Avoidance of Lien on Exempt Property

In re Huth, Chapter 7 case no. 15-10161-hcm (June 10, 2022)

Issues: Debtor filed a motion to avoid judicial lien against homestead property. Creditor had a “purchase money equitable lien” on the property by judgment of the state court and recorded an abstract of judgment based on the judgment.  Issues addressed by the Court included whether the equitable lien in the judgment and the abstract of judgment lien were avoidable as a “judicial lien” under the Bankruptcy Code, and whether the equitable lien and abstract of judgment lien were unenforceable as a “judgment lien” under the Texas Property Code given the debtor’s bankruptcy discharge.  

Holdings: The Court analyzed the meaning of a “judicial lien” that may be avoided on exempt property under §  522(f)(1) of the Bankruptcy Code and the meaning of “judgment lien” under the Texas Property Code. The Court held that the equitable lien in the judgment was not an avoidable “judicial lien” under §  522(f)(1) of the Bankruptcy Code and was not an unenforceable “judgment lien” under § 54.042 of the Texas Property Code. On the other hand, the Court held that the abstract of judgment lien was an avoidable “judicial lien” under the Bankruptcy Code and was an unenforceable “judgment lien” under the Texas Property C

Texas Rural Homestead Exemption

In re Pool, Chapter 7 case no. 18-11052-hcm (March 5, 2019)

Issues: Creditor filed an objection to a rural homestead exemption claimed by the Debtors.  The Debtors owned two separate (non-contiguous) rural properties.  The Debtors’ residence (“Residence”) was located on one property.  The Debtors actively operated their body shop business (“Body Shop”) on the other property.  The income generated from the Body Shop was used by the Debtors to support their family and Residence.  The issues addressed by the Court included whether a rural homestead under Texas law can include separate (non-contiguous) property where a debtor actively operates a business to support a debtor’s family.

Holdings: The Court analyzed Texas rural homestead laws, including Texas Property Code § 42.001(b), Texas Constitution art. XVI § 51, Fifth Circuit precedent, and Texas case law.  The Court held that a rural homestead under Texas law can include separate (non-contiguous) property where a debtor actively operates a business to support a debtor’s family and that has a nexus to the residence. As a result, the Court denied the creditor’s objection to the exemption, and determined that the Body Shop and the Residence owned by the Debtors were both exempt as a rural homestead.ode.