In Re Jennings
454 B.R. 252
| Bankr. N.D. Ga. | 2011Background
- Debtors Jennings filed a prior Chapter 13 in 2007, converted to Chapter 7 in 2009, discharged in 2010, and later filed a Chapter 13 in 2011 seeking lien stripping of a wholly underwater second mortgage on their home.
- Debtors Hill filed a Chapter 13 in 2009, converted to Chapter 7 in 2010, discharged in 2010, and then filed a Chapter 13 in 2010 seeking lien stripping of a wholly underwater second mortgage.
- Both plans propose stripping the second mortgage liens (Lendmark for Jennings; Wells Fargo for Hill) where the liens are not adequately secured by collateral value.
- The chapter 13 trustee objected to plan confirmation on the theory that Chapter 20 lien stripping is impermissible due to lack of discharge and related statutory mechanics.
- The court analyzes whether Chapter 20 lien stripping can be used, given that the debtors are ineligible for a Chapter 13 discharge under 11 U.S.C. § 1328(f), and whether the liens can be treated as unsecured for plan purposes.
- The court ultimately holds that Chapter 20 lien stripping is permissible if filed in good faith and completed through the Chapter 13 plan, with the stripped liens treated as unsecured claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Chapter 20 lien stripping is permissible. | Trustee argues it is impermissible as a de facto discharge. | Debtors contend nothing in the Code prevents Chapter 20 lien stripping. | Permissible, subject to good faith and plan completion. |
| How stripped liens must be treated in the plan. | Second mortgagees retain secured status and are not fully unsecured. | After lien strip, the second mortgagees become unsecured claimants. | Liens treated as unsecured claims post-strip; 1325(a)(5) not applicable. |
| What ends the Chapter 20 case and whether discharge is available. | Discharge may be obtained via Chapter 13 mechanics. | Discharge under 1328(f) is unavailable, but case should close without discharge. | Plan completion followed by closing the case without a discharge. |
| What good faith standards apply to Chapter 20 lien strips. | Good faith shown by debtor's circumstances and plan feasibility. | No clear change in circumstances; potential abuse of bankruptcy system. | Good faith assessed under totality of circumstances; plan feasible and proposed in good faith. |
Key Cases Cited
- In re Tanner, 217 F.3d 1357 (11th Cir. 2000) (defines treatment of secured vs. unsecured under 506(a) and 1322(b)(2))
- In re Nobelman, 508 U.S. 324 (Supreme Court 1993) (discusses lien stripping and 1322(b)(2) protections)
- Dewsnup v. Timm, 502 U.S. 410 (Supreme Court 1992) (liens pass through bankruptcy; 506(a) vs 506(d) distinction)
- In re Nwogbe, 451 B.R. 90 (Bankr. D. Nev. 2011) (supports lien stripping for Chapter 20 with good faith and plan completion)
- In re Hill, 440 B.R. 176 (Bankr. S.D. Cal. 2010) (articulates good faith factors for Chapter 20 lien stripping)
- In re Tran, 431 B.R. 230 (Bankr. N.D. Cal. 2010) (additional framework for Chapter 20 good faith considerations)