Erdmann v. Charter One Bank (In Re Erdmann)
446 B.R. 861
Bankr. N.D. Ill.2011Background
- Debtors Alexander and Catherine Erdmann filed a chapter 13 plan for 2 Genesee Court, Bolingbrook, IL, with a secured claim totaling $331,990 and a value of $279,250 for the residence.
- Alexander previously filed a chapter 7, obtaining a discharge but leaving Charter One Bank's second mortgage lien in place; the plan later moved Charter One's lien from secured to unsecured.
- The Debtors filed a March 11, 2010 adversary proceeding seeking to strip Charter One Bank's lien; a modified plan filed May 10, 2010 altered Section G to declare the lien wholly unsecured and to avoid it.
- Confirmation of the modified plan occurred May 14–20, 2010, but the Bank's notice of the modification did not reach Charter One until after confirmation, and the Bank objected May 19, 2010, without timely opportunity to be heard on the term.
- The court ultimately vacated Section G.5. of the modified plan as to lien avoidance, while leaving other plan provisions intact; the case then proceeded on whether the lien could be stripped under the bankruptcy plan and discharge rules.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether due-process notice defects void the confirmation as to Section G.5. | Debtors contend notice was proper or non-binding due to plan modification. | Charter One asserts lack of due process for the modified term prior to confirmation. | Section G.5. vacated for due-process violation; other terms remain binding. |
| Can a confirmed plan strip a junior lien before discharge under 1325(a)(5) and Model Plan B.3? | Debtors argue lien can be stripped via Section G before discharge. | Charter One argues lien cannot be stripped prior to discharge; B.3 cannot be overridden to do so. | Lien stripping prior to discharge is not permitted; Section B.3 cannot be altered to strip before discharge. |
| Does tenancy by the entirety permit unilateral lien stripping for one spouse when the other is ineligible for discharge? | Catherine could strip her interest, given discharge eligibility. | Lien stripping cannot occur without both spouses acting as a single marital unity; ineligibility of Alexander blocks action. | Tenancy by the entirety is all-or-nothing; Alexander's ineligibility precludes stripping; defendant wins. |
Key Cases Cited
- Espinosa v. United Student Aid Funds, Inc., 130 S. Ct. 1367 (2010) (Rule 60(b)(4) applies to due-process voidness of confirmatory orders)
- In re Fenn, 428 B.R. 494 (Bankr.N.D. Ill. 2010) (lien stripping before discharge not allowed under Model Plan mechanics)
- In re Linkous, 990 F.2d 160 (4th Cir. 1993) (due process issues can affect confirmation as to particular terms)
- In re Hunter, 284 B.R. 806 (Bankr.E.D. Va. 2002) (tenancy by the entirety considerations in lien issues)
- Toth v. In re Toth, 61 B.R. 160 (Bankr.N.D. Ill. 1986) (notice-based binding on creditors in chapter 13 plans)