In re: Aleli A. Hernandez, CC-16-1228-LKuF CC-16-1244-LKuF

Debtor obtained a chapter 7 discharge in 2010 that discharged her personal liability on two deeds of trust encumbering her home.
In 2015 Debtor filed a chapter 13 case listing the residence (value $950,000), a senior lien to Chase (~$1,036,490), and a junior lien held by SW Linear/AMH that she listed as secured $0 and unsecured $278,396.71 while noting a motion to value/avoid the junior lien at zero.
AMH (successor to SW Linear) filed a proof of claim for $459,221.60 and moved to dismiss the chapter 13, arguing Debtor exceeded § 109(e) debt limits whether AMH’s claim were treated as secured (would push secured debts over the limit) or unsecured (would push unsecured debts over the limit).
The bankruptcy court granted Debtor’s motion to value the junior lien at zero, denied AMH’s dismissal motion, overruled AMH’s objection to confirmation (bad faith), and confirmed the plan.
The BAP affirmed, holding AMH’s claim need not be counted as secured or unsecured for chapter 13 eligibility because (1) the lien was wholly unsecured and valuated at zero and (2) Debtor’s in personam liability on the unsecured portion had been discharged in chapter 7.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether AMH’s claim must be included in § 109(e) eligibility calculation	AMH: the in rem lien survives discharge and thus the debt must be counted (as secured or as unsecured) for eligibility	Debtor: the junior lien was wholly unsecured (valued at $0) and Debtor’s in personam liability was discharged, so the claim need not be included	The BAP: did not err — AMH’s claim is not included as secured or unsecured for eligibility (relied on In re Free)
Whether Debtor’s chapter 13 petition/plan was filed in bad faith to strip AMH’s lien	AMH: the case was filed primarily to strip AMH’s lien and to circumvent Dewsnup prohibitions; patterns of serial filings show bad faith	Debtor: filing is permissible absent bad faith; no evidence of misrepresentation, manipulation, or egregious conduct	The BAP: clear-error review — no bad faith found; confirmation sustained

Johnson v. Home State Bank, 501 U.S. 78 (1991) (in rem mortgage rights survive chapter 7 discharge and constitute a claim enforceable against property)
HSBC Bank USA, N.A. v. Blendheim (In re Blendheim), 803 F.3d 477 (9th Cir. 2015) (chapter 13 lien avoidance of unsecured portion may be effective even without a chapter 13 discharge)
Free v. Malaier (In re Free), 542 B.R. 492 (9th Cir. BAP 2015) (holding discharged in personam liability on wholly unsecured junior liens need not be counted in § 109(e) eligibility)
Smith v. Rojas (In re Smith), 435 B.R. 637 (9th Cir. BAP 2010) (unsecured portion of undersecured debt is generally counted as unsecured for § 109(e) eligibility)
Henrichsen v. Scovis (In re Scovis), 249 F.3d 975 (9th Cir. 2001) (eligibility normally determined from original schedules but courts may consider readily ascertainable circumstances such as lien undersecurity)
Quintana v. Commissioner (In re Quintana), 915 F.2d 513 (9th Cir. 1990) (aggregate debt includes claims enforceable against property; discussed in chapter 12 context)
Davis v. U.S. Bank, N.A. (In re Davis), 778 F.3d 809 (9th Cir. 2015) (aggregate debt includes unsecured portion of a creditor’s claim discharged in prior chapter 7; chapter 12 context)