Bankruptcy is defined as a legal proceeding wherein an individual who cannot pay his debts and bills to creditors can get a financial start. When a person files for bankruptcy, this immediately stops all creditors from collecting payments from such person who filed for bankruptcy. Bankruptcy also stops foreclosure of the person’s house and prevents repossession of cars and other properties or forces the creditor to return the repossessed property. The homestead exemption is the most important aspect of homestead law as it protects an individual from its creditors.
Part of this process is the exemption of Texas Homesteads in bankruptcy proceedings. In Texas, a homestead is considered as a place of residence for a family or a single person, secure from forced sale by general creditors. Under the Texas Constitution, each person or spouse has a possessory right in the homestead and this may not be compromised by waiver or voluntary act of the homesteader. Such right may only be lost through death or abandonment of the homestead owner.Moreover, the homestead may not be mortgaged unless the mortgage is among the seven purposes provided in Section 50 of Article XVI of the Constitution. Originally, the many Americans who settled in Texas in the early 19th century were pursued by creditors and as part of their protection, Stephen F.
Austin recommended a moratorium on the collection of the colonist’s debts. The legislature in turn enacted Decree No. 70 of 1829 which exempts from creditors’ claims those lands which were received from the sovereign as well as certain movable property.Even if the Decree was later repealed this paved the way for the Texas Act of 1839 which protected the family and home from seizure by the creditor.
A homestead may either be urban or rural property. Urban homesteads may be a home or a place of business or both so long as the total of residential and urban business would not exceed one acre while rural homesteads are limited to 200 acres for each family and 100 acres for a single person. However, the Texas Homestead Exemption has been attacked for being used by individuals fleeing from financial difficulty.The exemption has allegedly been abused especially by the affluent and those who immediately declare Chapter 7 bankruptcy. However, instead of protecting individuals who have lost everything but their homes, the Texas Homestead Exemption has afforded wealthy individuals to continue with their affluent homes and lifestyles despite the huge unpaid debts on their creditors because the exemption does not specify the amount or value of the homestead that must be kept but only the size of such.
Thus, individuals like Bowie Kuhn and Burt Reynolds were able to keep their wealthy and affluent homes even if they owed hundreds of thousands of unpaid debts to their creditors. There must be some changes made on the Texas Homestead Exemption as such exemption unduly prejudice innocent creditors who remain unpaid while the debtors get to retain their wealthy homes even if their debts do not equal to the value of the homesteads being exempted.The Congress General Accounting Office was able to cite an example of a Texas lawyer who was living in a $386,000 home, with $1. 5 million in debts. Under Texas law, creditors were unable to claim any of the value of his home, in which he had $146,000 of equity. Any amendments to the Texas Homestead Exemption might raise a number of issues but such changes would undoubtedly be beneficial since a number of individuals have repeatedly used this exemption to escape their creditors while being able to maintain a wealthy and affluent lifestyle.Referencehttp://library.findlaw.com/1999/Oct/1/126857.html
