Texas Personal Property
Exemptions: The Property They Can't Take
Texas is one of the most
liberal exemption states. Discussed below are the personal property
available under Texas state law and the most commonly
claimed federal law exemptions.
The state personal property exemption cap: The
Texas debtor is allowed a certain portion of personal
property exempt from garnishment, attachment, etc. The
aggregate amount which is allowed the debtor is determined
based upon the debtor's status.
Single adult: A single adult, who is not a member
of a family is entitled to property he or she owns that has
a fair market value (exclusive of liens)
of up to $30,000. Tex.Prop.
Code § 42.001(a)(2).
Family: A family is entitled to property with a
fair market value (exclusive of liens) of up to $60,000. Tex.Prop.
Code § 42.001(a)(1).
Property subject to state exemption cap: With the
exception of jewelry and unpaid commissions for personal
services which are each limited to 25% of the cap, the
debtor may allocate his exemption cap among any one or more
of the 13 categories listed below.
Home furnishings: Home furnishings, including
family heirlooms can be claimed as exempt property. Tex.Prop.
Code § 42.002(a)(1). The term "home
furnishings" is not defined in the Texas Property Code.
The words "household" and "furnishings"
are given their ordinary meaning. They do
not include items such as portable telephones and hand-held
Food: Provisions for consumption can be claimed
as exempt property.
Farm/ranch vehicles and implements: Farming and
ranching vehicles and implements can be claimed as exempt
Tools of trade: Tools,
equipment, books and apparatus, including boats and motor
vehicles used in a trade or profession can be claimed as
exempt property. Tex.Prop.
Code § 42.002(a)(4). What constitutes "tools of trade":
Items are tools of the trade in Texas if they are
"fairly belonging to or usable in the trade." Only items
that are "peculiarly adapted to" the debtor's
trade or profession are exempt as tools of the trade under
the Texas exemption statutes.
Wearing apparel: Wearing apparel (other than
jewelry which is dealt with separately) can be claimed as
exempt property. Tex.Prop.
Code § 42.002(a)(5).
Jewelry: Jewelry is exempt to the extent its
value does not exceed 25% of the exemption limit. Tex.Prop.
Code § 42.002(a)(6).
Weapons: Two firearms can be claimed as exempt
Code § 42.002(a)(7).
Athletic/sporting equipment: Athletic and
sporting equipment, including bicycles can be claimed as
exempt property. Tex.Prop.
Code § 42.002(a)(8). Athletic and sporting equipment
consists only of small items for individual use and does not
include jet skis, sailboats, or power boats. In
re Crockett, 158 F.3d 332 (5th Cir.1998)(jet skis); In
re Gibson, 69 B.R. 534, 535 (Bankr.N.D.Tex.1987) (power
re Griffin, 139 B.R. 415, 417 (Bankr.W.D.Tex.1992)
Motor vehicles: 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 nonlicensed person
can be claimed as exempt property. Tex.Prop.
Code § 42.002(a)(9).
Farm animals: The following animals and forage on
hand for their consumption can be claimed as exempt
property: two horses, mules, or donkeys and a saddle, blanket, and
bridle for each; 12 head of cattle; 60 head of other types of livestock; and 120 fowl. Tex.Prop.
Code § 42.002(a)(10).
Pets: Household pets can be claimed as exempt
Code § 42.002(a)(11).
Life insurance: The present value of life
insurance policies are exempt if a family member or
dependent of the insured judgment debtor is the beneficiary.
Code § 42.002(a)(12); but see Tex.Ins.
Code art. 21.22, which indicates that exemption is
unlimited (§ 11:45).: As a practical matter, the cash
surrender or loan value of a whole-life insurance policy is
its present value and there will be no present value to a
term policy. (See § 11:45 et seq.)
Unpaid commissions for personal services: Unpaid
commissions for personal services not to exceed 25% of the
aggregate limitation may be claimed as exempt from seizure. Tex.Prop.
Code § 42.001(d).
State exemptions not subject to cap: Certain
exemptions are not subject to any
Current wages: Current wages for personal
services are wholly exempt, except for the enforcement of
court-ordered child support payments. Tex.Prop.
Code § 42.001(b); See In
re Cooley, 87 B.R. 432, 438 (Bankr.S.D.Tex.1988)--Bankruptcy
Code also excludes wages from Chapter 11 plan.
Limited protection: This exemption prohibits the
issuance of a writ of garnishment against the debtor's
employer. Additionally, a court cannot order turnover of
paychecks, retirement checks and other similar types of
assets. However, once the wages are turned over to the
debtor and converted into cash they are subject to
execution and a turnover order. Tex.Civ.Prac.
& Rem. Code § 31.002(f)--a turnover order cannot be
obtained before the wages are turned over to the debtor; Brink
v. Ayre, 855 S.W.2d 44, 45 (Tex.App.--Houston [14th Dist.]
1993, no writ); Burns
v. Miller, Hiersche, Martens & Hayward, P.C., 948 S.W.2d
317 (Tex.App.-- Dallas 1997, writ denied).: If the wages
are deposited into a bank account they are subject to
Exp. Travel Related Services v. Harris, 831 S.W.2d 531, 533
(Tex.App.--Houston [14th Dist.] 1992).
Self-employed debtors: The current wages
exemption does not apply to the earnings
of self-employed debtors who are viewed as independent
Code § 42.001(d); In
re Martin, 117 B.R. 243, 246 (Bankr.N.D.Tex.1990). The
self-employed debtor must rely upon the exemption for unpaid
commissions for personal services which is included in the
property subject to the exemption cap and cannot exceed 25%
of the cap.
EXAMPLES: Texas courts have found independent contractors to
. attorneys in private practice; Hennigan
v. Hennigan, 666 S.W.2d 322, 324-25 (Tex.App.--Houston [14th
Dist.] 1984, writ refused n.r.e.), 677
S.W.2d 495 (Tex.1984);
. a district agent for an insurance company; In
re Perciavalle, 92 B.R. 688, 691 (Bankr.W.D.Tex.1988),
and a trucker who furnished his own transportation, equipment,
v. Carnation Co. of Texas, 92 S.W.2d 573, 575 (Tex.Civ.App.--
Austin 1936, writ dismissed).
Health aids: Health aids that are professionally
prescribed for the judgment debtor (or the debtor's spouse
or dependent) are exempt regardless of value. Tex.Prop.
Code § 42.001(b)(2).: This exemption arguably includes,
e.g. a wheelchair for a person unable to walk, an air
conditioner for an asthmatic or an elevator for a person
unable to climb stairs. However, it
probably does not exempt swimming pools, saunas, bicycles,
golf clubs, or gymnastic equipment merely because their use
is necessary to sustain good health.
Insurance benefits: There is an unlimited
exemption of insurance benefits to the debtor who is the
designated beneficiary of an insurance policy. Tex.Ins.
Code art. 21.22; In
re Young, 166 B.R. 854, 857 (Bankr.E.D.Tex.1994) (life
insurance proceeds remain exempt cash).: "Insurance
benefits" includes "all money or benefits of any
kind, including policy proceeds and cash values, to be paid
or rendered to the insured or any beneficiary under any
policy of insurance issued by a life, health or accident
insurance company, including mutual and fraternal insurance
companies, or under any plan or program of annuities and
benefits in use by any employer." Tex.Ins.
Code art. 21.22 § 1.: The exemption protects the
insurance benefits from seizure to pay the debts of the
beneficiary and the insured even if (i) the insured has the
right to change the beneficiary or (ii) the insured or the
insured's estate is a contingent beneficiary. Tex.Ins.
Code art. 21.22.: This exemption does not apply to a
creditor seeking to:(1) recover premium payments made in fraud of creditors; or
(2) to foreclose on its security interest in a policy or its
proceeds pledged to secure the debt of
the insured or beneficiary. Tex.Ins.
Code art. 21.22.
If the bankruptcy debtor chooses the Texas exemptions,
insurance benefits are fully exempt in a bankruptcy
proceeding of either the insured or the beneficiary. Tex.Ins.
Code art. 21.22, § 1(4).
Retirement plans, IRAs, etc.: There is also an
unlimited exemption for monies set aside in certain
qualified accounts earmarked for the debtor's retirement.
Retirement plans; profit sharing plans: A
person's right to the assets held in or to receive payments,
whether vested or not, under any stock bonus, pension,
profit-sharing, or similar plan, and under any annuity or
similar contract purchased with assets distributed from that
type of plan, and under any retirement annuity or account
described by Section
403(b) of the Internal Revenue Code of 1986, or any
individual retirement annuity, including a simplified
employee pension plan, is exempt from attachment, execution,
and seizure for the satisfaction of debts. The plan,
contract, or account must qualify under the applicable
provisions of the Internal Revenue Code of 1986. (26
U.S.C.A. § 1 et seq.) Tex.Prop.
Code § 42.0021(a); Rucker
v. Rucker, 810 S.W.2d 793, 795- 96 (Tex.App.--Houston [14th
Dist.] 1991, writ denied)--to be exempt plan must
qualify under Internal Revenue Code.: This does not prohibit
the participant/plan beneficiary from borrowing from his or
her plan and granting a lien on his/her interest in the plan
to secure the loan. Tex.Prop.
Code § 42.002(d).: Additionally, under Texas law,
causes of action to recover for lost exempt status of an
individual retirement account (IRA) lost allegedly due to
negligence and breach of fiduciary duty by the company that
administered the debtor's preconversion Keogh retirement
plan are exempt property under Texas statute exempting
qualified retirement accounts from bankruptcy estate. Matter
of Swift, 129 F.3d 792, 801 (5th Cir.1997).
Government or church plans: A person's right to
the assets held in or to receive payments, whether vested or
not, under a government or church plan or contract is also
exempt. The plan or contract must qualify under the
definition of a government or church plan under the
applicable provisions of the federal Employee Retirement
Income Security Act of 1974. Tex.Prop.
Code § 42.0021(a); 26
U.S.C.A. § 1001 et seq.: The participant/plan
beneficiary is not prohibited from borrowing from his or her
plan and granting a voluntary lien on his/her interest in
the plan to secure the loan. Tex.Prop.
Code § 42.002(d).
IRA [and Keogh] ("self-employed")
plans partially exempt: Contributions
to IRAs and annuities are exempt to the extent those amounts
do not represent contributions in excess of the maximum
contribution amounts exempt from federal income tax. Accrued
earnings on exempt contributions are also exempt. Excess
contributions and accrued earnings thereon are not exempt. Tex.Prop.
Code § 42.0021(b).
Nontaxable rollover contributions: If an IRA
contains amounts which qualify as non-taxable rollover
contributions under the Internal Revenue Code, the amounts
are exempt. 26
U.S.C.A. §§ 402(a)(5), 403(a)(4),
Code § 42.0021(b).
Multiple accounts: Texas law does not limit
the number of IRAs the debtor can claim as exempt property;
provided, the aggregate amount does not exceed the maximum
contribution amounts. Matter
of Volpe, 943 F.2d 1451, 1453 (5th Cir.1991).
Distributions: Once payments are received by
the retiree or other beneficiary they are no longer exempt. Cain
v. Cain, 746 S.W.2d 861, 865 (Tex.App.--El Paso 1988, writ
denied). There is an exception to this rule for amounts
distributed from a qualified plan. These amounts are exempt
for 60 days if the amounts qualify as a nontaxable rollover
Code § 42.0021(e). EXAMPLE: Debtor
is terminated by employer. Employee "cashes out"
debtor from employer's qualified plan. Debtor has 60 days to
deposit funds into another qualified plan. Texas Exemption of Retirement Benefits:
Interaction with the Bankruptcy Code and Possible Preemption
by Mackey v. Lanier Collections Agency & Services."
26 Houston L. Rev. 497 (1989) contains a good discussion of
the bankruptcy issues in exempting retirement benefits.
Federal non-bankruptcy exemptions: A debtor may
also utilize any exemptions provided by federal nonbankruptcy law in addition to either the state exemptions
or the Bankruptcy Code exemptions.
Social security benefits: Under federal law
Social Security benefits (whether paid or payable) are not
subject to execution, levy, attachment, garnishment, legal
process or to the operation of the bankruptcy laws. 42
U.S.C.A. § 407.
Veteran's benefits: Federal law generally exempts
veteran's benefits from seizure, both before and after
receipt by the beneficiary. 38
U.S.C.A. § 3101(a).: But if the benefits are spent on a
permanent investment, they are no longer exempt as
"veteran's benefits." Carrier
v. Bryant, 306 U.S. 545, 549-550, 59 S.Ct. 707, 708, 83 L.Ed.
976 (1939). And, once benefits are paid to the veteran,
they may be reached by court order to satisfy
the veteran's child support obligations. Rose
v. Rose, 481 U.S. 619, 635, 107 S.Ct. 2029, 2039, 95 L.Ed.2d
Property of debtor in military service: Although
not technically an exemption from seizure, federal law also
provides that any court may stay enforcement against a
debtor in military service if the ability of the defendant
to pay the judgment or debt is "materially affected by
reason of his military service." The court may stay
execution of any judgment or vacate or stay any attachment
or garnishment (before or after judgment). The stay may
generally last for the period of the debtor's military
service plus three months. The court also has discretion to
require payment in installments or otherwise. See 50 U.S.C.A.
App. §§ 523, 524.: In addition, deposits made to a U.S.
Serviceman's Savings Institution by members of the armed
forces on permanent duty outside the United States (and the
interest thereon) are exempt from liability for the
depositor's debts. 10
U.S.C.A. § 1035(d).
Federal employee's statutory compensation for
injury or death: Compensation (and claims for compensation)
paid on the death or injury of a federal employee are
exempt. Also, these claims cannot be assigned. 5
U.S.C.A. § 8130.