The issue of whether a wholly unsecured lien can be stripped off in chapter 7 bankruptcy was brought before the Supreme Court in a petition for certiorari filed on December 9, 2013, in the case of Bank of America v. Sinkfield. The Eleventh Circuit in Sinkfield allowed the lien stripping based on its previous decision in McNeal v. GMAC Mortgage, 2012 WL 8964264 (May 11, 2012), which, in turn, relied on the 1989 case of Folendore v. United States Small Bus. Admin., 862 F.2d 1537 (11th Cir.). Folendore held that sections 506(a) and (d) combined to permit strip-offs of wholly unsecured liens. In 1992, the Supreme Court decided Dewsnup v. Timm, in which it held that, under the historic principle of a lien surviving bankruptcy unaffected, a partially secured lien could not be stripped down in chapter 7. 502 U.S. 410. Many courts post-Dewsnup have extended its reach to preclude stripping of wholly unsecured liens, despite the language of section 506 to the effect that a lien with no value under subsection (a) is void under subsection (d). See, e.g., Palomar v. First American Bank (In re Palomar), No. 12-3492 (7th Cir. July 11, 2013); Talbert v. City Mortg. Serv., 344 F.3d 555 (6th Cir. 2003); Ryan v. Homecomings Fin. Network , 253 F.3d 778 (4th Cir. 2001); Wachovia Mortg. v. Smoot, 478 B.R. 555 (E.D.N.Y., 2012) (section 506 may not be used to strip off wholly unsecured lien in chapter 7). With its decision in McNeal, the Eleventh Circuit joined the minority view that the decision in Dewsnup v. Timm, 502 U.S. 410 (1992), does not extend to wholly unsecured liens. See also, In re Lavelle, 2009 WL 4043089 (Bankr. E.D.N.Y. Nov. 25, 2009); but see In re Pomilio, 425 B.R. 7 (Bankr. E.D. N.Y. 2011) (Dewsnup precludes strip-off).
There are a number of cases currently pending in the Eleventh Circuit challenging the McNeal holding. See, e.g., In re McLean, No. 13-15038; In re Brown, No. 13-14298, consolidated with, In re Buenaseda, No. 13-15037, and In re Madden, No. 13-14438; In re Boykins, No. 13-14908; In re Jeffers, No. 13-14685.
In the event that certiorari is granted, NCBRC will file an amicus brief on behalf of the NACBA membership.
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[…] resolve conflicting cases in the Circuit Courts to ensure uniformity in federal law. In fact, the Supreme Court was recently asked to decide the issue. Because of the importance of lien stripping in Bankruptcy, I would expect there is a very good […]