Caulkett Does Not Apply in Chapter 13

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 being 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 own 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, has no effect on 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).