513 B.R. 316
6th Cir.2014Background
- Debtor Andrea M. Cain received a Chapter 7 discharge on Feb. 1, 2008 and then filed Chapter 13 on July 3, 2008 to cure debts and avoid a wholly unsecured second mortgage on her residence.
- Debtor’s confirmed Chapter 13 plan (Sept. 18, 2008) provided for avoidance of Amerifirst’s wholly unsecured second mortgage.
- Debtor was ineligible for a Chapter 13 discharge under 11 U.S.C. § 1328(f)(1) because of the prior Chapter 7 discharge.
- After plan completion the Chapter 13 case was closed without a discharge; Debtor then moved to avoid Amerifirst’s lien to effectuate the confirmed plan.
- The Bankruptcy Court denied the motion, reasoning that §1325(a)(5)(B) requires the lien remain until payment or discharge and, because Debtor could not receive a discharge, the lien could not be stripped.
- The BAP reversed, holding that under §506(a) Amerifirst’s lien was wholly unsecured and therefore could be avoided in Chapter 13 even though Debtor was ineligible for discharge.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a debtor who received a Chapter 7 discharge within four years may strip off a wholly unsecured junior mortgage in a subsequent Chapter 13 (a "Chapter 20" case). | Debtor: §506(a) valuation renders the junior mortgage unsecured; §1322(b)(2) anti-modification protection applies only to secured claims, so lien may be stripped despite §1328(f). | Amerifirst/Bankr. Ct.: §1325(a)(5)(B) preserves a secured creditor’s lien until paid or the debtor receives a discharge; because §1328(f) bars discharge, the lien must remain. | BAP: Reversed. Under §506(a) the lien is unsecured and may be avoided in Chapter 13 even if debtor is ineligible for a discharge. |
| Whether the Bankruptcy Court was bound to effectuate the lien-avoidance term of the confirmed plan. | Debtor: Confirmed plan provision avoided the junior lien; court should effectuate it. | Amerifirst: (implicit) the court need not grant permanent avoidance where no discharge is available. | Panel declined to decide; remanded for entry consistent with opinion. |
Key Cases Cited
- Nobelman v. American Savings Bank, 508 U.S. 324 (1993) (determines scope of anti-modification protection for claims secured by debtor’s principal residence)
- Dewsnup v. Timm, 502 U.S. 410 (1992) (limits §506(d) lien-stripping for partially secured claims)
- Lane v. Western Interstate Bancorp, 280 F.3d 663 (6th Cir. 2002) (holds wholly unsecured junior mortgage is an unsecured claim under §506(a) and may be stripped)
- Branigan v. Davis (In re Davis), 716 F.3d 331 (4th Cir. 2013) (permits strip-off of valueless junior lien in Chapter 20 case)
- Fisette v. Keller (In re Fisette), 455 B.R. 177 (B.A.P. 8th Cir. 2011) (permits lien avoidance of wholly unsecured junior mortgage despite prior Chapter 7 discharge)