In Texas, your primary residence is protected under the homestead exemption. Unlike other states, Texas provides an unlimited homestead exemption. This means if you have $300,000 in equity in your home, it is protected from your creditors and the bankruptcy trustee.
However, there are some unique exceptions you must be aware of.
The first rule that could impact your homestead exemption is known as the 1215 day rule. This means, if you purchased your home within the 1215 days, your exemption amount will be limited to $125,000. This rule was put in place to protect creditors from improper transfers of assets. People would liquidate assets and use those assets to purchase a home right before bankruptcy. For example, maybe a person sells their business and gets $250,000 in cash. That cash would technically be non-exempt and would be seizable by creditors and the bankruptcy trustee. A person then uses that $250,000 to purchase a home, claiming the homestead exemption. However, due to the 1215 day rule, they would not be afforded the unlimited homestead exemption and instead would only be able to protect a portion of their equity.
However, the source of the funds matters for the 1215 day rule. If the money came from the sale of a prior homestead, then the 1215 day rule will not apply in that situation. This is known as a rollover. When you sell your current home and purchase a new home, you are rolling over your equity. As a result, the 1215 day rule applies to the purchase of the first home, so you would be protected as long as your first home was purchased outside of the 1215 days.
If you are close to the 1215 days, then I always recommend that my clients wait it out. This isn’t always easy but it’s essential to ensure you can protect your equity.
I recently took over a case where a prior attorney had represented the client. This attorney filed the case without analyzing the homestead exemption rules. The Debtor had purchased the property 2 years prior to filing (not 1215 days). They used inheritance to pay for the property. Because they used inheritance, they were subject to the 1215 day rule. The house they purchased was over $500,000 and the Trustee objected to the exemptions.
After the objection, the client hired me to take over the case. I was able to convince the Trustee that this was not a bad faith filing and the Trustee allowed us to convert the case to a Chapter 13, which allowed the clients to keep their home and prevented the Trustee from doing a forced sale. In a Chapter 13, the Trustee simply requires that you pay in the non-exempt portion over 5 years, as opposed to forcing you to sell the property and turn over the non-exempt portion.
If you want to discuss your financial situation in more detail you can call 469-607-8552 and set up your free financial strategy session (30 minutes). Also, if you decide to hire my law firm and mention this letter, you will receive a 10% discount on your fees.