The Fourth Circuit is the first circuit court to find that a debtor may strip a wholly unsecured lien in chapter 13 where no discharge is available. In re Davis, No. 12-1184 (May 10, 2013). [Read more…] about Fourth Circuit Allows Chapter 20 Lien Strip
Chapter 20 Lien Stripping Goes to Circuit
The Ninth Circuit is poised to be the first circuit court to address the issue of whether a lien may be stripped in a “Chapter 20” case where discharge is unavailable. The Western District of Washington recently found that lien stripping was not contingent upon the availability of discharge. Litton Loan v. Blendheim, No. 11-2004 (W.D. Wash. March 29, 2013). Litton Loan filed a notice of appeal on April 26, 2013.
In upholding the bankruptcy court’s finding in favor of the debtors, the district court noted “an emerging trend” in the Ninth Circuit permitting such lien stripping. See In re Tran, 321 B.R. 230, 235 (Bankr. N.D. Cal. 2010); In re Hill, 440 B.R. 176, 182 (Bankr. S.D. Cal. 2010); In re Okosisi, 451 B.R. 90, 100 (Bankr. D. Nev.. 2011), and found that those cases were correctly decided. It reasoned that the Supreme Court in Johnson v. Home State Bank, 501 U.S. 78 (1991), explicitly sanctioned chapter 20 cases, and nothing in the later amendments to the Bankruptcy Code imposed a discharge requirement upon the ability to strip a lien that is otherwise amenable to stripping. The court concluded that the lien would be stripped upon completion of plan payments.
The Eighth Circuit recently avoided the issue in the case of In re Fisette, 695 F.3d 803 (8th Cir. 2012), by concluding that the BAP’s order that liens may be stripped in chapter 20 was an interlocutory order not subject to appeal.
Property Associations Lose Battle of the Liens in Two Florida Cases.
In two cases out of the Middle District of Florida, property associations fought for priority over mortgage lenders in order to prevent their liens from being stripped as wholly unsecured. In re Plummer, No. 12-3870 (Bankr. M.D. Fla. Jan. 14, 2013); In re Buckner, No. 12-4962 (Bankr. M.D. Fla. Jan. 17, 2013). The Associations failed to convince the court, however, and, in Plummer, the court permitted the lien stripping under section 1322(b)(1), while in Buckner, the lien was stripped under section 506(d). [Read more…] about Property Associations Lose Battle of the Liens in Two Florida Cases.
NACBA Files Amicus in Bifurcated Lien Treatment in Chapter 13
NACBA has filed an amicus brief in the case of In re Bullard, No. 12-54 (B.A.P. 1st Cir.). That case involves a Chapter 13 plan under which a mortgage is bifurcated into secured and unsecured portions, with the unsecured portion being paid, pro rata, through the plan, and the secured portion being paid according to the terms of the contract outside the plan and extending beyond the plan period. The trustee objected to the plan, arguing that if modification is permitted under Section 1322(b), the payments on the mortgage must be completed within the plan period. In its brief, NACBA argues that the plain language of section 1322 permits such lien treatment. Specifically, “[a]ll Section 1322(b)(5) requires is that the debtor cure any arrearage and make payments on the creditor’s secured claim according to the contract during the life of the plan. Section 1322(b)(2) is permissive, allowing debtors to modify certain claims. Section 1322(d) limits the life of the plan to five years. These sections do not require the debtor to pay the claim in full while the case is pending, nor do they preclude the debtor from making payments on the long-term obligation after the plan has been completed.”
David Barnes drafted NACBA’s brief.
Claim Disallowed as Untimely Not Void under Section 506(d)
The Bankruptcy Appellant Panel for the Eighth Circuit has taken it upon itself to redraft section 506(d) of the Bankruptcy Code to reflect what it believes Congress meant, even though it is contrary to what Congress said. In re Shelton, 477 B.R. 749 (B.A.P. 8th Cir. Sept. 24, 2012). Section 506(d) provides that a lien that is not an allowed secured claim is void unless the claim was disallowed only under section 502(b)(5) or 502(e). Notably, the exceptions listed in Section 506(d) do not include Section 502(b)(9), which provides that a claim that is not timely filed shall not be allowed. Nonetheless, the Shelton court went beyond the plain language of the statute and found that a claim that is disallowed as untimely is not void under section 506(d). [Read more…] about Claim Disallowed as Untimely Not Void under Section 506(d)
What, if Anything, is Section 506(d)?
(Borrowing from Stephen Jay Gould’s, “What, If Anything, Is a Zebra?” Hen’s Teeth and Horse’s Toes (W.W. Norton & Co. 1980)).
Where, in his essay, Gould discusses the evolution of striped members of the genus equus, cautioning that appearances do not necessarily dictate classifications, bankruptcy practitioners likewise have had to look beyond appearances (or plain language) to determine meaning. This could not be more manifest than in the Supreme Court interpretation of Section 506(d), which provides: “To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void . . .” A simple reading of this clause in conjunction with section 506(a), which provides that a lien is “a secured claim to the extent of the value of the creditor’s interest,” would suggest that when a lien has no value, it is unsecured and therefore void under the operation of Section 506(d). But a recent case out of the Eastern District of New York has joined the majority of courts in deciding otherwise. Wachovia Mortgage v. Smoot, No. 11-6379 (E.D. N.Y. Sept. 20, 2012). [Read more…] about What, if Anything, is Section 506(d)?
Eighth Circuit Puts Off Lien-Stripping in Chapter 13 Issue for Another Day
In a cranky opinion chastising “judicially careless attorneys” and remanding the case to the bankruptcy court on procedural grounds, the Eighth Circuit sidestepped the issues of whether a wholly unsecured mortgage can be stripped in Chapter 13, and whether, if such stripping is allowed, the availability of discharge is a necessary prerequisite to it. In re Fisette, No. 11-3119 (8th Cir. Sept. 12, 2012). [Read more…] about Eighth Circuit Puts Off Lien-Stripping in Chapter 13 Issue for Another Day
No Lien Stripping under Section 506(d)
The Tenth Circuit has declared what will surprise few: that a lien may not be stripped under section 506(d) in a chapter 13 case. Woolsey v. Citibank, No. 11-4014 (10th Cir. Sept. 4, 2012). [Read more…] about No Lien Stripping under Section 506(d)
Condominium Lien May Be Partially Avoided
Interpreting the condominium documents and state law, the Western District of Pennsylvania found that the debtor could partially avoid a lien based upon unpaid condominium assessments. Young v. 1200 Buena Vista Condominiums, No. 12-786 (W.D. Pa. Aug. 27, 2012), rev’g, 467 B.R. 792 (Bankr. W.D. Pa. 2012). The case turned on whether a lien created through the operation of the condominium declaration and by-laws and state statute, 68 Pa. C.S. § 3315, constituted a “security interest” under Bankruptcy Code Section 101(51) which would be subject to the anti-modification provision of Section 1322(b), or a “statutory lien” under Section 101(53) which could be bifurcated into secured and unsecured portions. [Read more…] about Condominium Lien May Be Partially Avoided
Circuit Court Permits Strip-off in Chapter 7
The Eleventh Circuit has come through for consumer debtors on the issue of stripping off wholly unsecured liens in Chapter 7. In In re McNeal, No. 11-11352, (11th Cir., May 11, 2012), the court found that once a lien is determined to be wholly unsecured under Section 506(a) it may be stripped off under Section 506(d), which provides “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.” [Read more…] about Circuit Court Permits Strip-off in Chapter 7