Search Results for: caulkett

Following the decision in Bank of America, N.A. v. Caulkett, 575 U.S. ___, 2015 WL 2464049 (June 1, 2015), that wholly unsecured liens could not be stripped off in chapter 7, there was a flurry of concern that courts, at the behest of trustees and creditors, would revisit the issue of lien-stripping in chapter 13. That fear is quietly being laid to rest.

Strip-down of partially secured liens in Chapter 7 was prohibited by Dewsnup v. Timm, 502 U. S. 410 (1992), and the Caulkett decision extended that holding to wholly unsecured liens. In chapter 13, however, appellate courts have consistently found that the reasoning in the decision in Nobelman v. American Savings Bank, 508 U. S. 324 (1993), which also prohibits strip-down of partially secured liens, permits strip-off of wholly unsecured liens. The difference is that, unlike chapter 7, where the Dewsnup Court found that section 506(d) does not provide a mechanism for lien-stripping, chapter 13 has its mechanism in section 1322(b) for stripping off unsecured liens.

Since this summer’s decision in Caulkett, courts have largely, and correctly, found that that case does not apply in chapter 13 lien-strip cases. See, e.g., Green Tree Servicing v. Wilson, No. 14-9543 (S.D. N.Y. June 5, 2015) (“The recent Supreme Court decision on lien stripping, Bank of America, N.A. v. Caulkett, does not affect the Bankruptcy Court’s order granting the Pond motion because Caulkett only applies in the Chapter 7 context.”); Kresl v. Beneficial Nebraska, No. 15-8016 (Bankr. D. Neb. Sept. 24, 2015); Osbourn v. Wells Fargo Financial Bank, No. 12-80485, Adv. Pro. 15-8007 (Bankr. D. Neb. Sept. 21, 2015); In re Ricci-Breen, No. 14-22798 (Bankr. S.D. N.Y. Aug. 31, 2015); Young v. Green Tree Servicing, No 14-41518, Adv. Pro. 15-4016 (Bankr. D. Neb. Aug. 18, 2015); Landron v. Banco Popular de Puerto Rico Oriental Bank, No. 13-7968 (Bankr. D. P.R. June 25, 2015) (all recognizing that Caulkett limited to chapter 7).

But, lest anyone get too comfortable with these cases, see, Davis v. Springleaf Financial Services, No. 15-4020 (Bankr. S.D. Ga. Sept. 9, 2015) (speculating in dictum that the decision in Caulkett could cause a change in current lien-stripping law in chapter 13).

The recent Supreme Court decision in Bank of America v. Caulkett, ___ U.S. ___, 2015 WL 2464049 (June 1, 2015), does not apply to lien stripping in chapter 13. Turman v. Pinnacle Bank, No. 14-80062, Adv. Proc. 14-8035 (Bankr. D. Neb. June 12, 2015). Alton and Leslie Turman’s residence was subject to two liens, the second of which was wholly unsecured. Relying on Minnesota Housing Fin. Agency v. Schmidt (In re Schmidt), 765 F.3d 877 (8th Cir. 2014), and noting that seven other circuits have found that wholly unsecured liens may be stripped off in chapter 13, the court granted the debtors’ motion for summary judgment to avoid Pinnacle Bank’s lien. The court briefly reiterated the well-established interpretation of Nobelman v. American Sav. Bank, 508 U.S. 324 (1993), that a lien that is wholly unsecured under section 506(a) is not a “secured claim” subject to the anti-modification provision of section 1322(b)(2) and may, therefore, be stripped off.

Allaying fears that Caulkett negatively impacted chapter 13 practice, the court stated definitively, “This case is unaffected by the recent United States Supreme Court decision of Bank of America, N.A. v. Caulkett, ___ U.S. ___, 2015 WL 2464049 (June 1, 2015) (holding that Chapter 7 debtors may not strip off wholly unsecured liens), because Caulkett applies only to Chapter 7 cases. Id. at *5” The court also cited Green Tree Servicing, LLC v. Wilson (In re Wilson), Case No. 14–CV–9543 (CS), 2015 WL 3561476 at *6 n.10 (S.D.N.Y. June 5, 2015). In that case the New York district court, likewise noted that “The recent Supreme Court decision on lien stripping, Bank of America, N.A. v. Caulkett, has no effect on the Bankruptcy Court’s order granting the [lien-stripping] motion because Caulkett only applies in the Chapter 7 context.”

Turman Bankr. Neb. opinion

Green Tree SD NY opinion

“The reasoning of Dewsnup dictates that a debtor in a Chapter 7 bankruptcy proceeding may not void a junior mortgage lien under §506(d) when the debt owed on a senior mortgage lien exceeds the current value of the collateral.” So held the Supreme Court yesterday in Bank of America v. Caulkett, 575 U.S. ___, No. 13-1421, and Bank of America v. Toledo-Cardona, No. 14-163 (U.S. June 1, 2015). Justice Thomas (who did not take part in the Dewsnup decision) delivered the opinion of the Court in which all Justices joined except concerning the footnote in which Justice Kennedy, Justice Breyer, and Justice Sotomayor did not join.  The case should not affect lien-stripping in the reorganization chapters. For example, the decision preserves the application of 506(a) and the use of 1322(b)(2) to strip liens in chapter 13. [Read more…] about Court Reaffirms Dewsnup in Chapter 7 Cases