# What's the SD on Texas Ch 7 Bankruptcy **URL:** \ **Category:** Factual Questions\ **Created:** [March 16, 2004, 3:42pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645 "2004-03-16T15:42:11Z")\ **Posts on this page:** 19\ **Page:** 1
**Author:** ![Madness2MyMethod](https://avatars.discourse-cdn.com/v4/letter/m/4af34b/32.png) [@Madness2MyMethod](https://boards.straightdope.com/u/Madness2MyMethod)\ **Post date:** [March 16, 2004, 3:42pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/1 "2004-03-16T15:42:11Z")
My friend is considering purchasing the most expensive home her and her spouse can afford, along with a nice vehicle, and then filing for chapter 7 bankruptcy after 6 months. According to her, TX’s bankruptcy laws will let her keep her home and vehicle, and discharge the debt owed on the mortgage. Is this true? She said she knows some people that do this every 7 or so years… What’s the straight dope? ---
**Author:** ![Ike\_Witt](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ike_witt/32/283_2.png) [@Ike\_Witt](https://boards.straightdope.com/u/Ike_Witt)\ **Post date:** [March 16, 2004, 3:45pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/2 "2004-03-16T15:45:15Z")
Texas has a homestead law which means that, if you take advantage of it, that you can’t lose you home to creditors if things go bad. It sounds like these people are playing the system and I would guess they are breaking the law. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [March 16, 2004, 4:15pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/3 "2004-03-16T16:15:36Z")
> [@adam yax](#): > > Texas has a homestead law which means that, if you take advantage of it, that you can’t lose you home to creditors if things go bad. It sounds like these people are playing the system and I would guess they are breaking the law. The Texas statute: > [@](#): > > § 41.002. DEFINITION OF HOMESTEAD. (a) If used for the > purposes of an urban home or as both an urban home and a place to > exercise a calling or business, the homestead of a family or a > single, adult person, not otherwise entitled to a homestead, shall > consist of not more than 10 acres of land which may be in one or more > contiguous lots, together with any improvements thereon. > (b) If used for the purposes of a rural home, the homestead > shall consist of: > (1) for a family, not more than 200 acres, which may be > in one or more parcels, with the improvements thereon; or > (2) for a single, adult person, not otherwise entitled > to a homestead, not more than 100 acres, which may be in one or more > parcels, with the improvements thereon. > © A homestead is considered to be urban if, at the time the > designation is made, the property is: > (1) located within the limits of a municipality or its > extraterritorial jurisdiction or a platted subdivision; and > (2) served by police protection, paid or volunteer > fire protection, and at least three of the following services > provided by a municipality or under contract to a municipality: > (A) electric; > (B) natural gas; > © sewer; > (D) storm sewer; and > (E) water. > (d) The definition of a homestead as provided in this > section applies to all homesteads in this state whenever created. is very broad. But they will not be able to keep the property from a mortgage company. Exemptions from execution only apply against general unsecured creditors in a bankruptcy. A party with a security interest keeps the security interest. A mortgage is a security interest. They will have to reaffirm the debt, or the mortgage company can have the automatic stay lifted and begin foreclosure procedings. ---
**Author:** ![Madness2MyMethod](https://avatars.discourse-cdn.com/v4/letter/m/4af34b/32.png) [@Madness2MyMethod](https://boards.straightdope.com/u/Madness2MyMethod)\ **Post date:** [March 16, 2004, 4:16pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/4 "2004-03-16T16:16:03Z")
so that’s the straight dope? She -may- be breaking the law? This can’t be true… ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [March 16, 2004, 4:21pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/5 "2004-03-16T16:21:22Z")
Buying things with the intention of having the debts discharged in bankruptcy is fraud, btw. And if the creditors can prove it, those debts are non-dischargeable. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [March 16, 2004, 4:23pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/6 "2004-03-16T16:23:44Z")
> [@Madness2MyMethod](#): > > so that’s the straight dope? She -may- be breaking the law? This can’t be true… Why not? It is true that some people have done this and gotten away with it, but that does not make it legal. ---
**Author:** ![middleman](https://avatars.discourse-cdn.com/v4/letter/m/e9a140/32.png) [@middleman](https://boards.straightdope.com/u/middleman)\ **Post date:** [March 16, 2004, 4:30pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/7 "2004-03-16T16:30:06Z")
There is a big difference between secured and unsecured debt. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [March 16, 2004, 4:33pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/8 "2004-03-16T16:33:21Z")
> [@watsonwil](#): > > There is a big difference between secured and unsecured debt. The idea behind secured debt is to protect the creditor in case of bankrupcty or default. That is why it is called **secured**. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [March 16, 2004, 4:38pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/9 "2004-03-16T16:38:12Z")
Here is a [FAQ](http://www.texasbankruptcylaw.com/faq.html#3) about bankrutcy in Texas. Enjoy!! ---
**Author:** ![Madness2MyMethod](https://avatars.discourse-cdn.com/v4/letter/m/4af34b/32.png) [@Madness2MyMethod](https://boards.straightdope.com/u/Madness2MyMethod)\ **Post date:** [March 16, 2004, 4:38pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/10 "2004-03-16T16:38:34Z")
> [@Gfactor](#): > > Why not? It is true that some people have done this and gotten away with it, but that does not make it legal. My previous post was referring to adam’s post. I was submitting it before you had replied. I was aware that it was fraud, but it seems to me the law immensely favors the debtor. ---
**Author:** ![Madness2MyMethod](https://avatars.discourse-cdn.com/v4/letter/m/4af34b/32.png) [@Madness2MyMethod](https://boards.straightdope.com/u/Madness2MyMethod)\ **Post date:** [March 16, 2004, 4:43pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/11 "2004-03-16T16:43:47Z")
> [@Madness2MyMethod](#): > > My previous post was referring to adam’s post. I was submitting it before you had replied. I was aware that it was fraud, but it seems to me the law immensely favors the debtor. I retract this statement. I just read up on the homestead act, and it does not protect a debtor from its mortgage lenders. Well then it sounds to me like my friend’s friends are full of BS! ---
**Author:** ![ReverseCowgirl](https://avatars.discourse-cdn.com/v4/letter/r/cc9497/32.png) [@ReverseCowgirl](https://boards.straightdope.com/u/ReverseCowgirl)\ **Post date:** [March 16, 2004, 4:46pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/12 "2004-03-16T16:46:15Z")
> [@Madness2MyMethod](#): > > My previous post was referring to adam’s post. I was submitting it before you had replied. I was aware that it was fraud, but it seems to me the law immensely favors the debtor. The premise of bankruptcy law is a fresh start for an honest debtor. So, yes, honest debtors get a major break. And the presumption is that they are honest. If they get greedy, the landscape changes, though. And there can be severe penalties for bankruptcy fraud. I think you will find the FAQ I posted helpful in dispelling any legal lore that may be circulating. ---
**Author:** ![ReverseCowgirl](https://avatars.discourse-cdn.com/v4/letter/r/cc9497/32.png) [@ReverseCowgirl](https://boards.straightdope.com/u/ReverseCowgirl)\ **Post date:** [March 16, 2004, 4:49pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/13 "2004-03-16T16:49:48Z")
Oops, I forgot to post the [FAQ](http://www.bankruptcyaction.com/questions.htm) ---
**Author:** ![cornflakes](https://avatars.discourse-cdn.com/v4/letter/c/9d8465/32.png) [@cornflakes](https://boards.straightdope.com/u/cornflakes)\ **Post date:** [March 16, 2004, 5:59pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/14 "2004-03-16T17:59:35Z")
Weren’t homestead exemptions capped at $100,000 as part of the federal bankruptcy reform act passed a few years ago? ---
**Author:** ![middleman](https://avatars.discourse-cdn.com/v4/letter/m/e9a140/32.png) [@middleman](https://boards.straightdope.com/u/middleman)\ **Post date:** [March 16, 2004, 6:02pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/15 "2004-03-16T18:02:25Z")
> [@Gfactor](#): > > The idea behind secured debt is to protect the creditor in case of bankrupcty or default. That is why it is called **secured**. Yes. That was my point. The scheme of the OP’s friend is a deadend. > [@](#): > > Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to: > > Eliminate certain rights of “secured” creditors. A “secured” creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt. From the FAQ you cited. ---
**Author:** ![middleman](https://avatars.discourse-cdn.com/v4/letter/m/e9a140/32.png) [@middleman](https://boards.straightdope.com/u/middleman)\ **Post date:** [March 16, 2004, 6:09pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/16 "2004-03-16T18:09:37Z")
> [@Madness2MyMethod](#): > > My friend is considering purchasing the most expensive home her and her spouse can afford, along with a nice vehicle, and then filing for chapter 7 bankruptcy after 6 months. According to her, TX’s bankruptcy laws will let her keep her home and vehicle, and discharge the debt owed on the mortgage. Is this true? She said she knows some people that do this every 7 or so years… What’s the straight dope? I got to thinking about it. Are you SURE that she wanted to discharge the mortgage debt? Perhaps she was intent on discharging everythign ELSE. Another deviation of this would be to, while still having good credit, buy the house and car. Then spend tons on unsecured credit (e.g.- credit cards). Then, file the bankruptcy and continue to pay on the car and house, but default on the unsecured debt. This allows the debtor to have her cake and eat it too. She has the luxuries without having to pay for the accessories (imagine how much furniture and decorations you could buy by maxing out credit.) You can afford to pay a larger house note if you don’t have to worry about paying your previous bills. ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [March 16, 2004, 6:15pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/17 "2004-03-16T18:15:27Z")
> [@cornflakes](#): > > Weren’t homestead exemptions capped at $100,000 as part of the federal bankruptcy reform act passed a few years ago? The act passed both houses, but remains a Bill because it died on Clinton’s desk, and has not been actively pursued since then. The act is one of those things that most bankruptcy practitioners know will eventually become law, but right now it is not. ---
**Author:** ![middleman](https://avatars.discourse-cdn.com/v4/letter/m/e9a140/32.png) [@middleman](https://boards.straightdope.com/u/middleman)\ **Post date:** [March 16, 2004, 6:36pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/18 "2004-03-16T18:36:15Z")
Isn’t 100,000 incredibly low for a homestead exemption cap? Especially in certain regions of the country? ---
**Author:** ![Gfactor](https://avatars.discourse-cdn.com/v4/letter/g/9de053/32.png) [@Gfactor](https://boards.straightdope.com/u/Gfactor)\ **Post date:** [March 16, 2004, 6:47pm UTC](https://boards.straightdope.com/t/whats-the-sd-on-texas-ch-7-bankruptcy/234645/19 "2004-03-16T18:47:34Z")
> [@watsonwil](#): > > Isn’t 100,000 incredibly low for a homestead exemption cap? Especially in certain regions of the country? I think it is. But consider some examples: Ohio $5000 Michigan $3500 (though if the property is owned as entireties property, it is not subject to the debts of a single spouse). Hawaii $30,000 Federal $7500 1. These numbers may have been increased because the book I consulted is ten years old. 2. There are other exemptions that may be used to save a home.