We are pretty spoiled in some respects here in Texas. Texans enjoy an "unlimited" homestead exemption from creditors. While this is basically true (you get to keep from creditors 100 acres with all improvements for single person, 200 acres for couple, with certain limitations if file bankruptcy), the PROCEEDS OF THE SALE of a homestead are only safe from creditors for 6 months. If you have not re-invested the proceeds in another homestead by the end of the 6 months, the money becomes NON-EXEMPT and is subject to seizure.

The 5th Circuit Court of Appeals recently held in a chapter 13 bankruptcy case that since the chapter 13 debtor did not reinvest the proceeds within 6 months, the proceeds must be paid to the chapter 13 trustee. IN RE FROST, 744 F. 3d 384 - Court of Appeals, 5th Circuit 2014

Now in a case involving a chapter 7 case decided by Chief U.S. Bankruptcy Judge Jeff Bohm (S.D. Texas) on August 4, 2014, the Court stated that homestead proceeds can be taken by a chapter 7 trustee if not reinvested in the 6 month post-sale period, even if the bankrupt had already received their discharge of debts. Memorandum Opinion, Cage v. Smith, Adv. No. 14-03115, US BK Court, SD TX.

The Court held that the only way a debtor would be able to use the homestead proceeds for something other than a homestead, would be to wait to sell the homestead until the bankruptcy case was actually CLOSED. Then, the Court reasoned, Section 554(c) of the Bankruptcy Code provides that any property that is not administered in the bankruptcy is abandoned back to the debtor, and the debtor can do what he will with it. Most chapter 7 cases are closed fairly quickly, but some, "asset" cases, can be open for years.

Do you think this decision is fair? Or do you think Texans should be able to sell their home and keep the proceeds from creditors, no matter what the situation? Please leave your comments below!

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
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