Going Once, Going Twice, Sold!!!

Financial Distress and The Fear of Loosing Your Home and Possessions in Bankruptcy Court

Most of us are familiar with the typical movie scene when a farmer or city dweller in financial distress comes face to face with the Auctioneer’s gavel. The farmer or city dweller finds himself in the midst of a crowd gathering around for a chance to bid on their family’s personal belongings and valuables. These are heart wrenching moments for those people facing the loss of what they worked for all their life. Those debtors are in true distress when dealing with demanding creditors and also fearing that if they file bankruptcy they will loose everything. This distress is evident when you have personally witnessed people in financial trouble or have seen movies with such heart-wrenching scenes. There are two movies that immediately come to mind. The first one, filmed in 1984 during the farm crisis is a movie called “country” with Jessica Lange. She portrays a famer’s wife who’s farm and contents are being sold to the highest bidder in an auction.
Here is the Jessica Lange scene:

In another movie, the Auction Scene is from Werner Herzog’s classic film, ‘Stroszek’ (1977). The film is about a Hungarian immigrant in Berlin, Germany, who moves to America with his girlfriend to live with his really old neighbor and his nephew. The ‘cowboy auctioneer’ – who is in charge of selling their mobile home and television exemplifies what most believe an auction experience is like, with the auctioneer loudly voicing various dollar bids from the crowed at a blazing speed. Here is the Auction Scene:

Texas Homestead and Bankruptcy Law
The reality in America is, that those scenes could be true depictions for those who file bankruptcy in terms of what they tend to loose, but it really depends on each particular state and their asset protection laws. In some states, families do loose what I would consider important and valuable belongings and property, when they file bankruptcy. These states fail to adequately protect their citizens’ assets from creditors . These states are creditor friendly and debtors are unable to protect a substantial part of the equity in their home or their vehicles or home furnishings and contents. Fortunately for Texans, Going back to the early times of the republic, Texas has had a very long tradition of sheltering its citizens from overly ambitious creditors. In the early republic, creditors would follow the settlers all the way to the new Texan frontier in an effort to seize their government land grants or homesteads for those settler’s debts. In an effort to protect the development of Texas, the early Coahuila state government and the Texan government passed laws protecting homesteads from seizure by creditors. Even today, you can see some of the original exemptions evident in the early laws on the books. Today you can keep your creditors from seizing your two firearms up to a value of $30,000 and two horses, mules or donkeys plus a saddle, blanket and bridle for each, 12 head of cattle, 60 head of other types of livestock, 120 fowl, forage on hand for each animal for a total of up to $30,000 in value; and 100% of any crop insurance proceeds.
Texas has the strongest homestead laws in the country. You can protect up to 100% of your home equity from creditors so long as you have lived in your home for at least 5 years; otherwise, your limit is $100,000.00 of equity. Compare this with the State of Missouri that allows only up to $15,000 of home equity value in a homestead to be protected from creditors; Or, compare Texas to the State of Indiana. The debtor in that state is limited to $17,600 in equity per person in their homestead , including personal property. They also have no specific exemption for automobiles . Besides its strong homestead protection, Texas has strong exemption protection for many other things debtors own such as home furnishings, automobiles, retirement accounts and the like. So, next time you hear or see a movie clip or news event that someone somewhere in the U.S. has filed for bankruptcy and has lost everything, step back and ask yourself–which state? Not in my state of Texas!