Lien Stripping

The Colorado District Court found that a Chapter 13 debtor may strip a lien even though he is ineligible for discharge due to a prior Chapter 7 discharge within the preceding four years. In re Waterman, No. 11-929 (D. Colo. March 13, 2012). The court rejected the trustee’s argument that Section 1325(a)(5) prohibits strip-off, finding that that section applies only to “allowed secured” claims and that where there is no value in the collateral, the claim is not secured. The court further noted that strip-off was not prohibited by the plain language of Section 1328(f) and that, where discharge only applies to personal liability, allowance of the strip-off did not constitute a de facto discharge. See also, In re Frazier, No. 11-290 (E.D. Cal. March 9, 2012) (reaching the same holding). But see, Victorio v. Billingslea, No. 11-1825 (S.D. Cal. Feb. 24, 2012) (relying on pre-BAPCPA decisions to find that a Chapter 13 case may end in one of only three ways: discharge, dismissal, conversion, and that a lien strip becomes permanent only upon discharge).

Waterman opinion

In a positive outcome in the growing debate over “Chapter 20” lien stripping, the Eastern District of California found that a debtor may strip off a wholly unsecured junior lien in Chapter 13 even though the debtor was ineligible for discharge because of a prior Chapter 7 discharge. Real Time Resolutions v. Frazier, No. 11-290 (E.D. Cal. March 9, 2012) (creditor appealed bankruptcy court’s allowance of lien strip). [Read more…] about Lien Strip Allowed in Chapter 20

The issue of whether a debtor may strip a wholly unsecured lien in chapter 13 where discharge is unavailable is before the Eighth Circuit Court of Appeals in the case of Keller v. Fisette (In re Fisette), No. 11-3119, after debtor won before the bankruptcy appellate panel. The debtor argues in his brief, filed on December 8, 2011, that Nobelman v. American Sav. Bank, 508 U.S. 324 (1993), has been consistently and correctly interpreted by all the circuit courts addressing the issue to permit strip-off of wholly unsecured liens in chapter 13. Because BAPCPA permits chapter 13 cases even where discharge is unavailable debtors may avail themselves of all the benefits of a chapter 13 case with the exception of discharge upon completion of the case. One of those benefits is stripping of wholly unsecured liens pursuant to section 1322(b).

[Read more…] about Chapter 20 Lien Stripping 8th Circuit