A majority of my clients are indeed homeowners and, when consulting about their rights under the Bankruptcy Code, the first questions are:
✓ Will I lose my house? Can I keep it?
✓ Is my house required to be in my bankruptcy?
Although in most cases a debtor is allowed to surrender a home in a bankruptcy, and not be liable for any outstanding mortgage balance, most of the time, debtors want to keep their homes.
And in my legal opinion, Texas has the best homestead protection in the nation. So, what exactly does “homestead” mean?
Your homestead is your principal place of residence; it’s where you, generally, live each day. And in Texas, if you are under threat of a creditor, other than your mortgage lender, or the property taxing authority, your homestead is not reachable by your creditors. They cannot take your house; force you to move; or force you to sell. Your homestead is, in Texas, “exempt.”
It is also exempt property under the Bankruptcy Code. And, so, no, you do not have to lose your home (as long as you remain current on the mortgage and property taxes). While it will be identified in your bankruptcy, as an asset, it is part of a protected group of your assets and remains unreachable.
In a Texas bankruptcy, you can claim either “state” or “federal” exemptions. Depending on the character and value of your assets, one or the other may be more beneficial.
Under Texas exemptions, the entire value of your homestead is exempt. Homeowners may exempt an unlimited amount of their home and other property covered under the Texas Homestead exemption.
If you claim federal exemptions, by contrast, a portion of the value of your equity is exempt. If you are married and filing jointly, for example, you may claim a federal homestead exemption of $47,350 (the amount for an individual is $23,675). So, for example, if you owe $100,000 on your mortgage, but your house is worth $150,000, then you have equity and can claim up to the federal allowable amount. In other words, this amount is not reachable by non-mortgage creditors.
Below is the relevant portion of the Texas Property Code which legally your Texas homestead and homestead exemption. If you would like to protect your homestead, or if you are behind on your mortgage or property taxes, please reach out to us and allow us to help you.
THE TEXAS PROPERTY CODE
TITLE 5. EXEMPT PROPERTY AND LIENS
SUBTITLE A. PROPERTY EXEMPT FROM CREDITORS’ CLAIMS
CHAPTER 41. INTERESTS IN LAND
SUBCHAPTER A. EXEMPTIONS IN LAND DEFINED
Sec. 41.001. INTERESTS IN LAND EXEMPT FROM SEIZURE.
(a) A homestead and one or more lots used for a place of burial of the dead are exempt from seizure for the claims of creditors except for encumbrances properly fixed on homestead property.
(b) Encumbrances may be properly fixed on homestead property for:
(1) purchase money;
(2) taxes on the property;
(3) work and material used in constructing improvements on the property if contracted for in writing as provided by Sections 53.254(a), (b), and (c);
(4) an owelty of partition imposed against the entirety of the property by a court order or by a written agreement of the parties to the partition, including a debt of one spouse in favor of the other spouse resulting from a division or an award of a family homestead in a divorce proceeding;
(5) the refinance of a lien against a homestead, including a federal tax lien resulting from the tax debt of both spouses, if the homestead is a family homestead, or from the tax debt of the owner;
(6) an extension of credit that meets the requirements of Section 50(a)(6), Article XVI, Texas Constitution; or
(7) a reverse mortgage that meets the requirements of Sections 50(k)-(p), Article XVI, Texas Constitution.
(c) The homestead claimant’s proceeds of a sale of a homestead are not subject to seizure for a creditor’s claim for six months after the date of sale.
Sec. 41.002. DEFINITION OF HOMESTEAD.
(a) If used for the purposes of an urban home or as both an urban home and a place to exercise a calling or business, the homestead of a family or a single, adult person, not otherwise entitled to a homestead, shall consist of not more than 10 acres of land which may be in one or more contiguous lots, together with any improvements thereon.
(b) If used for the purposes of a rural home, the homestead shall consist of:
(1) for a family, not more than 200 acres, which may be in one or more parcels, with the improvements thereon; or
(2) for a single, adult person, not otherwise entitled to a homestead, not more than 100 acres, which may be in one or more parcels, with the improvements thereon.
(c) A homestead is considered to be urban if, at the time the designation is made, the property is:
(1) located within the limits of a municipality or its extraterritorial jurisdiction or a platted subdivision; and
(2) served by police protection, paid or volunteer fire protection, and at least three of the following services provided by a municipality or under contract to a municipality:
(B) natural gas;
(D) storm sewer; and
(d) The definition of a homestead as provided in this section applies to all homesteads in this state whenever created.