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UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

IN RE: 

WILLIAM RALPH CANADA, JR., 

 DEBTOR. 

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CHAPTER 7 

Case No. 23-30568-MVL-7 

ORDER REGARDING TRUSTEE’S OBJECTION

TO DEBTOR’S CLAIMED EXEMPTIONS 

CAME ON BEFORE THE COURT the Trustee’s Objection to Debtor’s Exemptions (the 

“Objection”) [ECF No. 32] filed by the Chapter 7 Trustee, Daniel J. Sherman (the “Trustee”) on 

August 14, 2023. The Trustee seeks an order disallowing two of Debtor William Ralph Canada, 

Jr.’s (the “Debtor”) claimed exemptions. At a hearing on October 2, 2023, the Court heard oral 

argument and sworn testimony before taking the matter under advisement. The following shall 

constitute the Court’s ruling.1

1 The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. 

§ 157(b).

United States Bankruptcy Judge

______________________________________________________________________

Signed December 5, 2023

The following constitutes the ruling of the court and has the force and effect therein described.

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I. BACKGROUND FACTS AND PROCEDURAL HISTORY. 

The Debtor filed a voluntary petition commencing this Chapter 7 bankruptcy case on 

March 27, 2023. See ECF No. 1. On April 7, 2023, the Debtor filed official form 106, containing 

Schedules A/B through J, which describe the Debtor’s assets and liabilities in detail. See ECF No. 

15. On Schedule C, the Debtor listed certain property which he claimed as exempt under the Texas 

Constitution, including a 70% ownership interest (the “DAD Interest”) in a corporation called

DAD Drilling, LLC (the “DAD Drilling”), as well as a homestead exemption in real property 

described as “+ Aubrey, TX 76227” listed as having a current value of $167,755.00 (the 

“Property”). Id.

On August 14, 2023, the Trustee filed his Objection, seeking an order from the Court 

denying the Debtor’s claimed exemptions for both the DAD Interest and the Property. See ECF 

No. 32. The Debtor filed his Response and Opposition to Trustee’s Objection to Exemptions on 

September 4, 2023, at ECF No. 33. On October 2, 2023, the Court held a hearing (the “Hearing”), 

whereby counsel appeared for the Debtor and the Trustee. See ECF No. 38. The Debtor gave 

testimony in support of his claimed exemptions. The Court admitted six exhibits submitted by the 

Debtor. See ECF No. 37, Exhibits A–F. 

At the hearing, the Debtor testified that he filed a prior Chapter 11 bankruptcy case (the 

“Prior Case”) before this Court on September 15, 2015.

2 The Debtor’s schedules from the Prior 

Case indicate that he also claimed the Property as his homestead in 2015.

3

 Although Mr. Canada 

testified that he filed his Prior Case because of a contested claim with the IRS, Frost Bank was the 

primary creditor in that bankruptcy, and it never raised any objection to his homestead exemption.

4

2 See ECF No. 1 in Bankruptcy Case No. 15-33757-bdh-11 (Bankr. N.D. Tex. 2015). 3 ECF No. 37-1, p. 1 (“Lot 14, Nail Springs Branch, Aubrey, Texas”). 4 See ECF No. 37-2, pp. 1–3.

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The Debtor testified that in accordance with his confirmed plan of reorganization in the Prior Case,

the Debtor paid nearly all of his creditors in full over the next five years, with the exception of the 

unsecured portion of Frost Bank’s allowed claim.

5 In the intervening period between the 

conclusion of the Prior Case and the filing of the instant case, the Debtor testified that a number 

of his assets became worthless and Frost Bank declined to restructure its debt, which ultimately 

led the Debtor to file the instant case under Chapter 7.

The Debtor testified that DAD Drilling was formed under the Texas Business 

Organizations Code in 2010. The Debtor owns seventy percent (70%) of DAD Drilling’s interests, 

with the remainder (30%) held by Rodney Johns, a friend of the Debtor’s.6 Although the Debtor 

originally intended to use DAD Drilling to invest in the energy industry, the only asset which DAD 

Drilling currently holds is stock in an Irish semiconductor company called IceMos. The Debtor 

testified that the IceMos stock certificate is held directly by DAD Drilling, LLC, and not by either 

one of its members. The Debtor testified that IceMos has never issued a distribution to its 

stockholders, but he believes it will eventually go public.

The Debtor next testified that the Property he claimed as his homestead is known as Lot 

14, Nail Springs Branch, which is located on Robinson Canyon Road in Aubrey, TX, 76227. 

According to the Denton County Appraisal District (“DCAD”) property records, the Property was 

purchased on June 20, 2008,

7 and lies adjacent to three other parcels, two of which (Property IDs: 

52108 and 52152) are owned by the KCTG Family Trust (the “Trust”).

8 The Debtor testified that 

5 See ECF No. 37, pp. 9–42. 6 The Certificate of Formation provided by the Debtor evinces that the original owners of the Company were two 

corporate entities, however the Debtor testified that ownership of the Company was later transferred to the Debtor and 

Rodney Johns in their individual names. See ECF No. 37-6, p. 1. 7 Property ID: 287779 for year 2024, DENTON COUNTY APPRAISAL DISTRICT,

http://esearch.dentoncad.com/Property/View/287779. 8 See Property ID: 52108 for year 2024, DENTON COUNTY APPRAISAL DISTRICT,

http://esearch.dentoncad.com/Property/View/52108; see also Property ID: 52152 for year 2024, DENTON COUNTY 

APPRAISAL DISTRICT, http://esearch.dentoncad.com/Property/View/52152.

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he funded the Trust for his wife’s benefit, that he is the sole trustee of the Trust, and that his wife 

is the sole beneficiary. The Trust, in turn, purchased a house located at 6595 Private Road 2706, 

Aubrey, TX, 76227 (the “6595 Tract”), and the adjacent property known as 6747 Private Road 

2706, Aubrey, TX, 76227 (the “6747 Tract”). The DCAD property records reflect that the 6595

Tract was purchased in October of 2007 by the Trust, and the 6747 Tract was purchased in April 

of 2008, approximately two months before the Debtor purchased the Property at issue in the instant 

case.

9

The Debtor testified that he purchased the Property to keep anyone else from purchasing it 

and erecting a house immediately to the north of the 6595 Tract and the 6747 Tract. The Debtor 

further testified that there is a “pipe and cable” fence on the Property along the northern borders

of both the 6595 Tract and the 6747 Tract, extending part-way between the Property and the final 

parcel that lays adjacent to it, which is known as Lot 13, Nail Springs Branch, also located on 

Robinson Canyon Road in Aubrey, TX, 76227 (“Lot 13”). The Debtor testified that Lot 13 is 

owned by a third party, and he erected the fence between the Property and Lot 13 primarily to 

demarcate the property line and keep them from potentially encroaching. The fence does not 

extend along any portion of the northern border of the Property.

The Debtor testified that he and his wife live together in the house on the 6595 Tract, and 

that the Debtor considers the three parcels (the Property, the 6595 Tract, and the 6747 Tract) to be 

one contiguous homestead. While the Debtor has not erected any structures on the Property itself, 

he testified that he and his wife have plans to either further develop the land or use it for hay and

grazing animals in the future. The Debtor also stated that he and his wife have guardianship of 

three children, ages 8, 10, and 13, who play on the Property regularly. The Debtor further stated 

9 See id.

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that the family has a “pet cemetery” located on the Property where he has buried several animals, 

and that his domestic ducks and turkeys roam to and from the Property freely. 

II. LEGAL STANDARD. 

Under section 541(a) of the Bankruptcy Code, the commencement of a bankruptcy case 

creates a bankruptcy estate comprised of, among other things, “all legal or equitable interests of 

the debtor in property as of the commencement of the case.” See 11 U.S.C. § 541(a). The debtor 

may then remove certain types of property from the estate by electing to take advantage of 

exemptions described in federal or state law. See Hawk v. Engelhart, 871 F.3d 287, 290 (5th Cir. 

2017). “An exemption is an interest withdrawn from the estate (and hence from the creditors) for 

the benefit of the debtor.” Owen v. Owen, 500 U.S. 305, 308 (1991). 

A debtor must file a list of property claimed as exempt on the debtor’s schedule of assets. 

FED. R. BANKR. P. 4003(a). “A party in interest may file an objection to the list of property claimed 

as exempt within 30 days after the meeting of creditors ... is concluded or within 30 days after any 

amendment to the list or supplemental schedules is filed, whichever is later.” Id. 4003(b). “Unless 

a party in interest objects, the property claimed as exempt ... is exempt” and as a result, the 

property claimed as exempt is not part of the bankruptcy estate. 11 U.S.C. § 522(l); Hawk, 871 

F.3d at 290. In a hearing on an objection to a claim of exemption, “the objecting party has the 

burden of proving that the exemptions are not properly claimed” by a preponderance of the 

evidence. FED. R. BANKR. P. 4003(c); see also Grogan v. Garner, 498 U.S. 279 (1991). In 

determining whether property is exempt, courts consider the law and facts as they existed on the 

date a debtor filed for bankruptcy. See White v. Stump, 266 U.S. 310, 313 (1924). 

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III. LEGAL ANALYSIS. 

A. Homestead Exemption

In the instant case, the Trustee objects to the Debtor’s claimed exemption in the Property 

because, he argues, a married couple in Texas may only have one homestead, and the 6595 Tract 

is listed as an exempt homestead in the DCAD property records, owned by the Trust, but the 

Property is not. See ECF No. 32. Further, the Trustee argued at the Hearing that there is no evidence 

that the Debtor ever intended for the Property to become a part of the homestead estate because it 

is undeveloped, and the Debtor has not put the Property to the kind of use that would demonstrate 

such an intent, such as grazing animals on the land. 

The Debtor first responds by arguing that because there were no objections to the Debtor’s 

claimed homestead exemption on the Property in his Prior Case, the legal doctrine of res judicata

applies to preclude any objection to the Debtor’s homestead exemption in the instant case. Second, 

the Debtor contends that because his homestead is a rural homestead, all that is required to impress 

the whole property with a homestead character is that he “resides on the property and uses it for 

shelter, recreation, privacy, comfort, and convenience.” See ECF No. 33, p. 4, ¶ 16 (citing In re 

Mitchell, 132 B.R. 553 (W.D. Tex. 1991)). As such, the Debtor argues that while he has met his 

burden to make a prima facie case in favor of homestead status, the Trustee has wholly failed to 

meet his burden of presenting any evidence or facts as to how the Debtor’s use of the Property is 

inconsistent with the homestead character, especially given the fact that the Property is contiguous 

to the 6595 Tract, where the Debtor and his wife reside. See id. at ¶¶ 18–22. The Court agrees that 

the Trustee has not met his burden; therefore, the Court declines to reach the issue of whether the 

confirmation order in the Prior Case precludes the Trustee’s objection under res judicata.

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Under the Texas Constitution, the homestead exemption exists to provide a secure home 

for a family against creditors. See Hankins v. Harris, 500 S.W.3d 140, 145 (Tex. App. – Houston 

[1st Dist.] 2016, pet. denied); see also Fairfield Financial Group, Inc. v. Synnott, 300 S.W.3d 316, 

320 (Tex. App. – Austin 2009, no pet.). As described by the Fifth Circuit, “[h]omesteads are 

favorites of the law and are liberally construed by Texas courts.” In re Perry, 345 F.3d 303, 316 

(5th Cir. 2003). A homestead can belong to either a family or to a “single adult person.” TEX.

CONST. art. XVI, § 50(a). “Whether a tract of land is protected homestead property is a question 

of fact.” In re Norra, 421 B.R. 782, 789 (Bankr. S.D. Tex. 2009). In order to establish homestead 

rights, no specific writing is needed, but one must prove both a concurrence of usage and intent to 

claim the land as a homestead. Dodd v. Harper, 670 S.W.2d 646, 649 (Tex. App. – Houston [1st

Dist.] 1983, no writ).

The initial burden of proof is on the claimant to prove the homestead character of the 

property. Id. (citing Perry, 345 F.3d at 311). This burden is a “short hurdle” for debtors. In re 

Bradley, 960 F.2d 502, 507 (5th Cir. 1992). Once the claimant has made a prima facie case in 

favor of homestead status, courts in Texas will presume the homestead claimant possesses the 

requisite intent, and the objecting party has the burden of demonstrating that the homestead rights 

have been terminated. See Norra, 421 B.R. at 790 (citing Bradley, 960 F.2d at 507; Perry, 345 

F.3d at 311).

The Court notes the following facts were uncontested: (1) the claimed homestead is rural, 

not urban, and (2) the tracts the Debtor claims as homestead are adjacent and contiguous. Texas 

homestead law distinguishes between property that the debtor resides upon and non-contiguous, 

separated property. “A debtor faces fewer legal obstacles when the debtor claims only land 

connected to the debtor’s residence as the debtor’s homestead.” Norra, 421 B.R. at 790 (emphasis 

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added). “With a contiguous tract, one can logically extend the establishment of a home and the 

activities pertaining to the home to the outer boundaries of that tract. Only an imaginary line 

separates the residence tract from the contiguous property. Hence there is a presumption that such 

a tract is used for the purposes of a home.” Painewebber Inc. v. Murray (In re Murray), 260 B.R. 

815, 830 (E.D. Tex. 2001). Furthermore, Texas law “disfavors the severance of contiguous parcels 

of land into homestead and non-homestead tracts.” In re Michelena, 631 B.R. 621, 626 (S.D. Tex. 

2021). In light of the foregoing, the Court finds that the Debtor is not attempting to claim two 

separate homesteads (one for his wife and one for him), but rather claiming one family homestead 

with adjacent, contiguous tracts of land.

10

Texas courts provide a rather strict standard for severance of contiguous parcels of land 

into homestead and non-homestead tracts, such that a tract should be severed “only if there is no 

evidence that the tract is used for homestead purposes.” Michelena, 631 B.R. at 626 (quoting 

Bradley, 960 F.2d at 509). Courts interpreting facts on this issue have held that evidence that the 

property contributes to “the comfort, enjoyment, or convenience of the residence or the family ... 

represent distinct enough evidence of a rural purpose [to establish the homestead character.]”

Murray, 260 B.R. at 830 (gathering cases). Under this liberal standard, several courts have held 

that acts like exercising on the property or even enjoying the property’s aesthetic qualities could

impress a homestead. See id; see also Youngblood v. Youngblood, 76 S.W.2d 759, 761 (Tex. 1934); 

Baldeschweiler v. Ship, 50 S.W. 644, 645 (Tex. Civ. App. 1899, no writ) (quoting Brooks v. 

Chatham, 57 Tex. 31, 34 (1882)).

10 Although it was not discussed in-depth at the Hearing, the Court will note that separate parcels of one family 

homestead can be titled in different names and still be considered one contiguous homestead. See Vaden v. Collier, 

253 S.W. 889, 891 (Tex. App.—Ft. Worth, 1923 no writ) (“[T]itle to the separate tracts so constituting parts of the 

homestead, or some interest therein, must be vested in some member of the family.”). Section 41.0021 of the Texas 

Property Code allows title to homestead property to be devised to a trust. The fact that a parcel is so devised for the 

benefit of one family member and another parcel is titled in another family member’s name does not mean that both

parcels cannot be considered together to constitute one family homestead in Texas. See TEX. PROP. CODE § 41.0021.

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The Court finds that the evidence presented by the Debtor is sufficient to sustain his initial 

burden of proof to demonstrate that the Property has been used for homestead purposes. The 

uncontested testimony was that the Debtor purchased the Property to keep someone else from 

building a structure adjacent to their home on the 6595 Tract. The 6595 Tract, the 6747 Tract, and 

the Property were all purchased within one year’s time. The Debtor also testified that he and his 

spouse raise fowl that roam freely onto the Property, that their children regularly play on the 

Property, and that they have used the Property for the burial of their pets and other animals. While 

the Debtor may not have built a structure on the Property, the Debtor invested time and resources 

into erecting a fence to demarcate the Property line on the eastern side and keep neighbors from 

encroaching thereon. These actions and uses are generally consistent with the manner in which an 

appurtenant tract of land is used in conjunction with a rural homestead for the “comfort, enjoyment, 

or convenience of the residence or the family[.]” See Murray, 260 B.R. at 830.

The Debtor further credibly testified that he and his spouse have considered fencing the 

remainder of the Property in order to graze animals or grow hay on the land, and that it is their 

intention to erect a structure (such as a barn or shed) on the Property and further develop it at some 

point. These statements, taken in conjunction with the uncontroverted evidence that the Debtor 

maintains control over the Property, are sufficient to sustain his burden to demonstrate that the 

Debtor has the requisite intent to continue to utilize the Property as his homestead. Therefore, the 

Court concludes that the Debtor has fulfilled his initial burden of proof as to the homestead 

character of the Property.

Having met his burden to prove prima facie that the Property was impressed with the 

homestead character, the burden then shifts to the Trustee pursuant to FED. R. BANKR. P. 4003(c). 

The Court again notes that under the standard routinely adopted by courts in Texas, contiguous 

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parcels of land should only be severed into homestead and non-homestead tracts, “if there is no

evidence that the tract is used for homestead purposes.” Michelena, 631 B.R. at 626 (emphasis 

added). The Trustee offered no substantial evidence to contradict the Debtor’s prima facie case. 

Therefore, the Court concludes the Objection to the validity of the Debtor’s rural homestead claim

should be overruled.

B. The DAD Interest

Although the homestead exemption was a close call, the Debtor’s claimed exemption of 

his ownership interest in DAD Drilling is not. Notably, the Debtor did not cite any relevant 

bankruptcy authority on this issue. See ECF No. 33, pp. 5–8, ¶¶ 23–28. Indeed, the Debtor fails to 

cite to any relevant section of the Texas Constitution or Property Code for his so-called 

“exemption.” Id. The Debtor even admits that property such as the DAD Interest is not “listed as 

an ‘exempt asset’ in Chapter 42 of the Texas Property Code.” Id. at ¶ 27. Instead, in his Schedule 

C, the Debtor refers to section 101.112 of the Texas Business Organizations Code, which is a 

charging order statute. See ECF No. 15, p. 11. The Debtor bases his claim for exemption on a

2018 article published by the State Bar of Texas on the topic of collecting judgments under state 

turnover statutes. See ECF No. 33, p. 6, ¶ 25. The article posits that “[p]artnership and LLC 

membership interests are exempt property not subject to a turnover order.”11 Ultimately, the 

Debtor rests on the proposition that because a charging order is the exclusive remedy by which a 

judgment creditor may reach an LLC membership interest under state law, and a charging order 

simultaneously deprives that creditor of the ability to attach, seize, or execute on such a 

membership interest, such an interest is “effectively” exempt in a bankruptcy context where, as 

here, there are no distributions of profit to receive. To put it mildly, the Court disagrees.

11 Jeffrey W. Hellberg, Jr. & Jennifer Bartlett, Elements of the Turnover Statute, TXCLE ADVANCED FAMILY LAW,

2018 WL 6366522 (2018).

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To paraphrase a beloved character from the immortal classic, Road House, attempting to 

exempt an LLC membership interest from a bankruptcy estate is “like putting an elevator in an 

outhouse — it don’t belong.”12 The question before the Court is whether the DAD Interest is 

exempt from being considered property of the estate under state law.

13 The charging order statute 

is not the equivalent of a state law exemption. A charging order statute existsin large part to protect 

other members of an LLC from having to share governance responsibilities with someone they did 

not choose, or from having to accept a creditor of another member as a co-manager.

14 Numerous 

state court decisions make plain that LLC membership interests are non-exempt assets under Texas 

law.15 Therefore, in the absence of any valid state law exemption under the Texas Constitution or 

Property Code for an LLC membership interest such as the DAD Interest, the Court hereby 

concludes that the DAD Interest constitutes non-exempt property of the estate. The Court therefore 

will sustain the Trustee’s Objection to the claimed exemption in the DAD Interest. 

IV. CONCLUSION. 

The Debtor is entitled to his claimed homestead exemption in the Property under the Texas 

Constitution but is not entitled to claim an exemption in the DAD Interest because such property 

is not exempt under Texas law. In light of the foregoing, the Court determines that the Trustee’s 

Objection should be sustained in part and denied in part. Therefore, it is hereby

12 ROAD HOUSE (United Artists, Silver Pictures 1989). 13 See 11 U.S.C. § 522(b)-(d); Owen v. Owen, 500 U.S. 305, 308 (1991) (“An exemption is an interest withdrawn from 

the estate (and hence from the creditors) for the benefit of the debtor.”). 14 See Bran v. Spectrum MH, LLC, No. 14-22-00479-CV, 2023 WL 5487421, at *6 (Tex. App.—Houston [14th Dist.]

Aug. 24, 2023, no pet.). 15 See Klinek v. LuxeYard, Inc., 672 S.W.3d 830, 839 (Tex. App.—Houston [14th Dist.] Aug. 24, 2023, no pet.) (“A 

member’s ownership interest in a limited liability company is a non-exempt asset.”); see also Heckert v. Heckert, No. 

02-16-00213-CV, 2017 WL 5184840, at *7 (Tex. App.—Ft. Worth Nov. 9, 2017, no pet.) (holding that membership 

interests in two separate LLCs were non-exempt assets under state law); Gillet v. ZUPT, LLC, 523 S.W.3d 749, 756–

57 (Tex. App.—Houston [14th Dist.] 2017, no pet.) (upholding a decision of a trial court appointing a receiver to take 

possession of an ownership interest in an LLC, which was a non-exempt asset).

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ORDERED that the portion of the Trustee’s Objection pertaining to the Debtor’s claimed 

homestead exemption in the Property known as Lot 14, Nail Springs Branch, which is located on 

Robinson Canyon Road in Aubrey, TX, 76227, shall be OVERRULED; it is further

ORDERED that the portion of the Trustee’s Objection pertaining to the Debtor’s claimed 

exemption in personal property identified as an ownership interest in 70% of the controlling shares 

of DAD Drilling, LLC, valued at $176,000.00 on Debtor’s Schedule C, shall be SUSTAINED; 

and it is further

ORDERED that the Court shall retain jurisdiction with respect to all matters arising from 

or related to the implementation of this order.

###END OF ORDER###

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