When the debtors filed for chapter 7 bankruptcy, they had two outstanding mortgages on their residence. The first was partially secured and the second was fully underwater. The debtors filed an adversary complaint seeking to strip down the partially secured senior lien. The bankruptcy court, compelled by Dewsnup v.Timm, 502 U.S. 410 (1992) and Bank of America, N.A. v. Caulkett, 575 U.S. 790 (2015), granted the creditor’s motion to dismiss. In re Vasquez, No. 19-1841, Adv. Proc. No. 19-100 (Bankr. E.D. N.C. March 25, 2020). Agreeing with the bankruptcy court’s “thorough analysis and conclusions,” the district court affirmed. In re Vasquez, No. 20-62 (E.D. N.C. Aug. 2020). [Read more…] about Challenge to Dewsnup Moving Up
Debtor Brief Filed in SCt Chapter 7 Lien Strip Case
The debtors have filed their brief in the consolidated Supreme Court cases of Bank of Amer. v. Toledo-Cardona, No. 14-163 and Bank of Amer. v. Caulkett, No. 13-1421 (filed Feb. 17, 2014), addressing the issue of whether a wholly unsecured lien can be stripped off in chapter 7. In McNeal v. GMAC Mortg., 735 F.3d 1263 (11th Cir. 2012) cert. pet. den. (S.Ct. May 20, 2014), the court bucked the trend to find that Dewsnup v. Timm, 502 U.S. 410 (1992), which held that a partially secured lien could not be stripped-down in chapter 7, did not apply to wholly unsecured liens. In Toledo-Cardona and Caulkett, the debtors argue that McNeal was correctly decided. Dewsnup was explicitly limited to its facts and the Supreme Court’s instruction in Nobelman v. Am. Sav. Bank, 508 U.S. 324 (1993), to begin analysis with lien valuation under section 506(a) supports the Eleventh Circuit’s position that valueless liens may be stripped off under section 506(d).
There are currently at least one dozen petitions for certiorari before the Supreme Court on this issue filed by Bank of America and Bank of New York Mellon.
The debtor is represented by Stephanos Bibas, the Director of the Supreme Court Clinic at the University of Pennsylvania Law School.
District Court Gets it Wrong in Chapter 13 Lien Strip Case
A district court in Maryland mistakenly applied section 506(d) when it held that a debtor may not strip off a wholly unsecured lien in chapter 13 where the creditor failed to file a proof of claim. Burkhart v. Community Bank of Tri-County, No. 14-315 (D. Md. July 27, 2016).
Edwin Michael, and Teresa Stein Burkhart’s home was subject to several liens, two of which were held by Tri-County and were wholly unsecured. Tri-County did not file a proof of claim in the Burkharts’ bankruptcy. The Burkharts filed an adversary complaint seeking to strip off the wholly unsecured liens under section 1322(b). Tri-County did not respond and the Burkharts moved for default judgment.
The bankruptcy court relied on section 506(d)(2), 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, unless . . . such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim. . .” Because Tri-County had not filed a proof of claim, the court held its liens could not be stripped. (The court granted default judgment against PNC, the holder of another wholly unsecured junior lien, because PNC had filed a timely proof of claim). [Read more…] about District Court Gets it Wrong in Chapter 13 Lien Strip Case
Court Relies on, then Discusses Problems with, Dewsnup
Finding that the case was governed by Dewsnup, a bankruptcy court granted the lien creditor’s motion to dismiss the chapter 7 debtors’ complaint seeking to strip down its partially unsecured lien. Vasquez v. JPMorgan Chase Bank, No. 19-1841, Adv. Proc. No. 19-100 (Bankr. E.D. N.C. March 25, 2020).
The chapter 7 debtors initiated a challenge to the controversial decision in Dewsnup v.Timm, 502 U.S. 410 (1992), when they sought to strip down a partially underwater lien held by JPMorgan. Given that, in 1992, the Supreme Court prohibited chapter 7 lien stripping of partially secured liens, the bankruptcy court did the only thing it could do and dismissed the complaint. Acknowledging the problematic nature of the decision in Dewsnup, however, the court went on to examine that case more closely. [Read more…] about Court Relies on, then Discusses Problems with, Dewsnup
NACBA Weighs in on Chapter 7 Lien Stripping
NACBA has filed an amicus brief seeking affirmance of the Eleventh Circuit decisions in the consolidated cases of Bank of Amer. v. Toledo-Cardona, No. 14-163 and Bank of Amer. v. Caulkett, No. 13-1421 (filed Feb. 23, 2015), adding its voice to the discussion of lien stripping in chapter 7 cases. The brief, authored by David R. Kuney, argues that section 506(a) values liens according to the worth of the collateral, and section 506(d) renders liens void to the extent that they have no value. The Supreme Court ruling in Dewsnup v. Timm, 502 U.S. 410 (1992), prohibiting strip-down of partially secured liens has been improperly extended to find that wholly unsecured liens cannot be stripped off in chapter 7. In Dewsnup the Court took pains to make clear that its decision was limited to the facts before it. The brief asks the Court to reconsider, or at least limit, its holding in Dewsnup to the extent that it turns on whether the underlying claim has been disallowed rather than on whether the lien is supported by value. The brief urges the Court to adhere to the reasoning in Nobelman v. American Sav. Bank, 508 U.S. 324 (1993) and United States v. Ron Pair Enter., Inc. 489 U.S. 235 (1989) ,which confirm that the starting point for treatment of secured claims is section 506(a). The “statutory and constitutional authority to modify, extinguish or avoid secured debts, even without full payment of the face amount of the debt, is in harmony with the economic reality that a lien is only as valuable as the collateral that underlies it.”
Ninth Circuit Permits Lien-Voidance in Chapter 20
In an elegant opinion employing judicial tools of plain text reading, simple logic, and historical context, the Ninth Circuit joined the “Fourth and Eleventh Circuits in concluding that Chapter 20 debtors may permanently void liens upon the successful completion of their confirmed Chapter 13 plan irrespective of their eligibility to obtain a discharge.” HSBC Bank v. Blendheim (In re Blendheim), No. 13-35412 (Oct. 1, 2015). [Read more…] about Ninth Circuit Permits Lien-Voidance in Chapter 20
Supreme Court to Hear Chapter 7 Lien Stripping Cases
The Supreme Court granted certiorari today in two of the three Chapter 7 lien-strip-off cases challenging the Eleventh Circuit decision in McNeal. Bank of Amer. v. Toledo-Cardona, No. 14-163 and Bank of Amer. v. Caulkett, No. 13-1421 (petition granted Nov. 17, 2014) (consolidated for argument) (Bank of Amer. v. Bello, No. 14-235 is still pending). In McNeal v. GMAC Mortg., 735 F.3d 1263 (11th Cir. 2012) pet. den. (May 20, 2014), the court bucked the trend to find that Dewsnup v. Timm, 502 U.S. 410 (1992), which held that a partially secured lien could not be stripped-down in chapter 7, did not apply to wholly unsecured liens. There are more than a dozen cases currently pending in the Eleventh Circuit challenging this decision, but, after an early abortive attempt to bring the issue before the Supreme Court (Bank of America v. Sinkfield, No. 13-700 (cert. denied, March 31, 2014)) the issue is now on track for final resolution. Briefing should be completed by March and argument is likely to be scheduled for the last week of March, with decision by June. The debtor is being represented by Stephanos Bibas, the Director of the Supreme Court Clinic at the University of Pennsylvania Law School.
Bankruptcy Court Takes Dewsnup to Task
In an opinion succinctly pointing out the primary faults of the much-maligned Dewsnup decision, Bankruptcy Judge Magner narrowly interpreted and distinguished Dewsnup to find that a wholly unsecured, nonconsensual judicial lien may be stripped in chapter 7. In re Mayer, 2015 WL 7424327, No. 2:13-bk-13220 (Bankr. E.D. La. Nov. 20, 2015). [Read more…] about Bankruptcy Court Takes Dewsnup to Task
Supreme Court Hears Oral Argument in Ch. 7 Lien Stripping Cases
Today, the Supreme Court heard oral arguments in Bank of America, N.A. v. Caulkett, and Bank of America, N.A., v. Toledo-Cardona. At issue is whether Chapter 7 debtors may strip off junior mortgages where there is no value in the collateral to support the junior lien. Here’s the transcript. Well worth the read!
IRS Tax Lien Secured by All Debtor’s Property
An IRS tax lien attaches to all of the debtor’s property, both personal and real, therefore, so long as there is some equity to which it can attach it may not be stripped off. In re Blackburn, No. 12-31658 (Bankr. N.D. Fla. Feb. 3, 2015). [Read more…] about IRS Tax Lien Secured by All Debtor’s Property