Lien Stripping

Joining a “growing consensus” of courts, the BAP for the Ninth Circuit found that a Chapter 20 debtor may strip off a wholly unsecured lien with the strip-off becoming effective upon completion of the plan. Boukatch v. MidFirst Bank (In re Boukatch), No. 14-1483 (July 9, 2015). In so holding, the BAP reversed the contrary finding by the bankruptcy court. [Read more…] about Growing Consensus Permits Lien Strip in Chapter 20

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

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

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.”

CaulkettToledoCardona SCt NACBA brief

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.

Toledo-CardonaCaulkett debtor brief