Monday, June 15, 2015

Can A Lien Still Be Stripped Off In A Chapter 13?

Well, the answer is, as of today, we do not know.  We have yet to see how the courts will react to Bank of America vs. Caulkett.  Below is one attorneys analysis of the situation regarding Chapter 13 cases:

The court explained that the anti-modification protections provided to secured creditors by 11 U.S.C. § 1322(b)(2) apply only when the creditor's lien actually has some value, drawing a distinction between under-secured liens and liens without any value whatsoever. "'Section 1322(b)(2) protects a creditor's rights in a mortgage lien only where the debtor's residence retains enough value — after accounting for other encumbrances that have priority over the lien — so that the lien is at least partially secured under Section 506(a).'" Id. at 881-82 (quoting Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122, 126 (2d Cir. 2001)). When "the creditor's claim is wholly unsecured, then the reasoning of Nobelman [v. American Sav. Bank, 508 U.S. 324 (1993) (prohibiting stripping of partially secured liens)] does not preclude modifying the creditor's rights under § 1322(b)(2)." Id. at 882. A wholly unsecured creditor does not hold a claim secured by the debtor's residence, so the anti-modification [4]  provision does not apply. Id. (citing McDonald v. Master Fin'l, Inc. (In re McDonald), 205 F.3d 606, 612 (3d Cir. 2000)). Accordingly, Chapter 13 debtors may strip off the lien of a junior lienholder where there is no equity securing the security interest in the property.

If you have a different analysis, please enter it below.


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