497 B.R. 15
Bankr. D.N.H.2013Background
- Debtors own a single-family residence at 235 Curtis Farm Road, Wilton, NH, encumbered by a first mortgage to Homeward Residential and a second mortgage to Bank of America/N.B. Mellon f/k/a The Bank of New York (Second Mortgage Holder).
- Debtors filed a prior chapter 7 in 2009, received a discharge April 1, 2010, and did not reaffirm the Second Mortgage or its predecessor interests.
- Debtors obtained a HAMP modification on January 31, 2012; first-mortgage balance after modification was around $247k, while property value was contested but accepted as $190k.
- After notice of foreclosure on the Second Mortgage in October 2012, Debtors filed for chapter 13 on November 16, 2012 with a plan to pay unsecured creditors in full and strip the Second Mortgage.
- The Second Mortgage Holder filed a proof of claim asserting a secured claim of $46,441.32; Debtors seek to determine the Second Mortgage as wholly unsecured and void under 11 U.S.C. § 1322(b).
- The court must decide whether a chapter 13 debtor who is ineligible for discharge due to a prior discharge may strip a wholly unsecured junior lien and whether the lien avoidance becomes permanent upon plan completion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a wholly unsecured second lien can be stripped in chapter 13 when debtor is ineligible for discharge | Debackers seek to strip the lien under §1322(b)(2) | Second Mortgage Holder argues lien remains secured despite no value | Yes; lien may be stripped under §1322(b)(2) despite discharge ineligibility |
| Nature of the Second Mortgage Holder’s claim (secured vs unsecured) | Claim should be treated as unsecured due to lack of value | Claim asserted as secured; allowed claim exists | Claim is unsecured in full; lien has no collateral value to support secured status |
| Effect of prior discharge on lien stripping under chapter 20 | Lien stripping allowed notwithstanding prior discharge; discharge not a prerequisite | Lien stripping may be barred without discharge | Chapter 13 lien stripping of a wholly unsecured lien permitted in chapter 20 without requiring discharge |
| Good faith requirement for chapter 20 lien stripping | Plan proposed to pay unsecured creditors in full and strip second lien; good faith present | Good faith insufficient to justify stripping | Good faith established by totality of circumstances; stripping allowed. |
Key Cases Cited
- Nobelman v. American Savings Bank, 508 U.S. 324 (U.S. 1993) (determines status of secured claim through collateral value under § 506(a))
- In re Mann, 249 B.R. 831 (1st Cir. BAP 2000) (unsecured lien status where collateral value is insufficient for secured claim)
- Davis, 716 F.3d 331 (4th Cir. 2013) (wholly unsecured junior liens may be stripped in chapter 13)
- Fisette v. Keller, 455 B.R. 177 (8th Cir. BAP 2011) (supports lien stripping in chapter 13 for wholly unsecured liens)
- Dewsnup v. Timm, 502 U.S. 410 (U.S. 1992) (limiting effect of 506(d) on lien stripping; later contexts differ)