A Bankruptcy Court Has Limited Texas Homestead Law To Avoid the 'Mansion Loophole'

A Bankruptcy Court Has Limited Texas Homestead Law To Avoid the 'Mansion Loophole'

by Onyinyechi Muilenburg

Recent case of interest about a bankruptcy court limiting Texas Homestead Law to avoid the “mansion loophole”.

In a new decision that could greatly impact Texas Homestead Law, the Fifth Circuit Court of Appeals has held that in certain situations, a bankruptcy court could order a sale of a bankruptcy debtor’s residence despite the apparent homestead rights of a non-debtor spouse. See In re Kim, 748 F.3d 647, 2014 WL 1385109 (5th Cir. Apr. 2014). When the Bankruptcy Code was changed in 2005, it tried to restrict the “mansion loophole” that some debtors have used to try to live in a large expensive house while still trying to declare bankruptcy. The court held that 2005 Amendments did place a dollar cap on the homestead interest of a non-bankruptcy spouse and could allow a forced sale in certain situations.

No information in this article is intended to constitute legal advice. For specific legal advice, please contact an attorney.

If you have any questions or would like more information about Texas Homestead Law, please contact William “Pat” Huttenbach at 713.220.9184 or phuttenbach@hirschwest.com.