People who are considering filing for bankruptcy are worried and overwhelmed about so many things: the hit on their credit score, having to give up certain assets, and even personal feelings of failure. One of the first things we impress on our prospective clients is that bankruptcy is not a dirty word or unspeakable tragedy. Also, many of the horror stories you’ve heard about bankruptcy are almost certainly false. For instance, you will likely be able to keep your house—or, in the context of bankruptcy, your “homestead.”
What is a Homestead?
Simply put, a homestead is a person’s primary place of residence. There are two main uses of the phrase “homestead exemption” in Texas: for property tax purposes and bankruptcy purposes. An exemption in bankruptcy means that particular asset is not eligible for forfeiture or repossession to satisfy your creditors. In Texas, 100 percent of the value of your home is exempt from creditors. Depending on where you live, the surrounding acreage is also included in the exemption as follows:
- Up to 10 acres of urban land
- Up to 100 acres of rural land for a single person
- Up to 200 acres of rural land for a family
The value of your homestead is not capped; only the acreage. Even outside of bankruptcy, your creditors, generally, may not touch any equity in your homestead unless they are your mortgage lender or property taxing authority. These exceptions are referred to as “encumbrances properly fixed” on your homestead. Texas is nationally recognized as having, generally, the strongest homestead exemptions in the U.S. Conversely, some states, like Pennsylvania and New Jersey, do not offer homestead exemptions to debtors.
What Makes a Homestead ‘Urban?’
In the context of the state’s homestead exemption, a homestead does not have to be a high-rise penthouse in the middle of downtown Houston in order to be considered “urban.” Texas law states that a homestead is urban if it is:
- Located within a municipality’s limits or its extraterritorial jurisdiction, or located in a “platted subdivision”; AND
- Served by police and fire departments; AND
- Has at least three of the following municipal services: electric, natural gas, sewer, storm sewer, or water.
If you think bankruptcy is the right decision for you and your finances but balk at the idea of giving up your home, take heart that the full value of your “homestead” is exempt from judgments and creditors in bankruptcy. Ciment Law Firm is committed to serving individuals who might be experiencing financial distress and want to realize a brighter future. Call us today at 833-779-9993 to discuss your options over a free consultation.