The median price of a home sold in Austin fell 4.3 percent to $560,000 in August, and closed sales dropped 10.3 percent from a year earlier, according to Unlock MLS figures reported by CultureMap Austin. For homeowners under financial strain, a bankruptcy lawyer in Austin, TX can explain how the house would be treated in a filing; Leinart Law Firm points to two federal date-based rules that newer Texans and recent buyers should review first.
"Texas homestead law protects more than most states, but a bankruptcy court applies federal tests before that protection takes effect," said Marcus Leinart, the firm's founder. "The day a client moved to Texas and the day they bought the house can matter as much as what the house is worth today."
Under Chapter 41 of the Texas Property Code, an urban homestead can include up to 10 acres, and its protection is measured by land area instead of a dollar figure. An owner who stays current on the mortgage can typically keep the house through the case, even with substantial equity.
Federal law, however, narrows that protection for some filers, using a dollar cap last adjusted in a Federal Register notice effective April 1, 2025. First, a filer must have lived in Texas for the two years before the case to claim Texas exemptions. Someone who moved more recently generally uses the exemption laws of the state they left. Second, homestead equity acquired during the roughly 40 months before filing is protected only up to $214,000. Equity rolled over from a Texas homestead bought before that window does not count toward the cap.
Lower Austin prices can help a recent buyer here, since less equity means less exposure to the cap. When equity does exceed what the law protects, Chapter 7 bankruptcy allows a trustee to sell the home and pay creditors from the unprotected portion. Chapter 13 avoids a sale, but the repayment plan must return at least that same amount to unsecured creditors.
These rules matter because Austin's cooling market may leave more homeowners with equity that falls under federal scrutiny. Recent buyers who purchased during the pandemic boom could find that their equity, though reduced, still exceeds the $214,000 cap. For new Texas residents, the two-year residency requirement could mean their former state's exemptions apply, which may offer less protection. As home values adjust, homeowners considering bankruptcy should understand how timing and federal limits interact with Texas's generous homestead protections.
