In Re Hill
440 B.R. 176
| Bankr. S.D. Cal. | 2010Background
- Debtors filed a Chapter 13 case five days after receiving a Chapter 7 discharge in a prior case, creating a Chapter 20 scenario.
- Residence value is disputed: listed at $300,000 but appraisal valued at $252,000, with senior lien of $369,000 and a junior CIT lien of about $78,956 plus a minor tax lien.
- Debtors propose to strip CIT’s lien under 11 U.S.C. §§ 1322, 506(a)/(d) because the home has no equity to secure the lien.
- Plan does not seek a discharge; unsecured creditors would receive a modest dividend, with CIT treated as a zero-valued secured claim.
- CIT’s claim was discharged in the prior Chapter 7; the plan contends CIT becomes an unsecured or in rem claimant under § 1322.
- Trustee objects on good-faith grounds and confirms the plan would restructure rather than merely avoid a lien.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does § 506(d) authorize Chapter 13 lien strips independent of plan confirmation? | Hill | Hill | No; § 506(d) cannot authorize lien stripping in Chapter 13; use § 1322 for lien strips. |
| Is a discharge required in Chapter 20 to confirm a plan? | Hill | Hill | Discharge is not required to confirm a Chapter 20 plan. |
| How should a stripped lien be treated in a Chapter 20 plan when there is no value securing it? | Hill | Hill | CIT’s lien is treated as unsecured in the plan; its in rem claim is addressed, not a secured lien. |
| How is CIT’s claim quantified and treated under the plan? | Hill | Hill | CIT’s claim is deemed unsecured; the plan provides pro rata treatment of the unsecured class. |
| Was the Chapter 20 plan proposed in good faith? | Hill | Hill | Plan proposed in good faith; not a mere vehicle to strip liens or to avoid discharge. |
Key Cases Cited
- Dewsnup v. Timm, 502 U.S. 410 (1992) (506(d) cannot authorize lien stripping in Chapter 7; limits apply to reorganization.)
- Nobelman v. American Savings Bank, 508 U.S. 324 (1993) (1322 provides superior authorization for lien strips in Chapter 13.)
- In re Zimmer, 313 F.3d 1220 (9th Cir. 2002) (unsecured treatment under 1322 when lien is stripped; § 506(a) vs 1322 framework.)
- Tran, 431 B.R. 230 (9th Cir. N.D. Cal. 2010) (lien strips permitted in Chapter 20 even without a discharge.)
- Johnson v. Home St. Bank, 501 U.S. 78 (1991) (Congress did not intend to bar Chapter 13 relief to debtors who previously filed Chapter 7.)
- In re Enewally v. Washington Mutual Bank, 368 F.3d 1165 (9th Cir. 2004) (discusses § 506(d) and Chapter 7 context; supports limits of § 506(d).)