NACBA has moved for leave to file an amicus brief in the Third Circuit case of In re Scotto DiClemente, No. 12-3336. That case involves the question of how underwater mortgages are counted toward the debt limits when the Chapter 13 debtor’s personal liability on the mortgages was discharged in a previous Chapter 7 bankruptcy. [Read more…] about NACBA Amicus Brief on Section 109(e) Debt Limits
Eleventh Circuit Gearing Up to Revisit Chapter 7 Lien Strip
Will the Eleventh Circuit continue to buck the trend by allowing lien strips in chapter 7? That is the question that will likely be answered in the case of In re Sinkfield, No. 13-12141. On July 30, the circuit court summarily affirmed the lower court’s finding that, under In re McNeal, No. 11-11352 (11th Cir. May 11, 2013), chapter 7 debtors may strip wholly unsecured liens under section 506(d). You will recall that the Court in Dewsnup v. Timm, 502 U.S. 410 (1992), found that under the historical principle that a lien survives bankruptcy unaffected, and a reading of sections 506(a) and (d) under which “allowed secured claim” is given different meanings, debtors may not strip-down a partially secured lien in chapter 7. In addressing a case in which the debtor sought to strip a wholly unsecured lien, however, the court in McNeal found that Dewsnup was inapplicable and that its earlier precedent, Folendore v. United States Small Bus. Admin., 862 F.2d 1537 (11th Cir. 1989), permitting such strip-offs under section 506(d), was still good law. On August 2, the McNeal court agreed to publish its previously unpublished opinion to that effect. In granting summary affirmance of the lower court in Sinkfield, the circuit court specifically stated that its purpose was to allow the parties to seek en banc review.
On the same topic, the Seventh Circuit recently found that, under Dewsnup, neither section 506(a) standing alone, nor in conjunction with section 506(d), permits lien stripping of a wholly unsecured lien in chapter 7. Palomar v. First American Bank (In re Palomar), No. 12-3492 (7th Cir. July 11, 2013). See also Ryan v. Homecomings Fin. Network, 253 F.3d 778 (4th Cir. 2001); Talbert v. City Mortg. Serv., 344 F.3d 555 (6th Cir. 2003); 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).
Dismissal under Section 109(g)(2)
Rivera v. Matos (In re Rivera), No. 12-87 (B.A.P. 1st Cir. June 26, 2013), involved application of section 109(g)(2) which provides that no individual may be a debtor under this title “who has been a debtor in a case pending under this title at any time in the preceding 180 days if—(2) the debtor requested and obtained the voluntary dismissal of the case following the filing of a request for relief from the automatic stay provided by section 362 of this title.” The facts were not good for the debtor. He filed his first Chapter 13 bankruptcy on the eve of foreclosure but when he failed to respond to the mortgagee’s motion for relief from stay, the court lifted the stay thereby permitting the creditor to pursue his state foreclosure rights. One week before the scheduled foreclosure, Debtor moved to dismiss his bankruptcy for the express purpose of re-filing in order to prevent the foreclosure. The day before the scheduled foreclosure, the court granted the motion to dismiss. The debtor filed a new chapter 13 bankruptcy petition hours later. The creditor moved to dismiss the petition on the basis of section 109(g)(2)’s proscription against serial filings and on the basis of alleged bad faith. The court granted the motion solely pursuant to section 109(g)(2).
No Lien Strip Permitted in Chapter 7 under Section 506
In In re Palomar the Chapter 7 debtors filed an adversary proceeding seeking to strip off a wholly unsecured junior lien on their residence. The bank had not filed a claim in the bankruptcy. The court found that the debtors could not strip the lien and the district court affirmed. The Seventh Circuit found that neither section 506(a) standing alone, nor in conjunction with section 506(d), permits such lien stripping. Palomar v. First American Bank (In re Palomar), No. 12-3492 (7th Cir. July 11, 2013). [Read more…] about No Lien Strip Permitted in Chapter 7 under Section 506
Trustee Steps into Shoes of Lienholder upon Avoidance of Lien
NCBRC filed an amicus brief on behalf of the NACBA membership in the case of In re Traverse, 13-9002 (1st Cir. July 10, 2013). In that case, when the chapter 7 debtor entered into bankruptcy, she sought to exempt her home from the estate and continue making her mortgage payments. It was undisputed that the debtor was not in default on her mortgages. The trustee, however, successfully avoided one of the liens as unperfected and sought to sell the debtor’s residence for the benefit of creditors. The lower courts found that, having avoided the lien, the trustee stood in the shoes of the debtor and had the power to sell the property.
In its amicus brief before the First Circuit, NACBA argues that application of Bankruptcy Code sections 704, 541(a), 551, and 544, demonstrates that upon avoidance and preservation of a lien the trustee stands in the shoes of the former lienholder, not the debtor. Therefore, the trustee did not gain the power to sell the property except to the extent that the lienholder would have had that power. See In re Trout, 609 F.3d 1106, 1110 (10th Cir. 2010) (“under § 551 the trustee steps into the shoes of the former lienholder, with the same rights in the collateralized property that the original lienholder enjoyed.”). Because the debtor was current on her payments, under state law, there was no default to trigger the right to foreclose.
Thanks to Ray DiGuiseppe for authoring NACBA’s brief.
NACBA Files Amicus on Applicable Commitment Period
NCBRC filed an amicus brief on behalf of the NACBA membership in the case of In re Pliler, No. 13-1445 (4th Cir. June 20, 2013). NACBA’s brief argues that the Bankruptcy Court erred when it held that section 1325(b)(4)(B) created a minimum plan length of sixty months for above-median debtors, and that the disposable income formula set forth by Congress and reflected on Form 22C could be abandoned if it was inconsistent with income and expenses as reflected on Schedules I and J. [Read more…] about NACBA Files Amicus on Applicable Commitment Period
Eighth Circuit Rejects State Common-Law Exemptions
The Eighth Circuit found that the Missouri opt-out statute does not permit exemptions that are based on state common law. In re Abdul-Rahim, 12-3448 (8th Cir. July 12, 2013). In that case, the debtors sought to exempt their unliquidated personal injury claim from their bankruptcy estate. The bankruptcy court rejected the exemption because it originated under state common law rather than by statutory enactment. Missouri’s opt-out statute, section 513.427, provides that Missouri debtors “shall be permitted to exempt from property of the [bankruptcy] estate any property that is exempt from attachment and execution under the law of the state of Missouri.” In finding that the state exemptions referred to in that section did not include common law exemptions, the court relied on and felt compelled to follow, In re Benn, 491 F.3d 811 (8th Cir. 2007), which held that under Missouri law, the tax refunds that the debtor sought to exempt were property of the bankruptcy estate and were not exemptible. [Read more…] about Eighth Circuit Rejects State Common-Law Exemptions
Two New Cases Support Majority in Ch.20 Lien Stripping
While the issue of lien stripping in no discharge Chapter 13 continues to work its way through the appellate courts, two bankruptcy courts have recently weighed in and sided with the majority, which permits lien stripping even when a discharge is unavailable. The courts in In re Wapshare, 492 B.R. 211 (S.D. N.Y. 2013) and In re Dolinak, 2013 WL 3294277 (Bankr. D.N.H. June 28, 2013), both concluded that the lack of a discharge did no preclude lien avoidance of undersecured junior mortgages, but rather that permanent lien avoidance is conditioned upon completion of payments under the debtor’s confirmed plan. Finding that the junior mortgagees did not have “allowed secured claims” both courts also rejected the argument that 1325(a)(5)(B) required debtors to pay in full the debt on the junior mortgage or obtain a discharge.
Court Finds Ride-Through Not Available with respect to Real Property
In In re Jeanfreau, No. 13-50015 (Bankr. S.D. Miss. June 12, 2013), the mortgagee moved to compel compliance with section 521(a)(2) and to delay discharge of the debtor’s chapter 7 bankruptcy due to the debtor’s failure to reaffirm the mortgage on her home. Ms. Jeanfreau was current on her payments under the mortgage and had equity in the home. In her section 521(a)(2) “statement of intention”’ she indicated that she intended to retain the property but did not elect to either “redeem” or “reaffirm” the debt. Instead she checked “other” and noted that she intended to maintain regular payments on the mortgage outside of bankruptcy without reaffirming. [Read more…] about Court Finds Ride-Through Not Available with respect to Real Property
Dewsnup Rears its Ugly Head in Seventh Circuit Chapter 13 Case
In Ryan v. U.S.A., No. 12-3398 (7th Cir. July 8, 2013), the IRS had a tax lien on the debtor’s property as security for delinquent taxes of more than $136,000.00. At the time the debtor filed his Chapter 13 petition the value of his estate property totaled approximately $1,600.00. He moved the court to value the IRS’s lien under section 506(a), to treat the secured portion of the lien in the bankruptcy, and to strip the unsecured portion under section 506(d). The bankruptcy court agreed with the IRS that section 506(d) does not authorize a court to strip a wholly unsecured lien.
The Seventh Circuit granted the debtor’s petition for direct appeal and affirmed. [Read more…] about Dewsnup Rears its Ugly Head in Seventh Circuit Chapter 13 Case