Supreme Court Says Structured Dismissals Must Follow Priority Scheme

In a blow to creative lawyering, the Supreme Court ruled today that a structured dismissal which allocates value contrary to the priority scheme of the Bankruptcy Code may not be approved.   Czyzewski v. Jevic Holding Corp., No. 15-649 (U.S. 3/22/17).   You can find the opinion here.

District Court Rules that Proceeds of a Texas Homestead Sold Post-Petition Lose Their Protection After Six Months in a Chapter 7 Case

Overruling a bankruptcy court decision, a District Judge in the Western District of Texas has ruled that proceeds from sale of a homestead can be recovered if not timely reinvested in a Chapter 7 case.   The Court ruled that the Frost decision applied equally in both a Chapter 13 and a Chapter 7 setting.   Lowe v. DeBerry, No. 5:15-cv-1135-RCL (W.D. Tex. 3/10/17).    The opinion can be accessed through PACER here.    The opinion raises serious questions about whether an exemption can ever be truly final.

Non-Filing Spouse Suffers Another Texas Homestead Loss

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") capped the amount of a homestead exemption which could be claimed by a debtor that acquired a homestead within 1,215 days prior to bankruptcy.    Currently, the amount of the cap, as set by 11 U.S.C. Sec. 522(p), is $160,375 in equity per debtor.  This cap has resulted in a seismic shift in Texas where the unlimited homestead exemption is part of the State Constitution.   Now debtors' attorneys must learn how to count to 1,215 and calculate the allowable equity before filing a bankruptcy petition. However, what of the case where only one spouse files?   The short answer is that all community property enters the bankruptcy estate and that the cap is based on the one spouse that filed.   This means that the non-filing spouse can be involuntarily divested of her otherwise sacrosanct homestead interest.    The Fifth Circuit has now ruled on three different variations of this scenario and in each case, including the recent decision in Wiggains v. Reed  (Matter of Wiggains), No. 15-11249 (5th Cir. 2/14/17), which can be found here, the non-filing spouse has come up short.

Texas Supreme Court Limits Remedies for Home Equity Loan Violations

By Michael V. Baumer

Law Office of Michael Baumer

Austin, TX

This is a very long post describing some recent case law with respect to home equity litigation in Texas. These events are significant to a consumer bankruptcy practice, but if the subject is of no interest, you may want to skip it.

The Texas Supreme Court issued two opinions on May 20, 2016 regarding issues related to the home equity loan forfeiture provisions of the Texas Constitution. These opinions make significant changes to Texas case law regarding applicability and enforcement of those provisions. The first case was Garofolo v. Ocwen Loan Servicing, L.L.C., 497 S.W.3d 474 (Tex.2016) and the second is Wood v. HSBC Bank USA, N.A., 2016 WL 2993923 (Tex.2016). It is important that the cases are read in sequential order as Wood relies on Garofolo in reaching its conclusion. (All references to the Texas Constitution herein are to Article XVI, section 50(a)(6) and its subsections unless otherwise noted.)