a right to protect one car through the Chapter 7 bankruptcy process in Texas.

Texas bankruptcy law also allows for debtors to protect $50,000 of personal property for a single filer or $100,000 of personal property for a family. Because of the generous dollar amounts attached to the Texas exemptions, it is very likely that you can file for Chapter 7 and retain all of your property. The exemption laws change from time to time, so be sure to meet with an attorney to review your case in detail.

See also: Exemptions: What Can I Keep if I File Bankruptcy?

Texas vs. Federal Exemptions

The top 5 exemptions under Texas law compared to federal law.
Type of exemptionTexas lawFederal law
HomesteadUnlimited, except by acreage based on location of the property$23,675 of equity in principal place of residence
Personal propertyUp to $100,000; $50,000 if a single adult without a family. Includes clothing and food, up to two firearms, several animals, limited jewelry, and more$12,625 aggregate value on household goods, plus federal wildcard exemption applicable ($1,250 plus $11,850 of any unused portion of your homestead exemption)
VehicleEntire value of one motor vehicle per licensed household member$3,775
WagesExempt for personal services, except for the enforcement of court-ordered child support paymentsIncome you've earned but not yet received becomes part of your bankruptcy estate
Pension/retirementExempt, including benefits for teachers, police officers, municipal employees, etc.Exempt, with a cap of about $1.28 million on IRAs and Roth IRAs

How much does bankruptcy cost in Texas?

The cost of filing for bankruptcy varies greatly by jurisdiction. In Texas, the fees charged in the larger cities such as Dallas and Houston will be greater than in more rural areas. This is due, in large part, to the additional overhead required in the big cities to keep a practice going.

Generally speaking, there are two fees associated with filing for bankruptcy: the filing fee and the attorney’s fee. For a Chapter 7 case, the filing fee recently was raised to $335. If you’re unable to afford the filing fee, you can petition the court to have it waived or to pay it in installments. An average attorney’s fee for Chapter 7 case can range between $900-$2,000 depending on the complexity of the case.

There is a common misconception in the public that filing for bankruptcy is just “filling out some forms.” The reality is that some bankruptcy cases are extraordinarily complicated while others are fairly straightforward. A reputable law office will tailor their fee to your needs as well as to the amount of work that will be associated with your case. Many bankruptcy law firms offer installment plans and flexible payment arrangements.

Will I be eligible to file for Chapter 7 bankruptcy in Texas?

Thanks to the bankruptcy reforms of 2005, debtors seeking Chapter 7 protection must deal with the means test. The means test was put in place to make it more difficult to file Chapter 7 bankruptcy when debtors have the disposable income to repay some of their debts. As a result, those earning more than the median income in their state must pass the means test in order to qualify for Chapter 7 bankruptcy.

For a single filer in Texas filing bankruptcy after November 1, 2016, their income must be less than $46,127 or they will have to analyze their disposable income under the means test. It is important to remember that the means test calculates median income based on household size, so if your household is larger than a single individual, your median income will be compared against a family with a similar headcount. A good bankruptcy lawyer can walk you through the means test and help you determine whether you are eligible to file for Chapter 7.

Where is My Local Bankruptcy Court? Where Will My Meeting of Creditors be Held?

Like every other state in the union, Texas contains a series of state and federal courts to serve its residents. Because bankruptcy is a process organized under federal law, Texas bankruptcy courts are part of the federal court system.

Texas is a big state with four federal districts, each with numerous bankruptcy courts. Districts are further divided by division, which include courthouses for local residents. The 341 meeting of creditors usually takes place at the division courthouse nearest to your home. In most cases, bankruptcy filers are not obligated to attend court. The meeting of creditors rarely takes place in an actual courtroom.

The Eastern District of Texas Bankruptcy Court (Main Courthouses: Tyler, Plano, Beaumont)

According to the Eastern District of Texas Bankruptcy Court website, the Court serves the following areas:

The Eastern District of Texas consists of 43 counties in the eastern part of Texas from the Red River to the north to the Gulf of Mexico to the south. Information on counties and their serving offices can be viewed here.

The Northern District of Texas Bankruptcy Court (Main Courthouses: Amarillo, Dallas, Ft. Worth, Lubbock, San Angelo, Wichita Falls)

The official website for the Northern District of Texas Bankruptcy Court can be viewed here.

The Western District of Texas Bankruptcy Court (Main Courthouses: Austin, El Paso, Midland, San Antonio, Waco)

The official website for the Western District of Texas Bankruptcy Court can be viewed here.

The Southern District of Texas Bankruptcy Court (Main Courthouses: Brownsville, Corpus Christi, Galveston, Houston, Laredo, Mcallen, Victoria)

The official website for the Southern District of Texas Bankruptcy Court can be viewed here.