Tag Archive: Lien Stripping

District Court Gets it Wrong in Chapter 13 Lien Strip Case

Posted by NCBRC - August 12th, 2016

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
Reverse Mortgage May Be Modified

Posted by NCBRC - May 3rd, 2016

A reverse mortgage payable upon the pre-petition death of the borrower was modifiable under section 1322(c). In re Michaud, No. 14-23406 (Bankr. S.D. Fla. March 29, 2016). Read More
Condominium Act Reprioritizes Lien

Posted by NCBRC - March 4th, 2016

The New Jersey Condominium Act reprioritizes the condominium association’s lien making it partially secured and subject to the anti-modification provision of section 1322(b). Whispering Woods Condominium Assoc. v. Rones, No. 15-4271 (D. N.J. Feb. 17, 2016). Read More
Sixth Circuit BAP to Address Impact of Caulkett in Chapter 13

Posted by NCBRC - February 10th, 2016

United Bank has appealed to the Sixth Circuit BAP, the issue of whether Caulkett extends to lien stripping in chapter 13. The bankruptcy court held that it does not. In re Travers, No. 15-50844 (Bankr. E.D. Ky. Nov. 16, 2015) on appeal, No. 15-8051 (B.A.P. 6th Cir. filed Dec. 1, 2015). Read More
Court Permits Strip-off of Lien for Delinquent HOA Assessments

Posted by NCBRC - January 18th, 2016

A condominium lien which is wholly unsecured under section 506(a) by virtue of a first mortgage may be treated as unsecured in the chapter 13 plan and may be avoided through the mechanism of either a valuation hearing under Fed. R. Bankr. P. 3012 or through a stand-alone adversary proceeding. The court rejected the condo association’s attempt to benefit from the state’s “super lien” law in light of the fact that no judicial sale of the property had taken place. Sligh v. Northpoint I Condominium Assoc., No. 14-14544, Adv. Pro. No. 15-56 (Bankr. E.D. Pa. Dec. 3, 2015). Read More
Bankruptcy Court Takes Dewsnup to Task

Posted by NCBRC - December 3rd, 2015

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
Ninth Circuit Permits Lien-Voidance in Chapter 20

Posted by NCBRC - October 2nd, 2015

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
Caulkett Does Not Apply in Chapter 13

Posted by NCBRC - September 29th, 2015

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).
Growing Consensus Permits Lien Strip in Chapter 20

Posted by NCBRC - July 14th, 2015

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
Caulkett Does Not Affect Lien-Stripping in Chapter 13

Posted by NCBRC - June 22nd, 2015

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

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