Judgment Liens

In re Bading is a Western District of Texas case where the debtor owned two adjoining tracts of land, one of which contained the debtor’s homestead.  A creditor held a valid judgment lien on both tracts of land.  The debtor wanted to sell both tracts, but the sale was prohibited under the lien agreement, as the creditor had released the lien on the tract where the debtor’s homestead stood but refused to release the lien on the second tract. The debtor sold the tract on which the homestead was located and then filed Chapter 13 bankruptcy.

Under the Texas Property Code, a debtor has six months to reinvest the proceeds from the sale of a homestead into a new homestead in order to take advance of the exemption.  The creditor argued that the six month period began when the first tract was sold. The debtor argued, and the court agreed, that the six month period would only begin when the second tract was sold because the homestead consisted of both tracts.

The creditor’s lien to the second tract of land was then voided in bankruptcy, and the debtor was granted a motion to toll the six month period.  The court said the debtor had been precluded from completely disposing of her homestead because the creditor refused to release both tracts.