The Eighth Circuit BAP found that a chapter 13
debtor may strip off a wholly unsecured lien on his principal residence even
where the debtor is not entitled to discharge. In re Fisette, 11-6012 (B.A.P. 8th Cir.,
August 29, 2011). In so holding the court joined the other Circuit and BAP
courts that have held that the reasoning in Nobelman v. Am. Savings Bank, 508 U.S. 324 (1993) establishes the right
to strip off wholly unsecured residential liens. Turning to the issue of whether
ineligibility for discharge under section 1328(f)(1) precludes the otherwise
permissible lien stripping, the court stated: “We hold that the strip off
of a wholly unsecured lien on a debtor’s principal residence is effective upon
completion of the debtor’s obligations under his plan, and it is not contingent
on his receipt of a Chapter 13 discharge.” Unlike the courts that have found that
section 1325(a)(5) precludes lien-stripping in a chapter 20, the Fisette court recognized that, pursuant
to the statutory language, the requirements of section 1325(a)(5) were not
applicable to a claim that was not an allowed secured claim. The court concluded
its analysis with a finding that the creditors whose liens were stripped would
be entitled to distribution of the estate along with the other unsecured
creditors.
The Trustee filed a notice of appeal to the Eighth
Circuit on September 21st.
Tara
Twomey of the
Amicus Project assisted in writing debtor’s brief.
The Fisette decision has since been used in
supplemental briefing in several ongoing cases dealing with this issue
including: In re Waterman, No. 11-139
(M.D. Fla.); Lindskog v. M&I
Bank, No. 11-476 (E.D. Wisc.); In re
Sadowski, No. 10-21894 (Bankr. D. Conn.)
Source: NACBA September 2011 Newletter
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