The Supreme Court denied cert. in the lien strip case of Bank of America v. Sinkfield, No. 13-700, involving the issue of whether section 506(d) permits the strip off of a wholly unsecured lien in chapter 7. Read More
Tag Archive: Lien Stripping
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Certiorari Denied in Lien Strip Case
Posted by NCBRC - March 31st, 2014
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Petition for Certiorari filed in Chapter 7 Lien Stripping Case
Posted by NCBRC - December 13th, 2013
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. Read More
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Debtor has Standing to Move to Avoid Statutory Lien
Posted by NCBRC - November 15th, 2013
A debtor has standing under section 522(h) to bring an action to avoid a statutory lien under section 545(2). In In re McCarthy, No. 13-6042 (B.A.P. 8th Cir. Oct. 28, 2013), the debtor filed an adversary proceeding seeking to avoid an attorney fee statutory lien as impairing his homestead exemption under Minnesota law. The bankruptcy court dismissed the proceeding on the basis that, under section 545(2), the debtor “lacks the authority and ability to exercise the strong-arm powers of the trustee to defeat a statutory lien.” The BAP found that, while section 545 does provide that the “trustee may avoid the fixing of a statutory lien on property of the debtor,” the bankruptcy court’s inquiry should not have stopped there. Section 522(h), in conjunction with section 522(g)(1), provides an avenue for the debtor to avoid a lien that is avoidable by the trustee under section 545. Under these sections the BAP set forth five requirements that must be met to allow a debtor to avoid a statutory lien: “(1) the debtor’s transfer of property must have been involuntary; [§ 522(g)(1)(A)] (2) the debtor must not have concealed the property [§ 522(g)(1)(B)]; (3) the trustee must not have attempted to avoid the transfer [§ 522(h)(2)]; (4) the debtor must seek to exercise an avoidance power enumerated under § 522(h); and (5) the transferred property must be such that it could have been exempted if the trustee had avoided the transfer under the provisions of § 522(g) [§ 522(h)(1)].” Finding that section 522 gives the debtor the power to avoid the statutory lien, despite section 545’s limitation to the trustee, the court reversed and remanded to allow the bankruptcy court to address the merits of the debtor’s lien avoidance action.
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Trustee’s Abandonment of Property Does Not End Court’s Jurisdiction
Posted by NCBRC - November 4th, 2013
The BAP for the First Circuit determined that the bankruptcy court erred when it found that it lacked jurisdiction over a motion to avoid a lien under section 522(f). In re Rosado-Ramos, No. 13-5 (Oct. 22, 2013). Read More
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Lien Avoidance Four Years after Discharge
Posted by NCBRC - August 21st, 2013
How late is too late to amend schedules to include a secured creditor and claim a homestead exemption for purposes of section 522(f) lien avoidance? The BAP for the Ninth Circuit addressed the question in the case of Green v. HAPO Community Credit Union (In re Green), No. 12-1486 (Aug. 12, 2013), in which it reversed the bankruptcy court’s dismissal of the debtor’s motion to avoid lien and ordered that, upon remand, the lower court grant the motion. Read More
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Eleventh Circuit Gearing Up to Revisit Chapter 7 Lien Strip
Posted by NCBRC - August 5th, 2013
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 courts’ finding that, pursuant to 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).
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No Lien Strip Permitted in Chapter 7 under Section 506
Posted by NCBRC - July 29th, 2013
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
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Two New Cases Support Majority in Ch.20 Lien Stripping
Posted by NCBRC - July 17th, 2013
While the issue of lien stripping in no discharge chapter 13’s 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.
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Dewsnup Rears its Ugly Head in Seventh Circuit Chapter 13 Case
Posted by NCBRC - July 9th, 2013
In Ryan v. U.S.A., No. 12-3398 (7th Cir. July 8, 2013), the IRS had a tax lien on debtor’s property as security for delinquent taxes of more than $136,000.00. At the time 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
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Disallowed Claim Renders Lien Void Under 506(d)
Posted by NCBRC - June 12th, 2013
The Fourth Circuit found that a lender’s lien was extinguished upon debtor’s discharge where the lender’s proof of claim had been disallowed due to the lender’s failure to provide the necessary documents to prove that it had a perfected security interest. National Capital Management v. Gammage-Lewis, No. 12-2286 (June 6, 2013). Read More
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