Losing a home is one of the biggest fears people express when they discuss filing for bankruptcy relief. However, we want you to know that you may be able to get out of debt by filing a bankruptcy case while protecting your home from the bankruptcy trustee and your creditors.
With Texas’ homestead law, you and your attorney can use homestead protections to obtain bankruptcy relief while keeping your home.
What is Homestead Property?
Before we go into the details of Texas homestead laws, it helps to review the definition of homestead property. In general, a homestead is defined as where a person lives.
In most cases, it is defined as an individual’s principal place of residence, such as a home or condominium. Improvements to your property, such as roads, barns, water towers, swimming pools, pumps, and other substantially attached items are generally included when claiming a homestead exemption.
A homestead may also apply to vacant land if there is a reasonable expectation that you are building a home on the land to use as your residence. In some cases, rental property, life estates, or a beneficial interest in a trust that holds real estate may qualify for homestead protection.
If you have questions about whether your residence qualifies as a homestead under Texas homestead laws, it is wise to consult an experienced Dallas bankruptcy attorney to discuss your situation before you file a bankruptcy case.
How Do Bankruptcy Exemptions Protect My Homestead Property?
When you file a bankruptcy case, you may elect to use various bankruptcy exemptions to protect different types of property. Bankruptcy exemptions protect the equity in your property from your creditors and the court. Equity is the value of the property after subtracting any liens against the property from the market value of the property.
For instance, to determine the equity in your home, you subtract your mortgage and other liens from the amount you would receive if you sold your home. If your home is worth $300,000 based on current market values and you owe $200,000 to the mortgage company, your net equity is $100,000.
Bankruptcy exemptions allow you to keep your property when you file bankruptcy. Nonexempt property (property that is not protected by bankruptcy exemptions) is subject to being sold by a Chapter 7 trustee to pay general unsecured debts.
In a Chapter 13 case, you may be required to pay more money toward your unsecured debt through your Chapter 13 plan if you have unexempt property.
Therefore, it is important to review all available bankruptcy exemptions, including specific Texas homestead exemptions to protect the equity in your home when you file for bankruptcy relief.
Bankruptcy Exemptions in Texas
The Bankruptcy Code provides certain bankruptcy exemptions that you may use when you file a bankruptcy case. Federal bankruptcy laws allow you to use the federal or state bankruptcy exemptions, depending on your state laws.
Some states enacted bankruptcy exemptions that individuals must use when they file a bankruptcy case in those states. Other states, including Texas, allow individuals to choose between state and federal bankruptcy exemptions.
Therefore, when you file a bankruptcy case in Texas, you may choose to use federal bankruptcy exemptions or state bankruptcy exemptions. The decision to use federal or state bankruptcy exemptions depends on your unique financial situation.
In some cases, using the federal bankruptcy exemptions may protect more of your property. However, since Texas has some of the best homestead protection laws in the United States, many Texans choose the state’s homestead exemption when they file a Chapter 7 or Chapter 13 bankruptcy case.
How Much is the Homestead Exemption in Texas?
Texas has some of the most generous homestead exemptions in the country. In most cases, a bankruptcy debtor may exempt the entire value of their homestead in a bankruptcy case.
In other words, you may exempt an unlimited amount of your home’s equity and other covered property under the Texas homestead exemption statute.
Because the homestead exemption is unlimited, very few bankruptcy debtors face the forced sale of their home to pay general unsecured creditors in a bankruptcy case.
However, there are some important homestead exemption rules that you should be aware of that may apply in your case.
Texas Homestead Exemptions Rules
The following criteria must be met in order for you to use the Texas Homestead Exemptions to protect your property.
You Must Choose Between Rural and Urban Property
A homestead in Texas can be either rural or urban property. Different homestead exemption laws apply to each case.
While there is not a limit on the value of the homestead exemption, there is a limit to the number of acres that may be included in the exempted property. The acreage restriction is based on whether the property is considered urban property or rural property.
What is the Texas Homestead Exemption for Rural Property?
Homestead protection for rural property in Texas is limited to 200 acres per family and 100 acres for a single adult.
The acreage may be in one or more parcels and includes the affixed improvements on the property. The designation of a “family” versus a “single adult” homestead exemption can be very important when a large acreage is in question.
Courts have generally defined “family” to mean a group of people who live together claiming the social status of one single family and having a head of the family who is either legally or morally obligated to support at least one or more of the family members. There must also be a corresponding dependence by the other family member or members for the support.
A family may consist of spouses, minor children, adult children, parents, siblings, widowers, widows, and divorced parents. The combination is not important compared to the financial support given to dependants from primary earners in the home.
What is the Homestead Exemption for Urban Property in Texas?
For urban property, the homestead exemption covers up to 10 acres of land, together with the affixed improvements on the land, for a family or a single adult person. The acreage may be in one or more contiguous lots and may be used as a residence or a residence and business.
The homestead rules state that property is considered urban if:
- It is located within a development or subdivision or the jurisdiction or the physical limits of a municipality; and,
- It is under the jurisdiction or served by fire protection and police protection; and,
- Receives at least three services provided by a municipality, including electric, sewer, water, natural gas, and storm sewer.
All three of these requirements must be met for your home to be considered urban property.
Call a Dallas-Fort Worth Bankruptcy Attorney to Discuss Texas Homestead Exemptions
We know how important it is for you to protect your home during a bankruptcy case. That’s why our bankruptcy team will review all available protections under the Texas Homestead Exemption Statute to ensure you’re claiming all protections allowable by law for your home.
In most cases, homeowners can protect all the equity in their home while getting rid of unsecured debts they cannot afford to pay. Contact Leinart Law Firm and request a free bankruptcy consultation from our Fort Worth and Dallas bankruptcy lawyers.