24 Mar Homestead Protection Under Texas and Federal Laws
The most valuable asset that many own is their home. However, sometimes creditors sue to collect debts such as credit card bills, medical bills, personal loans, etc. Bankruptcy can protect your homestead from unsecured creditors – especially if you choose a Texas bankruptcy exemption. Although bankruptcy is governed by federal law, those who declare bankruptcy have the choice between federal exemptions or the Texas bankruptcy exemption. If you own your property for at least 1215 days before the bankruptcy filing, then there is unlimited homestead exemption (exempt from seizure) if your homestead is 10 acres or less (contiguous lots) if you (and your family if applicable) live in an urban home or 100 acres or less if you live in a rural area. It can be 200 acres if a family lives in a rural area homestead. Anything in excess may be sold and be subject to creditors. There is no limit to the value of the homestead exemption. It is only the excess acreage that is subject to seizure.
The exemption from seizure does not apply to:
- Purchase money (i.e. you borrowed money from the bank to buy the home and the secured note has not been fully paid);
- Taxes on the property;
- Work and material used in constructing improvements on the property (if in writing);
- Partition on the property by court order or award of homestead in a divorce;
- Refinance of lien against the homestead;
- Certain extensions of credit; or
- Reverse mortgage
Temporary renting of a homestead doesn’t change its character if the homestead claimant has not acquired another property.
A homestead cannot be abandoned without the consent of claimant’s spouse (if married).
A homestead can be in a qualifying trust (within a revocable living trust or an irrevocable grantor trust) and still retain its homestead status. A qualifying trust is a trust whereby (1) there is a right of the grantor to revoke the trust without the consent of another spouse other than a spouse who is also a grantor; (2) a lifetime general power of appointment is retained; or (3) grantor can use and occupy the residential property as their residence at cost, or rent free and without charge, except for taxes and other costs and expenses specified in the trust or by court order.
Sometimes homesteads are deeded into certain irrevocable trusts whereby the homestead exemption is retained. Furthermore, there is creditor protection if the property is sold if held in the trust. This type of planning is often used so that public benefits (i.e., Medicaid and certain Veteran’s benefits) can be obtained or retained even if the property is sold.
The rules for homestead protection for Medicaid and Veteran’s benefits are different than the bankruptcy protection rules. See our article on Government Assistance for Care Could Depend on Homestead Definition by clicking here.
If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.