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Texas Homesteads: The High Walls of the Debtor’s Castle

November 25, 2012

Bankruptcy law allows debtors to keep some property in order to prevent them from falling into utter poverty. This policy makes sense not only as a sympathetic gesture, but also a self-serving measure on the part of the government: in the event that creditors took everything, the federal and state government might be required to step in and pay for the debtor’s food and housing.


To the benefit of the Texas debtor, it turns out that in practice the Texas legislature’s definition of “utter poverty” is pretty generous. In addition to a number of personal property exemptions, Texas law allows bankrupt debtors to hold onto their homestead. In urban areas, the homestead comprises of up to 10 acres in land without limitation as to value. Thus, a multi-million dollar mansion in an exclusive part of town may be entirely beyond the reach of a creditor. Why? In Texas, a family has a right to hold to their home, even when their home is worth a multi-page spread in Architectural Digest.


The definition of an exempt homestead is even more generous for rural Texans. A debtor may exempt up to 200 acres of rural homestead without reference to value. Again, a bankrupt debtor could own an oil patch worth millions and if it fits within the geographic limitations of the law, it’s exempt from the reach of creditors.


Finally, with such a significant difference between the size of the rural and urban homestead, it is important to understand what is and what isn’t an urban homestead. In Texas, courts look to whether the property is located within the boundaries of a municipality and whether the property is served by police and fire protection and at least three types of public utilities (i.e. electricity, natural gas, sewer, storm water, and water). If the answer is yes, it’s an urban homestead. Otherwise, it’s rural.


Want to know about all of your rights under the Bankruptcy Code and applicable Texas law? The attorneys at the law firm of Fears Nachawati are prepared to answer your questions and guide your thinking. With years of experience, we know how to help you. 


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