“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 with respect to the footnote in which Justice Kennedy, Justice Breyer and Justice Sotomayor did not join. The case should have no affect upon lien-stripping in the reorganization chapters. For example, the decision preserves the application of 506(a) and use of 1322(b)(2) to strip liens in chapter 13. Read More
Tag Archive: Lien Stripping
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Court Reaffirms Dewsnup in Chapter 7 Cases
Posted by NCBRC - June 2nd, 2015
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IRS Tax Lien Secured by All Debtor’s Property
Posted by NCBRC - March 25th, 2015
An IRS tax lien attaches to all of 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
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Supreme Court Hears Oral Argument in Ch. 7 Lien Stripping Cases
Posted by NCBRC - March 24th, 2015
Today, the Supreme Court heard oral argument in Bank of America, N.A. v. Caulkett and Bank of America, N.A., v. Toledo-Cardona. At issue is whether chapter 7 debtors may strip off junior mortgages where there is no value in the collateral to support the junior lien. Here’s the transcript. Well worth the read!
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NACBA Weighs in on Chapter 7 Lien Stripping
Posted by NCBRC - February 27th, 2015
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.”
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Debtor Brief Filed in SCt Chapter 7 Lien Strip Case
Posted by NCBRC - February 18th, 2015
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.
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Supreme Court to Hear Chapter 7 Lien Stripping Cases
Posted by NCBRC - November 17th, 2014
The Supreme Court granted certiorari today in two of the three Chapter 7 lien-strip-off cases challenging the Eleventh Circuit decision in McNeal. Bank of Amer. v. Toledo-Cardona, No. 14-163 and Bank of Amer. v. Caulkett, No. 13-1421 (petition granted Nov. 17, 2014) (consolidated for argument) (Bank of Amer. v. Bello, No. 14-235 is still pending). In McNeal v. GMAC Mortg., 735 F.3d 1263 (11th Cir. 2012) pet. den. (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. There are more than a dozen cases currently pending in the Eleventh Circuit challenging this decision, but, after an early abortive attempt to bring the issue before the Supreme Court (Bank of America v. Sinkfield, No. 13-700 (cert. denied, March 31, 2014)) the issue is now on track for final resolution. Briefing should be completed by March and argument is likely to be scheduled for the last week of March, with decision by June. The debtor is being represented by Stephanos Bibas, the Director of the Supreme Court Clinic at the University of Pennsylvania Law School.
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Eighth Circuit Joins Sister Courts on Lien Stripping in Chapter 13
Posted by NCBRC - September 8th, 2014
Dealing with the issue it side-stepped in Fisette v. Keller (In re Fisette), 695 F.3d 803 (8th Cir. 2012), and joining all other circuit courts to address the issue, the Eighth Circuit held that a wholly unsecured lien may be stripped in chapter 13. Minn. Hous. Fin. Agency v. Schmidt (In re Schmidt), No. 13-2447 (8th Cir. Aug. 28, 2014). Read More
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Debtors Enjoying Growing Consensus on Chapter 20 Lien Strip Cases
Posted by NCBRC - July 15th, 2014
Following closely on the heels of the Eleventh Circuit decision in In re Scantling, the BAP for the Sixth Circuit held that chapter 20 debtors may strip liens despite the unavailability of discharge. In re Cain, No. 13-8045 (July 14, 2014). Read More
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Eleventh Circuit Joins Fourth in Allowing Chapter 20 Lien Strip
Posted by NCBRC - June 19th, 2014
Yesterday, the Eleventh Circuit joined the Fourth Circuit in affirming the debtor’s ability to strip a wholly unsecured lien in chapter 13 where no discharge is available. In re Scantling, No. 13-10558 (June 18, 2014).
After reviewing the historical development of lien stripping under the Bankruptcy Code, the court, relying on its previous decision in Tanner v. Firstplus Financial, Inc., 217 F.3d 1357 (11th Cir. 2000), stated that in order for a claim to be “secured” and trigger the antimodification provisions of § 1322(b)(2), the collateral must have at least some value. In this case, it was undisputed that the amount owed on the first mortgage exceeded the property value, leaving no collateral value to support the junior mortgages. The court stated that though BAPCPA amended the discharge provision of 1328(f), it did not amend the two operative sections for lien stripping in chapter 13: §§ 506 or 1322(b)(2). Therefore, the court concluded the analysis for lien stripping in chapter 13 cases is the same irrespective of whether the debtor is eligible for a discharge.
The court rejected creditor’s argument based on In re Gerardin, 447 B.R. 342 (Bankr. S.D. Fla. 2011), that its claim was an “allowed secured claim” for purposes of section 1325(a)(5)(B)(i). Section 1325(a)(5)(B)(i) provides that creditors holding allowed secured claims retain their liens until (1) payment in full under applicable non-bankruptcy law, or (2) discharge. As the Eleventh Circuit correctly noted in this case the creditor did not hold an allowed secured claim, and therefore section 1325(a)(5)(B)(i) was inapplicable.
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Chapter 7 Lien Strip Issue in Eleventh Circuit Unclogged
Posted by NCBRC - June 2nd, 2014
Cases have been piling up in the Eleventh Circuit challenging that court’s position that a chapter 7 debtor may strip a wholly unsecured lien. See In re Brown No. 13-14298 (lead case). But that court’s recent decision in Bank of Amer. v. Toledo-Cardona, No. 13-15855 (May 15, 2014) (relying on McNeal), and more significantly, its denial of petitions for rehearing and rehearing en banc in the case of McNeal v. GMAC Mortg., LLC, 735 F.3d 1263 (11th Cir. 2012) pet. den. (May 20, 2014), suggest that movement toward Supreme Court resolution may be in the offing. Read More
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