Friday, February 05, 2016

Let's Be Careful Out There: The Danger of Omitting Assets

Filing bankruptcy is serious business.    The mere act of filing a petition creates an automatic stay effective against all entities.    Liens can be modified, taxes can be paid out and debts can be discharged.   The price of admission for getting all these benefits is full disclosure.   Unfortunately some debtors either don't understand these obligations or think they can selectively disclose only the assets they want to list.   The consequences for omitting assets can be severe as illustrated by two recent opinions from the Fifth Circuit and a press release from the Acting U.S. Attorney for the Southern District of Illinois.

Judicial Estoppel

Judicial estoppel is a way for courts to make lawsuits go away.   Technically, it is about preventing people from taking inconsistent positions in litigation.   However, in bankruptcy, it is a way for defendants to get out of being sued based on the plaintiff's mistakes.   Two recent cases from the Fifth Circuit illustrate the dangers of this doctrine.

In Allen v. C & H Distributors, LLC, , No. 15-30330, 2015 U.S. App. LEXIS 22567 (5th Cir. 12/23/15), the debtors filed a chapter 13 petition and confirmed a plan.   One month after the plan was confirmed, one of the debtors was injured in a workplace accident.  One year later, she filed suit.  However, she did not amend her schedules to disclose either the claim or the lawsuit.    Four years later, after the plan had been amended several times, the Bankruptcy Court closed the chapter 13 case because the debtors failed to complete a financial management course.   Shortly thereafter, the defendant filed a motion for summary judgment based on judicial estoppel.    The defendant claimed that it had just learned of the bankruptcy because the plaintiffs/debtors had failed to mention the bankruptcy in response to interrogatories.    

The district court granted the motion and the Fifth Circuit affirmed.    The Fifth Circuit found that the debtors had taken inconsistent positions since they did not tell the bankruptcy court about the lawsuit while simultaneously pursuing it in district court.    The court found that the bankruptcy court accepted the debtors' position because it did not require the debtors to modify their plan to account for the lawsuit.   Finally, the court found that the failure to disclose was not inadvertent.   The court rejected the debtors' argument that they had no motive to conceal the asset since they did not receive a discharge in their chapter 13 case.   The Fifth Circuit held that what was important was the debtors' intent at the time they failed to disclose it, not at the point that they didn't get a benefit.

Thus, the debtors lost their lawsuit and did not receive a discharge, a bad result all around.   The court did provide that if the debtors' case was reopened and converted to chapter 7, the chapter 7 trustee would be allowed to intervene.   

The Allen case illustrates the unique nature of chapter 13.   It is not enough to file accurate schedules at the beginning of the case.   It is necessary to continually update those schedules as new assets are acquired.    

In United States ex rel. Long v. GSDMIdea City, LLC, 798 F.3d 265 (5th Cir. 2015), the debtors also lost their claim,  In November 2008, the debtors filed a chapter 13 petition.   A few months later, they confirmed a chapter 13 plan which provided for payment of 100% of unsecured claims, albeit without interest.  Nearly three years later in 2011, the debtor filed a False Claims Act case against his employer, GSDMIdea City.   In October 2013, the debtors completed their chapter 13 plan.   They discharged about $4,500 in unsecured claims, apparently because these creditors failed to file claims.   Just before trial, GSDMIdea City learned of the bankruptcy and moved to dismiss the case.   The District Court gave the Chapter 13 trustee seven days to intervene, which the trustee declined to do.   It then dismissed the case.

The Fifth Circuit affirmed the dismissal.  It found that the failure to disclose was not inadvertent.  Even though the debtors had completed a plan providing for a 100% payout, they did not pay all of their creditors and did not pay interest.   This was a harsh result.   If the debtors had disclosed the lawsuit, the creditors that did not file claims still would not have been paid.   If the trustee had required the debtors to amend their plan to provide for payment of post-petition interest, it would have been at the federal judgment rate and would have been minimal.   

What these cases show is that judicial estoppel will be strictly enforced against debtors.   The courts seem to be more concerned with policing the integrity of debtor's disclosures than protecting creditors.  In both cases, the failure to disclose did not harm creditors.   In Allen, the fact that the case was closed without entry of a discharge meant that the creditors could have still pursued the debtors and garnished the lawsuit proceeds.   However, because the lawsuit was dismissed, creditors lost this asset (although it allowed a subsequent trustee to pursue the claim).    In Long, the defendant escaped liability because the debtors failed to pay a nominal amount of interest to their creditors.   

Criminal Prosecution

As bad as losing a lawsuit is, losing your freedom is worse.   On February 2, 2016, the Acting U.S. Attorney for the Southern District of Illinois announced three prosecutions for bankruptcy fraud.   In two of the cases, the debtors filed chapter 13 but failed to disclose workers compensation claims which were later settled for $28,129.55 and $17,000 respectively.   Additionally, one debtor was indicted for refusing to provide copies of his tax returns to the trustee and another was indicted for failure to turn over a tax refund in the amount of $2,478.

According to the Statement issued by the Acting U.S. Attorney:
"Our federal bankruptcy laws allow people who have overwhelming debt to obtain a fresh start," Acting United States Attorney Porter explained. "Before their debts are eliminated, however, individuals who file bankruptcy are asked to be truthful about their assets and other matters that affect the bankruptcy case. When people conceal their assets and otherwise lie in bankruptcy proceedings, they are cheating their creditors and subverting the bankruptcy process. People who engage in this type of activity can expect to be prosecuted by my office no less than those persons who would use force to steal."
In both of these cases, the debtors face criminal prosecution for failing to disclose relatively small amounts of money.    The amounts that the debtors allegedly kept were modest when compared to being fingerprinted, photographed, publicly shamed and potentially going to jail for a felony.

There was a third case involving perjury and falsifying records which was more complicated.

Will the New Schedules Help?

Some debtors will intentionally try to game the system and hang on to more assets than they should.   However, the schedules are really complicated and it is quite possible to make an inadvertent mistake.  The judicial estoppel cases relate to failure to disclose claims which later resulted in litigation.    Under the old schedules, the question on Schedule B asked about:
Other contingent and unliquiated claims of every nature, including tax refunds, counterclaims of the debtor, and rights to setoff claims.
It probably required a lawyer to translate this into English as "is there anyone you want to sue"?

The new schedules which went into effect on December 1, 2015 may help to address this problem.    Here are some of the categories debtors are required to list:
28. Tax refunds owed to you
30. Other amounts someone owes you Examples: Unpaid wages, disability insurance payments, disability benefits, sick pay, vacation pay, workers’ compensation, Social Security benefits; unpaid loans you made to someone else
 33. Claims against third parties, whether or not you have filed a lawsuit or made a demand for payment Examples: Accidents, employment disputes, insurance claims, or rights to sue
With the new plain English forms, debtors will be more likely to understand their disclosure obligations (assuming that they actually read the forms).   The bad news is that debtors who omit assets will have a harder time saying I didn't understand.

Thursday, February 04, 2016

Current Developments in Texas Homestead Law

            For this post, I attempted to find every Texas case dealing with a homestead exemption during the period between 2010 and 2015.     Many more cases interpreting the Texas constitutional and statutory laws on homesteads are decided in bankruptcy courts than in reported state court opinions.
       
I.                   Issues Under Texas Law

The primary Texas constitutional and statutory provisions governing homesteads are included in Appendix A.    For purposes of brevity, I have only included the provisions relevant to the cases discussed in this article.

A.    What Property Can Be Claimed As a Texas Homestead?

1.      Homestead Allowed

Where debtor’s leasehold interest and option to purchase were part of the same transaction, the debtor could claim a homestead interest in the option even though it was a non-possessory interest.   In re See, 2015 Bankr. LEXIS 2323 (Bankr. W.D. Tex. 2015).    However, where debtor leased property from holder of a life estate and Debtor also held remainder interest, lease was exempt but remainder interest was not.    In re Brunson, 498 B.R. 160 (Bankr. W.D. Tex. 2013).   (Note:   Both cases are from Judge Tony Davis.  In the Brunson case, the debtors were living in property owned by a family member under an informal agreement.   In the See case, both the present possessory interest and the option to purchase were tied together in a formal written agreement.  This likely explains the difference in result). 

Debtor who lived with girlfriend much of the time but kept his own home in case things didn’t work out and who kept his possessions at home showed sufficient overt acts to claim property as homestead.    In re Edwards, 2015 Bankr. LEXIS 132 (Bankr. N.D. Tex. 2015).

Debtors could claim property as Texas homestead even though they did not possess equity in it.   In re Parsons, 530 B.R. 411 (Bankr. W.D. Tex. 2014).

Debtors could claim multiple tracts as homestead.   Tracts were contiguous where debtors owned land under county road which would otherwise have separated two tracts.   Additionally, debtors used each tract as homestead.    In re Ling, 511 B.R. 83 (Bankr. S.D. Tex. 2014).

Debtor who lived in a trailer that was attached to real estate through water, electricity and sewage connections could claim trailer and property as homestead.    In re Cox, 2014 Bankr. LEXIS 1993 (Bankr. S.D. Tex. 2014).

Debtor’s suit against insurance company for wrongful failure to pay claim for loss of homestead was exempt.    In re Carlew, 469 B.R. 666 (Bankr. S.D. Tex. 2012);  In re Hill, 2011 Bankr. LEXIS 5186 (Bankr. S.D. Tex. 2011).

Debtor could claim homestead exemption in property titled in deceased father’s name that was left to him under will.   Although it was a close call, debtor showed sufficient use of inherited property for it to qualify as homestead as opposed to previous residence which was also used.    In re Tinsley, 2010 Bankr. LEXIS 4156 (Bankr. N.D. Tex. 2010).

2.      Homestead Partially Allowed

Debtor was allowed to claim portion of golf course containing club house where he resided as his homestead.   Debtor could not claim portion that was separated by road and which was not used in connection with residence.   In re Schott, 449 B.R. 697 (Bankr. W.D. Tex. 2011).   The result in this case is different from In re Tinsley discussed above for the reason that the county owned the road here, whereas the county merely had an easement to cross the debtor’s property in Tinsley.

Debtor could only claim non-contiguous tracts under rural homestead exemption.    Where one tract was located in platted subdivision outside of city limits which was served by volunteer fire department, it qualified as rural.   Debtor could claim non-contiguous tracts as homestead so long as they were used for purposes of a homestead.    Non-contiguous tract used for recreation and for timber sales was not used for purposes of a homestead.   In re Dietz, 2011 Bankr. 522 (Bankr. E. D. Tex. 2011).

3.      Homestead Not Allowed

Debtor who owned one Texas homestead and purchased another property could not claim the second property as homestead where he did not move out of the first property.   Moser v. Schachar (Matter of Thaw), 2015 U.S. App. LEXIS 17385 (5th Cir. 9/30/15); In re Pendley, 2013 Bankr. LEXIS 207 (Bankr. W.D. Tex. 2013).

Debtor who operated a sand pit on property could not claim it as a rural homestead.   Act of destroying the surface to mine sand precluded use as a rural homestead.   Fact that debtor was a convicted criminal who had previously claimed a homestead in Oklahoma didn’t help either.   Mitchell v. Stringfellow, 2010 U.S. Dist. LEXIS 124159 (N.D. Tex. 2010).     

            Debtor could not claim homestead on property which had been foreclosed upon.    In re Morris, 2014 Bankr. LEXIS 1534 (Bankr. S.D. Tex. 2014).

            Debtor could not claim excess funds in escrow account as exempt after homestead loan was paid off.    In re Young, 2013 Bankr. LEXIS 1656 (Bankr. W.D. Tex. 2013).

            Debtor could not claim property as residential homestead where he used it for business purposes and only occasionally slept there on the weekends.    Use of property as a weekend home “does not a homestead make.”    Texas no longer allows a business homestead unless the property is also used as a residence.    In re Marshal, 481 B.R. 862 (Bankr. N.D. Tex. 2012).

A yacht could not be claimed as a Texas homestead even if it was used as a residence.   Norris v. Thomas, 215 S.W.3d 851 (Tex. 2007). 

Homestead could not be claimed on property acquired with stolen funds.    In re Estate of Byrom, 2013 Tex. App. LEXIS 9494 (Tex. App.—Tyler, 2013, pet. den.).

B.     Abandonment of Homestead

Once property becomes homestead, it remains homestead until property is alienated or abandoned.   Homestead is abandoned where person leaves property with intent not to return.  

1.      Homestead Not Abandoned

Mother did not abandon homestead even though she lived with daughter for prior nine years.   Court found that mother resided with daughter because she had gone through a series of personal trials and did not intend to abandon homestead.    Matter of McKeithan, 486 Fed. Appx. 482 (5th Cir. 2012).

Homestead was not abandoned by conveyance to living revocable trust.    Lowe v. Vazquez (In re Vazquez), 2013 U.S. Dist. LEXIS 44271 (W.D. Tex. 2013).

Debtors’ lease of approximately four acres of their property for a saltwater disposal well was sufficiently permanent as to cause an abandonment of that portion of the property as part of their rural homestead.   The debtors’ agricultural lease as to the remainder of the tract was not sufficient to constitute an abandonment because it was temporary.   In re Crump, 533 B.R. 567 (Bankr. N.D. Tex. 2015).

Debtor who accepted job in Louisiana but still intended to return to Texas property had not abandoned homestead.   In re McDonald, 486 B.R. 843 (Bankr. S.D. Tex. 2013).

To prove abandonment, the creditor must offer competent evidence that clearly, conclusively, and undeniably shows that the homestead claimant moved with the intention of not returning to the property.     Marincasiu v. Drilling, 441 S.W.3d 551 (Tex. App.—El Paso, 2014, pet. den.)  

Where debtor leased a portion of her property separated by a fence with a rent house on it, creditor failed to prove abandonment of leased portion of property when it failed to establish what property was leased.    In re Estate of Cantu, 2012 Tex. App. LEXIS 4860 (Tex. App.—San Antonio, 2012, no pet).

            Homestead was not abandoned due to long-term imprisonment since debtor could still intend to return to property.   Driver v. Conley, 320 S.W.3d 516 (Tex. App.—Texarkana, 2010, pet. den.).



2.      Homestead Abandoned

Change of residence together with non-homestead affidavit could create abandonment of homestead by estoppel.   Thomas v. Graham Mortgage Corporation, 408 S.W.3d 581 (Tex. App.—Austin, 2013, pet. den.).

C.    Exemption of Proceeds

Debtor was required to pay estate back for funds spent on purposes other than investing in new homestead.    Matter of Frost, 744 F.3d 384 (5th Cir. 2014).   

Trustee could recover proceeds where homestead was sold post-petition and proceeds were not reinvested in chapter 7 case.    In re Smith, 514 B.R. 838 (Bankr. S.D. Tex. 2014).    However, the contrary position was reached by Judges Craig Gargotta and Tony Davis. Lowe v. DeBerry (In re DeBerry), 2015 Bankr. LEXIS 3694 (Bankr. W.D. Tex. 2015);  In re D’Avila, 498 B.R. 150 (Bankr. W.D. Tex. 2013).

Failure to reinvest insurance proceeds from loss of home did not result from a sale of the home. As a result, insurance proceeds were not required to be reinvested within six months to preserve exemption.    In re Carlew, 469 B.R. 666 (Bankr. S.D. Tex. 2012).

Debtor’s use of portion of sale proceeds to voluntarily pay creditors did not waive exemption in remainder of proceeds.    Where proceeds were improperly ordered turned over, six month period was tolled.    London v. London, 342 S.W.3d 768 (Tex. App.—Houston [14th Dist.], 2011, orig. proc.).    While this state court case is arguably contrary to Frost, they arose in very different contexts.

II.                Issues Under Bankruptcy Code

The Bankruptcy Code provisions discussed below are included in Appendix B.

A.    Applicable Law (11 U.S.C. §522(b)(3))

Chapter 11 debtor who was domiciled in Florida died during pendency of the case.   Court converted case to Chapter 7 and appointed a personal representative to represent the interest of the debtor.   The personal representative asserted an exemption under the Texas Estates Code and spouse asserted her own allowance under the Texas Estates Code.    Although debtor was domiciled in Florida at time of his filing, he had not lived there during the preceding two years.   Because he had lived in Texas for the 180 days preceding two years before the filing date, his exemptions were determined by Texas law.   However, personal representative could not claim allowance under Texas Estates Code because debtor was alive on the petition date and snapshot rule applied.   Court held that Frost and Zibman did not abrogate the snapshot rule but instead operated to limit exemption based on subsequent events.     Brown v. Sommers (Matter of Brown), 2015 U.S. App. LEXIS 20457 (5th Cir. 2015).

B.     Cap on Exemption

1.      Fraudulent Enhancement   (11 U.S.C. §522(o))

Court used badges of fraud analysis to deny homestead exemption.   Debtor encumbered non-exempt property in one state to acquire exempt homestead in Texas while incurring substantial unsecured debt.   Court found that four badges of fraud were present:   transfer of substantially all assets, to an insider, while retaining control and while incurring substantial debt.   Matter of Cipolla, 541 Fed. Appx. 473 (5th Cir. 2013).

Debtor inherited property from his father.   He used $195,000 in non-exempt property and $110,000 in exempt property to buy a lot and build a house.   Debtor admitted that he intended to hinder, delay or defraud creditors.   The court found that alcohol impairment was not sufficient to defeat fraudulent intent.   Court ordered that property be sold and that 63.9% of proceeds would be non-exempt and 36.1% would be exempt based on the character of the funds invested in the homestead.    In re Enloe, 2015 Bankr. LEXIS 4067 (Bankr. S.D. Tex. 2015).

To prevail under §522(o), four elements must be established:

a)      The debtor disposed of property within ten years preceding the bankruptcy filing;
b)      The disposed property was non-exempt;
c)      Some or all of the proceeds from the disposition of this nonexempt property were used to buy a new homestead, to improve existing homestead, or reduce the debt associated with an existing homestead; and
d)     The debtor disposed of the nonexempt property with intent to hinder, delay or defraud a creditor.
Douglass v. Douglass (In re Douglass), 2015 Bankr. LEXIS 3596 (Bankr. E.D. Tex. 2015).

Although several badges of fraud were present, court found that on balance, debtors had not transferred property with intent to hinder, delay or defraud a creditor.   Debtor had received a large signing bonus which he would be obligated to repay if he left his employment in less than three years.   Debtor left after approximately one year because he felt employer had made misrepresentations.  Debtor moved to Texas where he made a 20% down payment on a home to avoid having to purchase mortgage insurance.  Debtor purchased home after repayment clause had been triggered but before he was sued.  Court found that moving to Texas did not constitute absconding.    In re Erem, 2015 Bankr. LEXIS 876 (Bankr. S.D. Tex. 2015).

Where Debtor transferred note in return for acquiring homestead property, homestead was acquired with intent to hinder, delay or defraud a creditor.   Court found that nine out of thirteen badges of fraud were present.    In re Cowin, 2014 Bankr. LEXIS 1119 (Bankr. S.D. Tex. 2014).

Fact that debtor incurred debts which were not paid did not establish intent to hinder, delay or defraud.    In re Smith, 2013 Bankr. LEXIS 1585 (Bankr. S. D. Tex. 2013).   

2.      1,215 Day Acquisition  (11 U.S.C. §522(p)

Where debtor’s homestead exemption was capped at $125,000[1], creditor’s pre-petition judgment lien did not attach to the excess value.   Section 522(p) operated for benefit of bankruptcy estate, not judgment lien creditor.    Smith v. H.D. Smith Wholesale Drug Co. (Matter of McCombs), 659 F.3d 503 (5th Cir. 2011).

            Where Debtors purchased property within 1,215 days and increased their equity through mortgage payments and improvements, they actively acquired equity and their homestead exemption was capped.   Court did not reach the issue of whether passive appreciation constituted equity “acquired” during the relevant period.    Union State Bank v. Fehmel (Matter of Fehmel), 372 Fed. Appx. 507 (5th Cir. 2010).  

            Where debtor acquired property through will, 1,215 day period began to run on date of death rather than when debtor reached settlement with probate estate.   In re Smith, 2013 Bankr. LEXIS 1585 (Bankr. S. D. Tex. 2013).   

            Although property was acquired within 1,215 days, cap did not apply because debtor was a family farmer.    In re Tinsley, 2010 Bankr. LEXIS 4156 (Bankr. N.D. Tex. 2010)

3.      Securities Violations/Criminal Conviction (11 U.S.C. §522(q))

Where Debtor was convicted of money laundering, perjury and bankruptcy fraud during bankruptcy proceeding, homestead exemption was capped at $146,750.  Prince v. American Bank of Texas, 2012 U.S. Dist. LEXIS 127743 (E. D. Tex. 2012).

Objection under §522(q) could be brought any time before closing of case.    Yeckel v. Cunningham, 2011 U.S. Dist. LEXIS 97346 (N.D. Tex. 2011).

Debtor who had judgment taken against him for securities fraud had his homestead exemption capped.    The Court refused to determine whether value of homestead was above or below the cap, finding that the trustee could sell the property and pay the debtor his equity.   The Court also refused to find that a greater homestead interest was necessary for the support of the family or that the non-filing spouse had a separate homestead interest.   In re Bounds, 491 B.R. 440 (Bankr. W.D. Tex. 2013).   (Note:   The case was settled while the homestead determination was on appeal and the order was reversed by agreement.)

Debtor who was convicted of bankruptcy fraud was subject to cap on homestead exemption.  In re Prince, 2011 Bankr. LEXIS 5511 (Bankr. E.D. Tex. 2011).

C.    Interest of Non-Filing Spouse

Non-filing spouse did not have a separate homestead interest from that of the bankruptcy estate.   When one spouse filed bankruptcy, the entire jointly owned homestead became property of the estate and could be sold without compensation to the non-filing spouse.  Debtor received equity up to amount of allowed exemption and estate received the excess.   Thaw v. Moser, 769 F.3d 366 (5th Cir. 2015); Kim v. Dome Entertainment Center, Inc. (Matter of Kim), 748 F.3d 647 (5th Cir. 2014); Wiggains v. Reed (In re Wiggains), 535 B.R. 700 (Bankr. N.D. Tex. 2015); In re Bounds, 491 B.R. 440 (Bankr. W.D. Tex. 2013).

D.    Extra-Territorial Application

Debtor who was required to use Nevada exemptions could claim Texas homestead under Nevada law.    Fernandez v. Miller, 2011 U.S. Dist. LEXIS 86528 (W.D. Tex. 2011).   

          Where Debtors did not reside within any single state during the 730 days before bankruptcy, exemptions were determined under law of state where they lived for majority of the 180 days prior to 730 days which was Louisiana.   Under Louisiana law, Debtors’ homestead exemption on Texas property was limited to $25,000.    Smith v. Winnsboro Equipment, Inc., 2011 U.S. Dist. LEXIS 49758 (S.D. Tex. 2011).   

            Where debtors’ exemptions were determined by North Carolina law, they could claim Texas property as homestead, but exemption was limited to $70,000 under North Carolina law.   In re Garrett, 435 B.R. 434 (Banrk. S.D. Tex. 2010).

            Where debtor’s exemptions were determined by California law, she could have claimed a Texas property as homestead.   However, she was still married to her husband and under California law, couple could only have one homestead.    Since she had previously abandoned her Texas homestead to move to California, California property owned by her husband was the only homestead the couple could claim.   In re Arredondo-Smith, 436 B.R. 412 (Bankr. W.D. Tex. 2010).

E.     Federal Exemption

Where debtor and his non-filing spouse owned homestead, debtor’s aggregate interest in the property which he could claim as exempt was valued at one-half of total value of property.   Debtor could not claim interest of non-filing spouse as exempt.   In re Wald, 2012 Bankr. LEXIS 2552 (Bankr. W.D. Tex. 2012).      Court granted debtor leave to amend his exemptions to claim Texas state exemptions. 

            Debtor could claim proceeds from suit for damage to homestead under federal wild card exemption.    In re Okwonna-Felix, 2011 Bankr. LEXIS 3028 (Bankr. S.D. Tex. 2011).




APPENDIX A
Primary Constitutional and Statutory Provisions Regarding Homesteads

§ 50.  Homestead; Protection from Forced Sale; Mortgages, Trust Deeds, and Liens

   (a) The homestead of a family, or of a single adult person, shall be, and is hereby protected from forced sale, for the payment of all debts except for:

   (1) the purchase money thereof, or a part of such purchase money;

   (2) the taxes due thereon;

   (3) an owelty of partition imposed against the entirety of the property by a court order or by a written agreement of the parties to the partition, including a debt of one spouse in favor of the other spouse resulting from a division or an award of a family homestead in a divorce proceeding;

   (4) the refinance of a lien against a homestead, including a federal tax lien resulting from the tax debt of both spouses, if the homestead is a family homestead, or from the tax debt of the owner;

   (5) work and material used in constructing new improvements thereon, if contracted for in writing, or work and material used to repair or renovate existing improvements thereon if:

      (A) the work and material are contracted for in writing, with the consent of both spouses, in the case of a family homestead, given in the same manner as is required in making a sale and conveyance of the homestead;

      (B) the contract for the work and material is not executed by the owner or the owner's spouse before the fifth day after the owner makes written application for any extension of credit for the work and material, unless the work and material are necessary to complete immediate repairs to conditions on the homestead property that materially affect the health or safety of the owner or person residing in the homestead and the owner of the homestead acknowledges such in writing;

      (C) the contract for the work and material expressly provides that the owner may rescind the contract without penalty or charge within three days after the execution of the contract by all parties, unless the work and material are necessary to complete immediate repairs to conditions on the homestead property that materially affect the health or safety of the owner or person residing in the homestead and the owner of the homestead acknowledges such in writing; and

      (D) the contract for the work and material is executed by the owner and the owner's spouse only at the office of a third-party lender making an extension of credit for the work and material, an attorney at law, or a title company;

(6)        (a valid home equity loan);

  (7) a reverse mortgage; or

   (8) the conversion and refinance of a personal property lien secured by a manufactured home to a lien on real property, including the refinance of the purchase price of the manufactured home, the cost of installing the manufactured home on the real property, and the refinance of the purchase price of the real property.

(b) An owner or claimant of the property claimed as homestead may not sell or abandon the homestead without the consent of each owner and the spouse of each owner, given in such manner as may be prescribed by law.

(c) No mortgage, trust deed, or other lien on the homestead shall ever be valid unless it secures a debt described by this section, whether such mortgage, trust deed, or other lien, shall have been created by the owner alone, or together with his or her spouse, in case the owner is married. All pretended sales of the homestead involving any condition of defeasance shall be void.

(d) A purchaser or lender for value without actual knowledge may conclusively rely on an affidavit that designates other property as the homestead of the affiant and that states that the property to be conveyed or encumbered is not the homestead of the affiant.

§ 41.001.  Interests in Land Exempt from Seizure

   (a) A homestead and one or more lots used for a place of burial of the dead are exempt from seizure for the claims of creditors except for encumbrances properly fixed on homestead property.

(b) Encumbrances may be properly fixed on homestead property for:

   (1) purchase money;

   (2) taxes on the property;

   (3) work and material used in constructing improvements on the property if contracted for in writing as provided by Sections 53.254(a), (b), and (c);

   (4) an owelty of partition imposed against the entirety of the property by a court order or by a written agreement of the parties to the partition, including a debt of one spouse in favor of the other spouse resulting from a division or an award of a family homestead in a divorce proceeding;

   (5) the refinance of a lien against a homestead, including a federal tax lien resulting from the tax debt of both spouses, if the homestead is a family homestead, or from the tax debt of the owner;

   (6) an extension of credit that meets the requirements of Section 50(a)(6), Article XVI, Texas Constitution; or

   (7) a reverse mortgage that meets the requirements of Sections 50(k)--(p), Article XVI, Texas Constitution.

(c) The homestead claimant's proceeds of a sale of a homestead are not subject to seizure for a creditor's claim for six months after the date of sale.

§ 41.002.  Definition of Homestead

   (a) If used for the purposes of an urban home or as both an urban home and a place to exercise a calling or business, the homestead of a family or a single, adult person, not otherwise entitled to a homestead, shall consist of not more than 10 acres of land which may be in one or more contiguous lots, together with any improvements thereon.

(b) If used for the purposes of a rural home, the homestead shall consist of:

   (1) for a family, not more than 200 acres, which may be in one or more parcels, with the improvements thereon; or

   (2) for a single, adult person, not otherwise entitled to a homestead, not more than 100 acres, which may be in one or more parcels, with the improvements thereon.

(c) A homestead is considered to be urban if, at the time the designation is made, the property is:

   (1) located within the limits of a municipality or its extraterritorial jurisdiction or a platted subdivision; and

   (2) served by police protection, paid or volunteer fire protection, and at least three of the following services provided by a municipality or under contract to a municipality:

      (A) electric;

      (B) natural gas;

      (C) sewer;

      (D) storm sewer; and

      (E) water.

(d) The definition of a homestead as provided in this section applies to all homesteads in this state whenever created.

§ 41.0021.  Homestead in Qualifying Trust

   (a) In this section, "qualifying trust" means an express trust:

   (1) in which the instrument or court order creating the express trust provides that a settlor or beneficiary of the trust has the right to:

      (A) revoke the trust without the consent of another person;

      (B) exercise an inter vivos general power of appointment over the property that qualifies for the homestead exemption; or

      (C) use and occupy the residential property as the settlor's or beneficiary's principal residence at no cost to the settlor or beneficiary, other than payment of taxes and other costs and expenses specified in the instrument or court order:

         (i) for the life of the settlor or beneficiary;

         (ii) for the shorter of the life of the settlor or beneficiary or a term of years specified in the instrument or court order; or

         (iii) until the date the trust is revoked or terminated by an instrument or court order recorded in the real property records of the county in which the property is located and that describes the property with sufficient certainty to identify the property; and

   (2) the trustee of which acquires the property in an instrument of title or under a court order that:

      (A) describes the property with sufficient certainty to identify the property and the interest acquired; and

      (B) is recorded in the real property records of the county in which the property is located.

(b) Property that a settlor or beneficiary occupies and uses in a manner described by this subchapter and in which the settlor or beneficiary owns a beneficial interest through a qualifying trust is considered the homestead of the settlor or beneficiary under Section 50, Article XVI, Texas Constitution, and Section 41.001.

(c) A married person who transfers property to the trustee of a qualifying trust must comply with the requirements relating to the joinder of the person's spouse as provided by Chapter 5, Family Code.

(d) A trustee may sell, convey, or encumber property transferred as described by Subsection (c) without the joinder of either spouse unless expressly prohibited by the instrument or court order creating the trust.

(e) This section does not affect the rights of a surviving spouse or surviving children under Section 52, Article XVI, Texas Constitution, or Part 3, Chapter VIII, Texas Probate Code.

§ 41.003.  Temporary Renting of a Homestead

   Temporary renting of a homestead does not change its homestead character if the homestead claimant has not acquired another homestead.

§ 41.004.  Abandonment of a Homestead

   If a homestead claimant is married, a homestead cannot be abandoned without the consent of the claimant's spouse.




APPENDIX B
Primary Bankruptcy Code Provisions Affecting Homesteads

§ 522.  Exemptions

(b) (1) Notwithstanding section 541 of this title [11 USCS § 541], an individual debtor may exempt from property of the estate the property listed in either paragraph (2) or, in the alternative, paragraph (3) of this subsection. In joint cases filed under section 302 of this title [11 USCS § 302] and individual cases filed under section 301 or 303 of this title [11 USCS § 301 or 303] by or against debtors who are husband and wife, and whose estates are ordered to be jointly administered under Rule 1015(b) of the Federal Rules of Bankruptcy Procedure, one debtor may not elect to exempt property listed in paragraph (2) and the other debtor elect to exempt property listed in paragraph (3) of this subsection. If the parties cannot agree on the alternative to be elected, they shall be deemed to elect paragraph (2), where such election is permitted under the law of the jurisdiction where the case is filed.
   (2) Property listed in this paragraph is property that is specified under subsection (d), unless the State law that is applicable to the debtor under paragraph (3)(A) specifically does not so authorize.
   (3) Property listed in this paragraph is--
      (A) subject to subsections (o) and (p), any property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition to the place in which the debtor's domicile has been located for the 730 days immediately preceding the date of the filing of the petition or if the debtor's domicile has not been located in a single State for such 730-day period, the place in which the debtor's domicile was located for 180 days immediately preceding the 730-day period or for a longer portion of such 180-day period than in any other place;

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(d) The following property may be exempted under subsection (b)(2) of this section:
   (1) The debtor's aggregate interest, not to exceed $ 22,975 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.

   (5) The debtor's aggregate interest in any property, not to exceed in value $ 1,225 plus up to $ 11,500 of any unused amount of the exemption provided under paragraph (1) of this subsection.

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(m) Subject to the limitation in subsection (b), this section shall apply separately with respect to each debtor in a joint case.

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(o) For purposes of subsection (b)(3)(A), and notwithstanding subsection (a), the value of an interest in--
   (1) real or personal property that the debtor or a dependent of the debtor uses as a residence;
   (2) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;
   (3) a burial plot for the debtor or a dependent of the debtor; or
   (4) real or personal property that the debtor or a dependent of the debtor claims as a homestead;

shall be reduced to the extent that such value is attributable to any portion of any property that the debtor disposed of in the 10-year period ending on the date of the filing of the petition with the intent to hinder, delay, or defraud a creditor and that the debtor could not exempt, or that portion that the debtor could not exempt, under subsection (b), if on such date the debtor had held the property so disposed of.

(p) (1) Except as provided in paragraph (2) of this subsection and sections 544 and 548 [11 USCS §§ 544 and 548], as a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that was acquired by the debtor during the 1215-day period preceding the date of the filing of the petition that exceeds in the aggregate $ 155,675 in value in--
      (A) real or personal property that the debtor or a dependent of the debtor uses as a residence;
      (B) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence;
      (C) a burial plot for the debtor or a dependent of the debtor; or
      (D) real or personal property that the debtor or dependent of the debtor claims as a homestead.
   (2)
      (A) The limitation under paragraph (1) shall not apply to an exemption claimed under subsection (b)(3)(A) by a family farmer for the principal residence of such farmer.
      (B) For purposes of paragraph (1), any amount of such interest does not include any interest transferred from a debtor's previous principal residence (which was acquired prior to the beginning of such 1215-day period) into the debtor's current principal residence, if the debtor's previous and current residences are located in the same State.

(q) (1) As a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of an interest in property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) which exceeds in the aggregate $ 155,675 if--
      (A) the court determines, after notice and a hearing, that the debtor has been convicted of a felony (as defined in section 3156 of title 18 [18 USCS § 3156]), which under the circumstances, demonstrates that the filing of the case was an abuse of the provisions of this title; or
      (B) the debtor owes a debt arising from--
         (i) any violation of the Federal securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934 [15 USCS § 78c(a)(47)]), any State securities laws, or any regulation or order issued under Federal securities laws or State securities laws;
         (ii) fraud, deceit, or manipulation in a fiduciary capacity or in connection with the purchase or sale of any security registered under section 12 or 15(d) of the Securities Exchange Act of 1934 [15 USCS § 78l or 78o(d)] or under section 6 of the Securities Act of 1933 [15 USCS § 77f];
         (iii) any civil remedy under section 1964 of title 18; or
         (iv) any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death to another individual in the preceding 5 years.
   (2) Paragraph (1) shall not apply to the extent the amount of an interest in property described in subparagraphs (A), (B), (C), and (D) of subsection (p)(1) is reasonably necessary for the support of the debtor and any dependent of the debtor.




[1] The cap was originally set at $125,000 in 2005 and is adjusted every three years.   Most recently, the cap was increased to $155,675 in 2013.    Because of the periodic adjustments, the cases reflect different caps depending on the year when the case was filed.