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How May Your State Rights Impact Your Bankruptcy Filing?

Bankruptcy law is the product of federal statutory law and of interpretive decisions by federal bankruptcy courts. First mentioned in the U.S. Constitution, a citizen’s right to shed his debts through bankruptcy is an important federal remedy to financial hardship.


Perhaps confusingly, however, state law plays an important role in bankruptcy, too. Federal bankruptcy law gives debtors the option of claiming a state’s statutory scheme for exempt property rather than the federal scheme. In a debtor-friendly state like Texas, the difference in value between state and federal exemptions can be significant.


Why is the scope of “exempt property” meaningful? In general, exempt property refers to those assets the law bars creditors from accessing because they are important to the debtor’s future economic life. For instance, in Texas a debtor living in a city may retain an unlimited amount of equity in his homestead (up to 10 acres in land), so long as the creditor at issue does not have a claim secured by the homestead property. For some debtors, the difference between the generosity of the Texas exemptions and the paucity of other states or federal exemptions can be measured in the thousands of dollars.


Unfortunately for many debtors, an important recent change to federal bankruptcy law now requires that a debtor live in Texas for at least 40 months before receiving the benefits of the Texas exemptions. If you’ve recently moved to Texas and are planning to declare bankruptcy, you may need to seriously consider how when you file will impact your financial future. Make sure you understand the right timing for your petition!


Do you have questions about your bankruptcy rights? Worried about how your time in Texas might impact your ability to find debt relief? Talk to the lawyers at the Dallas firm of Fears Nachawati for the answers you need. We’re prepared to help you.


How May Your State Rights Impact Your Bankruptcy Filing?