Managing Inheritance, Heirlooms, and Other Special Assets in Bankruptcy

 Posted on November 17, 2025 in Asset Protection

Bankruptcy may feel like starting over, but it does not mean losing everything you own. Beyond the financial implications are the personal assets that you have to consider as well. These assets tell your story, and protecting them can be just as important as resolving your debt. A knowledgeable San Antonio, TX bankruptcy lawyer can help you protect assets with emotional and sentimental value as you address your financial hardship.

What Happens to Your Inheritance When You File for Bankruptcy in Texas?

According to federal law, when you file for bankruptcy, everything you own or have a right to receive becomes part of what is called the "bankruptcy estate." This includes your property, savings, and even an inheritance you may receive after someone passes away. Under 11 U.S.C. § 541(a)(5), if you become entitled to an inheritance within 180 days after filing, that property or money may be used to pay your creditors.

However, Texas offers some of the strongest protections in the country. Texas Property Code § 42.001 protects many types of personal property, such as home furnishings, clothing, and family keepsakes. Texas Property Code § 41.001 also provides a generous homestead exemption. This means your primary home is protected, regardless of its value, as long as it meets the size and use limits.

If you expect to inherit property or assets soon, you should talk with a lawyer before filing. Timing can make a major difference in what is protected and what becomes part of the bankruptcy estate.

Are Family Heirlooms Safe From Creditors in a Texas Bankruptcy?

Family heirlooms, like wedding rings, photo albums, or handmade furniture, often have more emotional value than financial worth. The bankruptcy trustee looks only at what these items could sell for, not their sentimental value. If they are worth a modest amount, they are usually covered by the state’s personal property exemptions.

Before filing, make a list of your heirlooms and personal items. Your lawyer can review each one and help you decide what is protected. Sometimes, it helps to get an appraisal just to erase any questions about an item’s value.

Can You Keep Jewelry, Art, or Collectibles When You File for Bankruptcy?

Jewelry, artwork, and collectibles are treated differently from everyday household items. The court will look at their resale value. If the total value of these items falls within the allowed exemption limits, you can keep them. If your items are worth more than that, the trustee may sell them to help pay your debts.

If you are worried about specific items, take these steps before you file for bankruptcy:

• Get an independent appraisal for valuable items such as jewelry, art, or coin collections.

• Keep receipts, insurance paperwork, or photos that show ownership and condition.

• Talk to your lawyer about which exemptions may cover these items.

• Do not give away or sell expensive belongings before filing. Doing so could be seen as an attempt to hide assets.

How Do Bankruptcy Exemptions Work in Texas?

Exemptions are laws that protect certain assets from being taken by creditors. Texas lets you choose between state and federal exemptions, but you must pick one system. You cannot mix them. Most people in Texas use the state exemptions because they are more generous.

Commonly protected assets include:

• Your home (under the homestead exemption)

• Up to $50,000 in personal property for an individual or $100,000 for a family

• Wages you have earned but have not yet been paid

• Retirement accounts and pension plans

• Some types of insurance benefits and annuities

These rules exist to give you a fair chance at starting over financially. Your attorney can use them to help you keep as much property as possible.

How Are Life Insurance Proceeds and Retirement Accounts Treated in Texas Bankruptcy Cases?

Texas law gives strong protection to both life insurance and retirement savings. Under Texas Insurance Code § 1108.051, life insurance proceeds that name a spouse or child as the beneficiary are usually safe from creditors. That means if you receive life insurance benefits, you can keep them.

Retirement accounts such as 401(k)s, pensions, and IRAs are also protected under federal and state law. However, those protections only apply if the money stays inside the account. If you withdraw funds before filing, they may lose their protection and become part of the bankruptcy estate.

What Happens to a Personal Injury Settlement or Lawsuit in Bankruptcy?

If you have a personal injury claim or lawsuit, it must be listed in your bankruptcy paperwork. A personal injury case counts as an asset, even if it has not been settled yet. The trustee will review the claim to decide which parts may be used to repay debts.

Money for medical bills or lost wages may become part of the bankruptcy estate. However, compensation for pain and suffering might be protected, depending on your case. You should never try to hide a claim. Your attorney can help you identify what part of the settlement may be exempt and ensure your rights are protected.

Can You Keep Your Small Business if You File for Bankruptcy in Texas?

If you own a small business, what happens to it will depend on how your business is structured. A sole proprietorship is treated as part of your personal bankruptcy estate, which means your business assets could be used to pay creditors. However, Texas allows exemptions for tools and equipment that you use to earn a living. These protections are sometimes called "tools of the trade."

If your business is a limited liability company (LLC) or a corporation, it is legally separate from you. The trustee can review your ownership share, but they cannot take over or sell the entire business unless the court allows it. A lawyer can help you plan so your company can continue to operate even during bankruptcy.

Schedule a Free Consultation With a Schertz, TX Bankruptcy Attorney

Bankruptcy does not have to mean losing everything that matters to you. Attorney Chance McGhee has helped individuals and families throughout South Central Texas rebuild their financial lives with confidence. As a Director of the San Antonio Bankruptcy Bar Association, he is a respected leader who stays informed about changes in bankruptcy law and local court practices.

To learn how these protections may apply to your case, schedule a free consultation today with a San Antonio, TX bankruptcy lawyer who has more than 20 years of legal experience.