Bankruptcy Exemptions

One of the first questions I get from people considering bankruptcy is what they get to keep when it’s all over.  In bankruptcy lingo, these are referred to as exemptions – property which is exempt from being taken away from you.

First of all, I will point out that exemptions only apply to individuals filing for bankruptcy.  Corporations or other entities are not able to exempt any property.  For individuals, the story is different.

In Texas, the exemptions that you take depends first on whether you select the state exemptions or the Federal exemptions.  Where there is an entire body of law on exemptions, I will touch on the basics here.

TEXAS EXEMPTIONS

If you select the Texas exemptions, you can exempt property as described in the Texas Property Code.  Most of the available exemptions appear in Chapter 42.  Texas Property Code §42.001 says the following:


Sec. 42.001.  PERSONAL PROPERTY EXEMPTION.  (a)  Personal property, as described in Section 42.002, is exempt from garnishment, attachment, execution, or other seizure if:

(1)  the property is provided for a family and has an aggregate fair market value of not more than $60,000, exclusive of the amount of any liens, security interests, or other charges encumbering the property; or

(2)  the property is owned by a single adult, who is not a member of a family, and has an aggregate fair market value of not more than $30,000, exclusive of the amount of any liens, security interests, or other charges encumbering the property.

(b)  The following personal property is exempt from seizure and is not included in the aggregate limitations prescribed by Subsection (a):

(1)  current wages for personal services, except for the enforcement of court-ordered child support payments;

(2)  professionally prescribed health aids of a debtor or a dependent of a debtor;

(3)  alimony, support, or separate maintenance received or to be received by the debtor for the support of the debtor or a dependent of the debtor; and

(4)  a religious bible or other book containing sacred writings of a religion that is seized by a creditor other than a lessor of real property who is exercising the lessor’s contractual or statutory right to seize personal property after a tenant breaches a lease agreement for or abandons the real property.

(c)  Except as provided by Subsection (b)(4), this section does not prevent seizure by a secured creditor with a contractual landlord’s lien or other security in the property to be seized.

(d)  Unpaid commissions for personal services not to exceed 25 percent of the aggregate limitations prescribed by Subsection (a) are exempt from seizure and are included in the aggregate.

(e)  A religious bible or other book described by Subsection (b)(4) that is seized by a lessor of real property in the exercise of the lessor’s contractual or statutory right to seize personal property after a tenant breaches a lease agreement for the real property or abandons the real property may not be included in the aggregate limitations prescribed by Subsection (a).

Then, §42.002 goes on to be a little more specific, as follows:

Sec. 42.002.  PERSONAL PROPERTY.  (a)  The following personal property is exempt under Section 42.001(a):

  1. home furnishings, including family heirlooms;
  2. provisions for consumption;
  3. farming or ranching vehicles and implements;
  4. tools, equipment, books, and apparatus, including boats and motor vehicles used in a trade or profession;
  5. wearing apparel;
  6. jewelry not to exceed 25 percent of the aggregate limitations prescribed by Section 42.001(a);
  7. two firearms;
  8. athletic and sporting equipment, including bicycles;
  9. a two-wheeled, three-wheeled, or four-wheeled motor vehicle for each member of a family or single adult who holds a driver’s license or who does not hold a driver’s license but who relies on another person to operate the vehicle for the benefit of the non-licensed person;
  10. the following animals and forage on hand for their consumption:
    1. two horses, mules, or donkeys and a saddle, blanket, and bridle for each;
    2. 12 head of cattle;
    3. 60 head of other types of livestock; and
    4. 120 fowl; and
  11. household pets.

(b)  Personal property, unless precluded from being encumbered by other law, may be encumbered by a security interest under Subchapter B, Chapter 9, Business & Commerce Code, or Subchapter F, Chapter 501, Transportation Code, or by a lien fixed by other law, and the security interest or lien may not be avoided on the ground that the property is exempt under this chapter.


In later blogs, I’ll elaborate on some of these specific exemptions.  For now, I’ll comment that only in Texas would there be a specific exemption for firearms!!

 

FEDERAL EXEMPTIONS

And now the federal exemptions.  The federal exemptions are detailed in §522 of the Bankruptcy Code.  Once again, I will elaborate in later blogs about specific exemptions, but I will lay out the text of §522(d) here, which details the federal exemptions:

Section 522(d) The following property may be exempted under subsection (b)(2) of this section:

(1) The debtor’s aggregate interest, not to exceed $15,000 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.

(2) The debtor’s interest, not to exceed $2,400 in value, in one motor vehicle.

(3) The debtor’s interest, not to exceed $400 in value in any particular item or $8,000 in aggregate value, in household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.

(4) The debtor’s aggregate interest, not to exceed $1,000 in value, in jewelry held primarily for the personal, family, or household use of the debtor or a dependent of the debtor.

(5) The debtor’s aggregate interest in any property, not to exceed in value $800 plus up to $7,500 of any unused amount of the exemption provided under paragraph (1) of this subsection.

(6) The debtor’s aggregate interest, not to exceed $1,500 in value, in any implements, professional books, or tools, of the trade of the debtor or the trade of a dependent of the debtor.

(7) Any unmatured life insurance contract owned by the debtor, other than a credit life insurance contract.

(8) The debtor’s aggregate interest, not to exceed in value $8,000 less any amount of property of the estate transferred in the manner specified in section 542(d) of this title, in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract owned by the debtor under which the insured is the debtor or an individual of whom the debtor is a dependent.

(9) Professionally prescribed health aids for the debtor or a dependent of the debtor.

(10) The debtor’s right to receive—

(A) a social security benefit, unemployment compensation, or a local public assistance benefit;

(B) a veterans’ benefit;

(C) a disability, illness, or unemployment benefit;

(D) alimony, support, or separate maintenance, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;

(E) a payment under a stock bonus, pension, profit-sharing, annuity, or similar plan or contract on account of illness, disability, death, age, or length of service, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor, unless—

(i) such plan or contract was established by or under the auspices of an insider that employed the debtor at the time the debtor’s rights under such plan or contract arose;

(ii) such payment is on account of age or length of service; and

(iii) such plan or contract does not qualify under section 401(a), 403(a), 403(b), or 408 of the Internal Revenue Code of 1986.

(11) The debtor’s right to receive, or property that is traceable to—

(A) an award under a crime victim’s reparation law;

(B) a payment on account of the wrongful death of an individual of whom the debtor was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;

(C) a payment under a life insurance contract that insured the life of an individual of whom the debtor was a dependent on the date of such individual’s death, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor;

(D) a payment, not to exceed $15,000, on account of personal bodily injury, not including pain and suffering or compensation for actual pecuniary loss, of the debtor or an individual of whom the debtor is a dependent; or

(E) a payment in compensation of loss of future earnings of the debtor or an individual of whom the debtor is or was a dependent, to the extent reasonably necessary for the support of the debtor and any dependent of the debtor.

(12) Retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue Code of 1986.