Texas Bankruptcy Laws - Allowable Homestead Liens

The state constitution, in Article 16, Section 50, provides that the homestead of a family, or of a single adult person, is protected from forced sale for the payment of all debts except for:

• purchase money, or a part of purchase money.
• taxes due, according to the broad definition provided by Texas bankruptcy laws.
• an owlet 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, as determined by Texas bankruptcy laws.
• 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.
• 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 an extension of credit that: is secured by a voluntary lien on the homestead created under a written agreement with the consent of each owner and each owner's spouse.
• a reverse mortgage, as this term is defined by Texas bankruptcy laws.
• 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.

Application of Texas Bankruptcy Laws Under the Code:

In practice, creditors may file objections with Texas bankruptcy courts regarding the extent of the exemption, designation, and liens which arise through operation of law. Texas bankruptcy courts are wary of all sales to insiders before and during the pendency of all cases. Also, home improvement loans which draw down equity before filing are scrutinized under both the state fraudulent conveyance statutes and federal fraudulent conversion statutes. A trustee, creditor, party in interest, or the court on it's own motion may file objections.

Because of the unlimited homestead exemption, Texas bankruptcy laws are unique within all states. Be aware however, effective as of October 17, 2005, federal preemption limits the availability of exempt value in Chapter 7 and 13. The effect of preemption is to replace existing Texas statutes with the federal statute which provides less protection for debtors.

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