Nov. 18 (Bloomberg) -- Homeowners fleeing underwater mortgages in California and Florida know where to come up for air: Texas.

``Texas is an extremely friendly place to live if you owe money and do not want to pay,'' said Marjorie Britt, a bankruptcy attorney with Britt & Catrett PC in Houston. ``If you have a lot of money and even more debt and want to shelter your assets, you can live fairly normally.''

Distressed borrowers can hang on to luxury cars, a primary residence, paychecks, retirement accounts, and even jewelry that creditors might claim elsewhere, Britt said.

A still-robust job market draws nonresidents trying to get away from houses worth less than what they owe on the mortgage, said Jay Westbrook, a business-law professor at the University of Texas in Austin. These newcomers find employment, buy a home in Texas, and mail lenders the keys to the house they abandoned.

Texas bankruptcy filings involving delinquent out-of- state mortgages increased by at least a third in the past year, said Jan Northrup, a lawyer with Hughes Watters Askanase and a bankruptcy trustee in the U.S. District of Southern Texas. Many involve people who moved from Florida, California, Colorado or Arizona, she said.

``We're especially seeing people who were using their credit cards to pay their mortgages, hoping their houses would sell, who were just digging themselves deeper into a hole,'' Northrup said.

Tough to Collect

Lenders in most states can sue to recover the difference between the mortgage balance and proceeds from selling the repossessed house, Westbrook said. Once a borrower has relocated to Texas, such judgments can't be satisfied with alimony, child support or garnisheed wages.

``You can't escape collection actions in Texas,'' Britt said. ``But can they actually force you to pay them? No.''

With U.S. bankruptcies on the rise, claims in Texas courts may come under closer scrutiny. Banks may fight borrowers who bought new homes in Texas ``after the creditors were circling like wolves,'' Northrup said.

The value of homes and assets that can be retained after bankruptcy is stipulated under U.S. law, while each state sets its own parameters. Debtors may file under the federal code or under their state's exemptions, Northrup said.

Million-Dollar Pension

Texas has the most generous provisions for what debtors may keep, far more than other states, said Wayne Kitchens, a bankruptcy attorney with Hughes Watters Askanase in Houston.

``We've seen people come in with pensions of over $1 million, and they can't be touched,'' Northrup said.

Creditors can't tap Texans' pensions, life-insurance policies, annuities, or properly funded IRA and 401(k) retirement plans. As much as $240,000 per child in a 529 college-savings account can be sheltered, Britt said.

Debtors may save a primary residence in Texas of any value, as long as it occupies no more than 10 acres (4 hectares) within a city or 200 acres in a rural area. That compares with a $20,200 homestead-equity exemption for an individual under the federal code. New York and California allow $50,000, while Tennessee and Kentucky grant $5,000, according to the statutes.

The Texas exemptions allow a family to keep as much as $60,000 in personal property, compared with less than $40,000 under the federal code.

Governor's Maneuvers

The late John Connally, a former Texas governor, showed how forgiving the state's laws are when he filed for personal bankruptcy in 1988. While claiming $93 million of debt from the collapse of oil and real estate interests, he retained a ranch house on 200 acres and a multimillion- dollar annuity.

``There was no corner of Texas's bankruptcy exemptions Connally didn't use,'' Britt said.

All 50 states require debtors to be residents for at least two years to claim local exemptions to the federal bankruptcy code, Westbrook said.

``You have to move here, stay here long enough and hold your assets the right way,'' Britt said.

It's also possible to shelter assets without filing bankruptcy. The Texas Property Code incorporates almost the same asset protections, without the two-year residency requirement, Kitchens said. The statute favors debtors because many early Texas settlers were debtors, he said.

``You can move here last week and you're a Texan,'' Kitchens said.

Chasing Jobs

Like today's delinquent mortgage holders, debtors fled to Texas during the financial panics of the 1820s and 1830s, Westbrook said. Employment is a lure, as Texas added 247,000 jobs during the 12 months through September, according to the U.S. Bureau of Labor Statistics.

Texans get wide leeway in shielding personal property from creditors, Westbrook said. Britt said she once advised a client to put license tags and turn signals on his bulldozer so it qualified as a street-legal vehicle.

``The court never even questioned it,'' Britt said of the $40,000 bulldozer. ``You wouldn't want to drive it to the grocery store, but you could've.''

Once a case is resolved, clients typically try to keep a low profile and avoid attracting creditors' attention, Britt said. Judges have a two- to four-year window to review whether debts were improperly discharged.

``You have to be careful or you could wind up with the great negative trifecta,'' Britt said. ``That would be having a bankruptcy filing on your record, without discharging your debts. And if you're too cute about it, you can go to jail.''

To contact the reporter on this story: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com.

Last Updated: November 18, 2008 01:01 EST