Steven Gerald Papermaster

1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
In re:
STEVEN GERALD
PAPERMASTER,
Debtor
§
§
§
§
§
§
Case No. 25-11564-cgb
Chapter 11
MEMORANDUM OPINION ON OBJECTION TO CLAIMED
HOMESTEAD EXEMPTION [ECF No. 36]
Introduction
The Bankruptcy Code limits how much of the value of a homestead a debtor
may claim as exempt if the debtor owes a debt arising from the violation of state or
federal securities laws. The debtor in this case owes debts totaling more than eleven
million dollars arising from violations of state securities laws, as evidenced by a
judgment in state court, to which he consented, that awarded each of two creditors
“judgment on its claims asserted in this cause.” (Each creditor had asserted, among
other related claims, violations of state securities laws.)
Thus, the Bankruptcy Code’s cap applies. The debtor may only exempt
$214,000 of the value of his homestead, rather than the more than eight million
dollars of equity he has sought to exempt.
Dated: March 02, 2026.
__________________________________
CHRISTOPHER G. BRADLEY
UNITED STATES BANKRUPTCY JUDGE
________________________________________________________________
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Background
Debtor, Steven Gerald Papermaster, commenced this voluntary individual
chapter 11 case on October 7, 2025. He elected to claim state exemptions under
11 U.S.C. § 522(b)(3).1 He listed an interest in 96 Pascal Lane on his Schedule A/B
with a value of $12,110,782.00.2 The property is encumbered by a $4,000,000.00
lien held by Frost Bank and an $88,000.00 tax lien held by Travis County.3 His
Schedule C claims a homestead exemption worth the remaining $8,022,782.00 of
equity in the property.4
On November 24, 2025, Creditors Race the Cresting Curl LLC and Leap of
Ruleset LLC (“Race” and “Leap”) timely filed their Objection to Debtor’s Claimed
Homestead Exemption (the “Objection”) [ECF No. 36], arguing that
Mr. Papermaster’s homestead exemption should be capped at $214,000 5 under
11 U.S.C. § 522(q)(1)(B)(i) because he owes them a debt arising from securities
fraud. Mr. Papermaster filed a timely response.6 Race and Leap filed a reply in
further support,7 and Mr. Papermaster filed a brief in opposition.8
The Court held a hearing in this matter on February 4, 2026.
Legal Standards
A debtor’s homestead exemption is capped at $214,000 if “the debtor owes a debt
arising from any violation of the Federal securities laws (as defined in section
3(a)(47) of the Securities Exchange Act of 1934), any State securities laws, or any
regulation or order issued under Federal securities laws or State securities laws.”9
There is a savings clause: the exemption cap does not apply to the extent the
1 ECF No. 13 at 23. Of course, “Texas residents enjoy an unlimited homestead exemption” as to
value. In re Bounds, 491 B.R. 440, 443 (Bankr. W.D. Tex. 2013) (citing Tex. Const. Art. XVI,
§ 50).
2 ECF No. 13 at 7.
3 ECF No. 13 at 36, 38.
4 ECF No. 13 at 23.
5 $214,000 is the inflation-adjusted amount effective as of April 1, 2025, under 11 U.S.C. § 104.
Adjustment of Certain Dollar Amounts Applicable to Bankruptcy Cases, 90 Fed. Reg. 8941, 8941
(Jan. 30, 2025).
6 ECF No. 48.
7 ECF No. 54.
8 ECF No. 66.
9 11 U.S.C. §522(q)(1)(B)(i).
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homestead “is reasonably necessary for the support of the debtor and any dependent
of the debtor.”10
“[T]he objecting party has the burden of proving that an exemption was not
properly claimed.”11 This must be proven by a preponderance of the evidence.12 The
objecting party is also required to show by a preponderance of the evidence that the
savings clause exception is not met.13
Analysis
I. 	Mr. Papermaster owes a debt “arising from” a violation of State
securities laws.
In 2020, Race and Leap sued Mr. Papermaster in state court for violations of the
Texas Securities Act,14 fraud, statutory fraud, and unjust enrichment.15 Each of these
claims emerged essentially from the same conduct. Mr. Papermaster was claimed to
have induced Race and Leap to invest in his company, Nano Global Corp (“Nano”),
based on false information about Nano’s current and future business prospects.
A consent judgment entered in the state court case awards Race “judgment on its
claims asserted in this cause” against Mr. Papermaster and also awards Leap
“judgment on its claims asserted in this cause” against Mr. Papermaster.16 The
amount of the judgment is $5,678,196.99 for Race and $5,924,500.74 for Leap.17
These debts are listed in Mr. Papermaster’s bankruptcy schedules and are not listed
as disputed.18
10 11 U.S.C. § 522(q)(2); 11 U.S.C. § 522(p)(1)(A) and (D).
11 Fed. R. Bankr. P. 4003(c).
12 Bounds, 491 B.R. at 449.
13 Id.
14 The Texas Securities Act has since been recodified into Title 12 of the Texas Government Code,
effective January 1, 2022.
15 The live pleading in the state court case at the time of the consent judgment is filed on the record
at ECF No. 36-2. The relevant portions are pages 13–17. Race and Leap also sued Nano in the
same lawsuit for the same claims and for suit on a promissory note. The claims against Nano were
resolved in a separate consent judgment.
16 ECF No. 36-3 at 2.
17 Id.
18 ECF No. 13 at 1.
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Mr. Papermaster argues that because the consent judgment lacks “specific,
subordinate findings,” it cannot have a preclusive effect in this Court.19 Instead, he
wants this Court to hold its own evidentiary hearing to try the issue of whether the
debts he owes to Race and Leap in fact arise from securities violations.
But a consent judgment is a valid judgment under Texas law and has the same
effect as any other judgment.20 And the judgment entered in Texas court clearly
establishes that the debts owed by Mr. Papermaster to Race and to Leap do in fact
arise from violations of securities laws. Under Texas law, “[a]n agreed judgment is
to be construed in the nature of a contract.”21 If an agreed judgment is unambiguous,
the Court cannot consider testimony to explain its meaning.22 “[W]hether a written
agreement is ambiguous is a question of law which must be decided by examining
the contract as a whole in light of the circumstances at the time the contract was
formed.”23 “[F]or an ambiguity to exist, the interpretation asserted by each party
must be reasonable.”24
19 Debtor’s Resp., ECF No. 48 at 2–5.
20 E.g., Gulf Ins. Co. v. Burns Motors, Inc., 22 S.W.3d 417, 422 (Tex. 2000) (“An agreed judgment
has the same effect as any court judgment.”). For the avoidance of doubt, a consent judgment and
agreed judgment are the same thing. See Judgment, Black’s Law Dictionary (12th ed. 2024)
(specifying that a consent judgment is “also termed agreed judgment” (emphasis in original)).
Numerous Fifth Circuit and Texas cases demonstrate the well-established principle that “[a]n
agreed judgment is entitled to full res judicata effect.” U.S. v. Shanbaum, 10 F.3d 305, 313–14 (5th
Cir. 1994) (citing U.S. v. Int’l Bldg. Co., 345 U.S. 502, 505–06 (1953); Jones v. Texas Tech Univ.,
656 F.2d 1137, 1144 (5th Cir. 1981); and Kaspar Wire Works, Inc. v. Leco Eng’g & Mach. Inc.,
575 F.2d 530, 538–39 (5th Cir. 1978)); see also Smith v. Hutson, 251 S.W.3d 808, 825 (Tex.
App.—Fort Worth 2008, pet. denied) (noting that under Texas law, agreed judgments can support
application of both res judicata and collateral estoppel doctrines, and citing St. Raphael Med. Clinic,
Inc. v. Mint Med. Physician Staffing, LP, 244 S.W.3d 436, 440 (Tex. App.—Houston [1st Dist.]
2007, no pet.); and Jistel v. Tiffany Trail Owners Ass’n, 215 S.W.3d 474, 480 (Tex. App.—
Eastland 2006, no pet.)).
21 Argonaut Ins. Co. v. Allstate Ins. Co., 869 S.W.2d 537, 540 (Tex. App.—Corpus Christi–
Edinburg 1993, writ denied) (citing Barrientes v. Bd. of Trs., Harlandale Indep. School Dist.,
764 S.W.2d 28, 29 (Tex. App.—San Antonio 1989, writ denied)).
22 See Gulf Ins. Co., 22 S.W.3d at 422.
23 Floyd v. Fischer (In re Pearson), 394 B.R. 133, 141 (Bankr. S.D. Tex. 2008) (first citing
Temple-Inland Forest Prods. Corp. v. United States, 988 F.2d 1418, 1421 (5th Cir. 1993), and
then citing Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex.
1996)).
24 In re El Paso Refinery, L.P., 244 B.R. 613, 622 (Bankr. W.D. Tex. 2000) (citing Columbia Gas,
940 S.W.2d at 589)).
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The state court judgment against Mr. Papermaster is unambiguous. It specifically
awards judgment to Race and Leap on their “claims asserted in this cause against
Defendant Steven G. Papermaster.” It does not leave any room for doubt that
judgment was entered for Race and Leap and against Mr. Papermaster on each claim
that each plaintiff asserted against him in the lawsuit, including each claim for
violations of the Texas Securities Act.25 Because a claim for violations of the Texas
Securities Act is a violation of “State securities laws,”26 Mr. Papermaster necessarily
owes a debt arising from a violation of state securities laws.
Mr. Papermaster contends that the agreed judgment was intended only as a
“pocket judgment”27 designed to give effect to his guarantee of certain debts owed
by Mr. Papermaster’s company Nano (which defaulted on payment of those debts).28
According to Mr. Papermaster, his understanding at the time the judgment was
entered was that it was not intended to admit liability for the substance of any of the
claims.29
The Court finds the story told by Mr. Papermaster unconvincing. Mr.
Papermaster’s testimony was generally not credible, and the Court gives little to no
weight to his general characterizations of his or any other parties’ intentions with
respect to the judgment. While it is conceivable that Mr. Papermaster might,
subjectively speaking, have misunderstood the legal effect of the agreed judgment,
25 See Hardwick v. Anderson as Co-Trs. of Allan G. Anderson Revocable Living Tr., 658 B.R. 123,
132–33 (E.D. Tex. 2024) (analyzing a state court petition to determine the meaning of a final
agreed judgment). For a discussion of distinctions between Hardwick and the present case, see the
last few paragraphs of this section of this opinion.
26 See Bounds, 491 B.R. at 449–50 (finding that violations of the Texas Securities Act are securities
violations under state security law and satisfy § 522(q)(1)(B)(i)).
27 See James K. McClendon, Kris R. Kwolek & Jesse B. Butler, Drafting Settlement Agreements,
The Advocate (Texas), Fall 2007, at 28, 28 (describing a “pocket judgment” as “an agreed
judgment for the full amount of [a plaintiff’s] claim” to be kept “in [a plaintiff’s] pocket” unless a
defendant defaults on settlement payments).
28 See Debtor’s Br. in Opp’n, ECF No. 66 at 8–9. Mr. Papermaster makes much of the fact that the
amounts in the agreed judgment coincide with those in the guarantee, but even if that agreement
is where the precise numbers came from, the amounts also correspond roughly to the alleged losses
that were at issue in the securities action. See generally ECF No. 36-2. In any case, the text of the
judgment is what this Court will give force to, in light of Texas law and the Bankruptcy Code.
29 Mr. Papermaster asserted the attorney-client privilege with regard to communications with his
state court attorney about the agreed judgment, but he acknowledged that he was advised by
counsel in making the agreement.
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the Court doubts it. First, Mr. Papermaster is experienced in these matters. He
testified to a long history of advising state and federal government officials on
economic policy matters and his involvement in many business deals. The Court is
skeptical that he agreed to this judgment so carelessly. Second, Mr. Papermaster was
represented in the state court lawsuit by competent and experienced counsel who is
presumed to have considered and advised him on the implications of the judgment.
Mr. Papermaster’s efforts to resist the plain implications of the judgment to which
he, after obtaining legal advice from experienced counsel, agreed, cannot succeed.30
Even were the Court allowed to consider his alleged contrary intentions in
interpreting this unambiguous agreed judgment,31 it would find them unconvincing.
In reality, the facts and circumstances of the agreement support the Court’s view
that the parties’ intentions at the time accord with the text of the judgment they all
agreed to, which expressly awards victory to each plaintiff on “its claims asserted in
this cause” against Mr. Papermaster. If the intention at the time had been to obtain
some other result, that could easily have been accomplished. Negotiating a pocket
judgment as part of a settlement and/or a guarantee obligation is utterly routine, and
such a judgment could easily have been obtained and given force without giving
each plaintiff “judgment on its claims asserted in this cause” against Mr.
Papermaster. If the goal is to memorialize and give force to a monetary obligation
30 Indeed, for the consent judgment to be valid under Texas law, Mr. Papermaster must have
consented “at the time it [was] rendered.” Padilla v. LaFrance, 907 S.W.2d 454, 461 (Tex. 1995).
There was no indication that Mr. Papermaster withdrew consent prior to the judgment’s entry. See
Welkener v. Welkener, 71 S.W.3d 364, 367 (Tex. App.—Corpus Christi-Edinburg 2001, no pet.)
(“A party may revoke his consent to settle a case any time before judgment is rendered. However,
‘[a] judgment is in fact rendered whenever the trial judge officially announces his decision in open
court . . . in his official capacity for his official guidance whether orally or by written
memorandum the sentence of law pronounced by him in any cause.’” (alteration in original)
(citation omitted) (quoting Samples Exterminators v. Samples, 640 S.W.2d 873, 874–75 (Tex.
1982))). As noted, the debt is also listed in Mr. Papermaster’s schedules as undisputed. And in any
case, the judgment is now long final, and this Court does not have the jurisdiction to review a final
state court judgment. See, e.g., In re Nazu, Inc., 350 B.R. 304, 313–14 (Bankr. S.D. Tex. 2006)
(explaining the Rooker-Feldman doctrine).
31 See also URI, Inc. v. Kleberg County, 543 S.W.3d 755, 757 (Tex. 2018) (“[S]urrounding facts
and circumstances cannot be employed to ‘make the language say what it unambiguously does not
say’ or ‘to show that the parties probably meant, or could have meant, something other than what
their agreement stated.’” (footnotes omitted) (first quoting First Bank v. Brumitt, 519 S.W.3d 95,
110 (Tex.2017), and then quoting Anglo-Dutch Petrol. Int’l, Inc. v. Greenberg Peden, P.C.,
352 S.W.3d 445, 451 (Tex. 2011))).
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or settlement without any concession of liability on a claim, parties regularly enter
into enforceable settlement agreements (often with pocket judgments appended
thereto), and then simply stipulate to the dismissal of a case, or even a dismissal
conditioned on payment of a given amount—again, all without a blanket grant of
“judgment on its claims asserted in this cause.” There are also cases in which an
agreed judgment expressly states that it should not be construed as an admission of
particular claims or issues. 32 But any such limiting language is conspicuously
missing here.
Ultimately, the plain language of the agreed judgment governs. The agreed
judgment explicitly awards judgment against Mr. Papermaster on each claim
including the securities fraud claim. For this Court to refuse to give due legal effect
to that judgment would be to disrespect the Texas laws and courts under which that
judgment was entered.
The analysis above focuses most of all on the statutory text of the Bankruptcy
Code and its interaction with Texas law and the state court judgment at issue here.
But the Court has also spent considerable time with the cases cited by the parties as
well as many additional cases. There is a significant body of law on the issue of the
effect of similar agreed judgments, mostly in the context of nondischargeability
actions under § 523(a)(19).33 The body of case law on § 523(a)(19) is helpful in
some ways, and it provides general support for the Court’s holding here. However,
the Court cannot rely on § 523(a)(19) case law blindly without taking account of the
statutory differences from § 522(q)(b)(1).
Both § 522(q) and § 523(a)(19) were enacted to ensure that securities fraudsters
do not reap undue benefits at the expense of their victims and other creditors.34 At
32 E.g. State v. Nicholas Mach. Co., Inc., No. 317,110, 1981 WL 11453, at *2 (Tex. Dist. Jan. 30,
1981) (reviewing state court agreed judgment that specifically stated “[t]his Agreed Judgment shall
not be construed as an admission by any defendant with respect to any issue of law or fact”).
33 Indeed, that issue may soon be litigated before this Court, because there is a pending adversary
proceeding, also by Race and Leap, seeking to find Mr. Papermaster’s debts to them
nondischargeable. See generally Pls.’ Compl., Race the Cresting Curl, LLC et al. v. Papermaster,
No. 25-01067-cgb, ECF No. 1.
34 See In re Presto, 376 B.R. 554, 592 (Bankr. S.D. Tex. 2007) (“The addition of § 523(a)(19) was
designed to close a ‘loophole’ which allowed debtors convicted of securities fraud or other
securities violations to discharge the debt owed to their victims.” (citing Smith v. Gibbons (In re
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the same time, the way each provision accomplishes this goal is distinct; each could
be characterized as in some ways broader and in some ways narrower than the other;
careful attention must be paid to the application of each provision in given factual
circumstances. The distinctions between § 523(a)(19) and § 522(q)(1)(B) are
important because they guide the extent to which the § 523(a)(19) case law can used
in § 522(q) analyses, and vice versa. The parties’ briefing and arguments do not
appear to reflect a thorough appreciation of the distinctions, which is understandable
because they have not been particularly elaborated in the existing case law. The
Court accordingly provides some guidance here as to its understandings of those
distinctions and how they bear on this case.
First, because § 523(a)(19)(B) contains a list of what a relevant debt can result
from—including a judgment, consent order, or settlement agreement—numerous
courts have indicated that liquidation of the debt outside of bankruptcy court is
required, unlike most other nondischargeable debts, which can be liquidated in the
bankruptcy court itself.35 This is not relevant in § 522(q), which simply requires that
there be a debt of the given type and not that it be liquidated. And here, in any case,
the debt is already liquidated in the state court judgment.
Second, again because of how § 523(a)(19)(B) closely ties
nondischargeability to a result in another forum, courts have held that no state law
preclusion analysis is needed—such analysis has effectively been superseded by
statute.36 Stated otherwise, while a bankruptcy court, when confronted with a Texas
state court judgment (including a consent judgment), would typically have to
Gibbons), 289 B.R. 588, 592 (Bankr. S.D.N.Y. 2003))); Bounds, 491 B.R. at 444 (discussing
purpose of § 522(q)).
35 E.g., Wright v. Minardi (In re Minardi), 536 B.R. 171, 192 (Bankr. E.D. Tex. 2015) (“The proper
interpretation of § 523(a)(19), even as amended, requires that a tribunal other than the bankruptcy
court determine the liability aspect–e.g., whether a federal or state securities violation or some type
of related fraud has occurred.” (first citing McGraw v. Collier (In re Collier), 497 B.R. 877, 902–
03 (Bankr. E.D. Ark. 2013), and then citing Terek v. Bundy (In re Bundy), 468 B.R. 916 (Bankr.
E.D. Wash. 2012))). See also Voss v. Pudjak (In re Pudjak), 462 B.R. 560, 575 (Bankr. D.S.C.
2011) (“Section 523(a)(19) parallels other nondischargeability provisions that require a
determination outside the bankruptcy court as a condition precedent for finding the debt
dischargeable.”). For a general discussion of the bankruptcy court’s jurisdiction to liquidate
nondischargeable debts, see Morrison v. W. Builders of Amarillo, Inc. (In re Morrison), 555 F.3d
473, 479–80 (5th Cir. 2009).
36 See, e.g., Minardi, 536 B.R. at 192–93.
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conduct a Texas law preclusion analysis in order to find that it establishes a
nondischargeable debt,37 not so under § 523(a)(19)(B): under that provision, the
court has no need to conduct a preclusion analysis as long as the debt “results from”
one of the listed sources, including a consent judgment or even a mere settlement
agreement. By contrast, § 522(q) lacks this explicit reference to a debt “result[ing]
from” a record in some other proceeding or agreement, so there is a good argument
that courts proceeding with analysis under § 522(q) must conduct a preclusion
analysis under state law. This potential distinction is not important here because the
judgment against Mr. Papermaster passes the preclusion test—as explained above,
the Court has interpreted it, and granted it the appropriate deference, pursuant to
Texas law and in accordance with the Bankruptcy Code.
Third, § 522(q)(1)(B) has a somewhat different ambit in terms of “predicate
offenses” (so to speak) that trigger its application. For instance, while
§ 523(a)(19)(A)(ii) applies when a debt is for “common law fraud, deceit, or
manipulation in connection with the purchase or sale of any security,” the scope of
“fraud, deceit, or manipulation” that triggers § 522(q)(1)(B)(ii) is limited to that
undertaken “in a fiduciary capacity or in connection with the purchase or sale of any
security registered under section 12 or 15(d) of the Securities Exchange Act of 1934
or under section 6 of the Securities Act of 1933.”
The potential impact of this distinction can be illustrated in this case, although
it ultimately does not affect the outcome. Race and Leap have argued that, like in
Hardwick—a § 523(a)(19) case—every individual claim asserted against Mr.
Papermaster in the state court lawsuit would subject him to the effects of § 522(q).38
37 E.g., Hong Bich Chau v. Gilbert (In re Van Dang), 560 B.R. 287, 291 (Bankr. S.D. Tex. 2016)
(“Issue preclusion, or collateral estoppel, applies to nondischargeability findings under § 523(a).
A bankruptcy court looks to the preclusion rules in the state where the judgment was rendered.”
(citations omitted) (first citing Grogan v. Garner, 498 U.S. 279, 285 (1991), and then citing Plunk
v. Yaquinto (In re Plunk), 481 F.3d 302, 307 (5th Cir. 2007))).
38 In contrast to the judgment here, in Hardwick, the court found that the judgment was ambiguous
because it did not specify on which grounds it was in favor of the plaintiff. Hardwick, 658 B.R. at
131–32. Therefore, the court had to review the live pleading in the case and determine that all
claims asserted in the lawsuit were within the scope of 11 U.S.C. § 523(a)(19)(A) (to confirm that
regardless of which claim was in favor of the plaintiff, any one of them would independently satisfy
the statute). Id. at 132–33. However, here, as discussed above, the unambiguous agreed judgment
clearly awards judgment on each plaintiff’s “claims asserted in this cause” (which of course,
includes the Texas Securities Act claims) against Mr. Papermaster.
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This is incorrect. For instance, whereas the fraud claims asserted against Mr.
Papermaster would appear to satisfy the § 523(a)(19)(A)(ii) test, they do not satisfy
§ 522(q)(1)(B)(ii) because they are not “in connection with the purchase or sale of
any security registered under section 12 or 15(d) of the Securities Exchange Act of
1934 or under section 6 of the Securities Act of 1933.” 39 Still, this statutory
distinction does not change the outcome here. As explained in more detail above,
the agreed judgment establishes a debt based on Texas Securities Act violations,
which is sufficient to trigger application of § 522(q)(1)(B)(i), even if some of the
other claims asserted against him and decided in the agreed judgment might not have
triggered § 522(q).
In sum, Race and Leap successfully met their burden and proved by a
preponderance of the evidence that Mr. Papermaster owes a debt arising from a
violation of state securities laws. Under § 522(q)(1)(B)(i), then, his homestead
exemption is limited to the statutory cap of $214,000.
II. 	Mr. Papermaster has equity in his home above the statutory
exemption cap of $214,000.
Under § 522(q), the Court must next determine whether Mr. Papermaster’s equity
in his home exceeds the statutory exemption cap. 40 This is undisputed. Mr.
Papermaster’s schedule A/B lists the value of his home as $12,110,782.00.41 Even
after subtracting the known liens on the home, Mr. Papermaster’s equity is
$8,022,782.00, well above the statutory cap of $214,000.42 Mr. Papermaster claimed
this amount as exempt in his Schedule C and also admitted the amount in his
response to the Objection.43
39 The convertible promissory notes state that the securities are not registered “under the United
States Securities Act of 1933 or under any securities laws of any State of the United States,” ECF
No. 36-2 at 24, 33, and there was no evidence presented that the securities were registered under
the 1934 Act.
40 See Bounds, 491 B.R. at 446.
41 ECF No. 13 at 7.
42 See ECF No. 13 at 23, 36, 38; 11 U.S.C. § 522(q)(1)(B)(i); 11 U.S.C. § 104.
43 ECF No. 13 at 23, 36, 38; ECF No. 48 at 3.
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III. Mr. Papermaster’s homestead is not reasonably necessary for his
support or that of his dependent.
Race and Leap, as the movants, have the burden of proving by a preponderance
of the evidence that Mr. Papermaster’s homestead is not reasonably necessary for
his support or that of his dependent, his non-filing wife.44 (Mr. Papermaster lists no
dependents on his schedules. However, for the purposes of the § 522 analysis, his
non-filing wife counts as a dependent. 45 ) The evidence establishes that this
homestead is not reasonably necessary, and therefore Mr. Papermaster is not entitled
to exempt any amount above $214,000.
Determining the extent to which the savings clause should apply is at the
discretion of the court; we are to “ensur[e] that the proverbial shield cannot be used
as a sword.”46 The court should consider “other income and exempt property of the
debtor, present and anticipated, and that the appropriate amount to be satisfied for
the debtor ought to be sufficient to sustain basic needs, not related to his former
status in society or the lifestyle to which he is accustomed, but taking into account
the special needs of the debtor.”47 Other relevant factors include “the debtor’s age,
health, future earnings capacity, and necessary expenditures.”48
44 See Bounds, 491 B.R. at 449 (requiring the movants “to prove by a preponderance of the
evidence that the Debtor’s claim of homestead is not valid . . . includ[ing] the burden of showing
that the savings clause exception is not met” (citing In re Abbott, 466 B.R. 118, 134 (Bankr. S.D.
Ohio 2012))). It is unclear if Mr. Papermaster even intends to argue that his homestead is
reasonably necessary for his support, but because the burden of proof is on the movants, the Court
will consider this issue regardless.
45 See 11 U.S.C. § 522(a)(1) (“In this section “dependent” includes spouse, whether or not actually
dependent . . . .”).
46 See In re Carmichael, 100 F.3d 375, 380 (5th Cir. 1996) (interpreting the phrase “to the extent
reasonably necessary for the support of the debtor and any dependent of the debtor” in
§ 522(d)(10)(E)); Presto, 376 B.R at 598 (applying the Carmichael analysis to the same phrase in
§ 522(q)(2)).
47 Presto, 376 B.R. at 598 (quoting In re Grant, 40 B.R. 612, 613–14 (Bankr. N.D. Tex. 1984)).
48 Bounds, 491 B.R. at 453 (citing Presto, 376 B.R. at 598). Factors that other courts have
considered include “(1) the debtor’s present and anticipated living expenses, (2) the health of the
debtor and his/her dependents, (3) debtor’s job skills and education, (4) debtor’s other assets, (5)
debtor’s ability to save for retirement, (6) the special needs of the debtor and his or her dependents,
and (7) debtor’s continuing financial obligations such as alimony or child support.” Bounds,
491 B.R. at 452 (citing In re Jackson, 376 B.R. 75, 80 (Bankr. D. Conn. 2007), aff’d, Jackson v.
Novak, 593 F.3d 171 (2nd Cir. 2010)). Jackson is a case about § 522(d)(11)(E), which has the
same language as (d)(10)(E).
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Mr. Papermaster and his non-filing wife are both listed as unemployed, but all
household expenses—more than seventeen thousand dollars per month, according
to his own court filings—are paid by an Abu Dhabi entity pursuant to some sort of
an arrangement that was not explained satisfactorily on the record.49 In addition, Mr.
Papermaster appeared at the hearing to be able-bodied and mentally capable—in
other words, perfectly able to get a job if he needed to supplement his sizeable Abu
Dhabi-derived income. At the hearing, Mr. Papermaster testified that he was unable
to work any job pursuant to some sort of an agreement entered into by his former
receiver. Mr. Papermaster did not produce the agreement or any other evidence about
its contents, and his testimony on this point was vague and unconvincing. Mr.
Papermaster’s testimony was not credible. There was no testimony as to his wife
needing any special support, and the evidence at the hearing supports the conclusion
that she also could be employed if she chose.50
Currently, it appears that Mr. Papermaster’s property—which would perhaps
better be described as a “mansion” or an “estate”—is large enough to house many
others in addition to him and his wife. His wife’s parents have apparently lived at
the property for many years. Mr. Papermaster’s children are all adults; nonetheless,
one of Mr. Papermaster’s adult sons, his wife, and their child currently live in the
home. 51 Again, not one of these guests was identified as a dependent in his
bankruptcy schedules (nor do those schedules reflect any rental income).52 On cross-
49 ECF No. 13 at 62 (“Debtor’s household living expenses are paid by NG-Arm Holdings, LLC
whose address is Masdar City, Presidential Flight, Khalifa City, KLGQ Building, Abu Dhabi,
United Arab Emirates 02340.”).
50 Mr. Papermaster testified that he did not know if the agreement prevented his wife from getting
a job, but he also testified that she is not a party to the agreement. Any suggestion that it bars her
from obtaining any gainful employment is even more unconvincing than Mr. Papermaster’s
statements about his own ability to earn money in light of supposed contractual restrictions.
51 Mr. Papermaster initially stated on direct examination that his adult son and his family live at
the property part-time. However, on cross-examination he stated that no one other than himself,
his wife, and his wife’s parents list the property as their permanent residence; but he then also
indicated that the home is his adult son’s permanent residence. He also said he did not know if the
property was his in-laws’ permanent residence, despite testifying that they lived at the property
since 1994. In any case, the overall impression of the testimony is that this is no hardship
arrangement: It appears rather to be a choice to live in a spacious and comfortable environment as
desire, rather than necessity, dictates.
52 Mr. Papermaster did not argue that the homestead was necessary for the support of his extended
family members. However, if he did, this argument would fail based on his own inconsistent
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examination, Mr. Papermaster was unable to recall how many rooms the home has.
Mr. Papermaster also did not give a clear answer as to whether there are multiple
structures on the property, but the Travis Central Appraisal District Property
Summary Report, admitted as Movant’s Exhibit 4, appears to contemplate a three-
story structure built in 1993 and a two-story structure built in 1997.53 As the more-
than-$8-million valuation of the land alone in that report demonstrates, the property
lies in an extremely desirable and wealthy part of this region.54
In any case, all of these exact details are immaterial; the overall picture is crystal
clear. Mr. Papermaster is plainly able to “sustain basic needs” (and then some)
without his full homestead exemption.55 There is no reason Mr. Papermaster could
not downsize to a more affordable home in a more modest neighborhood, especially
with the benefit of the $214,000 that the Bankruptcy Code still allows him.56 He
receives a very large (albeit unexplained) income and did not provide any convincing
evidence that he could not earn money if needed.
Race and Leap easily met their burden and proved that the exemption is not
reasonably necessary for Mr. Papermaster’s support or that of his non-filing wife.
The Court finds that no additional amount above the statutory $214,000 is exempt.
IV. Conclusion
Texas has a historically strong homestead exemption. 57 However, Congress
preempted this exemption with the § 522(q)(1)(B)(i) exception for situations just
like Mr. Papermaster’s: so that a debtor may not continue to live in a lavish home
while those he defrauded are left without recompense.58
testimony and because it is certainly not “reasonably necessary” for three couples and a child to
live in a multi-structure property totaling more than fourteen thousand square feet (and with more
bedrooms than Mr. Papermaster can ostensibly remember).
53 ECF No. 63-4 at 3–4.
54 See id. at 2 (valuing the land alone at $8,135,478, compared to the improvement homesite value
of $3,530,136).
55 See Presto, 376 B.R. at 598 (quoting In re Grant, 40 B.R. 612, 613–14 (Bankr. N.D. Tex. 1984)).
56 See Bounds, 491 B.R. at 453–54.
57 See id. at 443–44.
58 See Presto, 376 B.R. at 592; see also In re Oliver, 649 B.R. 206, 210 (Bankr. E.D. Cal. 2023)
(explaining that § 522(q) “is designed to close the ‘mansion loophole’ for persons who commit
specified forms of misconduct”).
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THEREFORE, IT IS SO ORDERED that Objection to Debtor’s Homestead
Exemption [ECF No. 36] is GRANTED. Pursuant to 11 U.S.C. § 522(q)(1)(B)(i),
Debtor’s homestead exemption in 96 Pascal Lane, Austin, Texas, 78746 is thereby
capped at $214,000.
IT IS FURTHER ORDERED that no amount above the statutory $214,000 shall
be considered exempt.
# # #
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