In Re Miller
462 B.R. 421
Bankr. E.D.N.Y.2011Background
- Miller (Case 09-71396-ast) had a prior chapter 7 discharge in 2009 and filed a chapter 13 petition in 2011 seeking to strip a second, wholly unsecured mortgage lien on his Holbrook residence; the property is valued around $350,000 with first lien by Bayview and second lien by BOA (Aegis/ DLJ).
- Paulette (Case 09-75425-dte) filed a chapter 13 petition in 2011 after a chapter 7 discharge in 2009 and seeks to strip a junior lien on his Margin Drive home; the property is valued around $235,000 with a first mortgage by Chase and a junior mortgage by Citibank.
- In both cases, the debtors request to treat the wholly unsecured junior mortgage as unsecured under 11 U.S.C. §506(a) and to avoid the lien under §506(d) in the course of plan confirmation, arguing no equity secures the junior lien.
- The Chapter 13 Trustee opposes stripping off the wholly unsecured liens due to the debtors’ ineligibility for a discharge under §1328(f), prompting the court to assess whether lien stripping is permissible even without discharge.
- The central issue is whether a chapter 13 debtor who cannot obtain a discharge may still confirm a plan that strips off a wholly unsecured junior mortgage lien on a primary residence.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May a chapter 13 plan strip off a wholly unsecured junior lien when the debtor is ineligible for discharge? | Miller and Paulette rely on Pond to treat the lien as unsecured and strip it off. | Trustee argues the plan cannot accomplish lien stripping without discharge. | Yes; strip off permissible even without discharge. |
| How do §506(a)/(d) interact with §1322(b)(2) and §1325(a)(5) in this context? | Value the collateral under §506(a) to determine secured status and treat wholly unsecured lien as unsecured. | Anti-modification constraints may restrict plan treatment. | §506(a) valuation allows treating the lien as unsecured; §1322(b)(2) does not shield a wholly unsecured lien. |
| Does ineligibility for discharge affect the debtor’s ability to confirm a plan stripping a lien? | Code does not condition lien stripping on discharge eligibility. | Discharge eligibility prevents confirmation of such a plan. | Discharge eligibility does not bar confirmation of the plan. |
| What is the effect on case end when there is plan completion without discharge? | Lien stripping becomes effective upon completion of plan payments; case can close without discharge. | Lien is avoided upon completion of plan payments; plan confirms and case may close without discharge. |
Key Cases Cited
- Pond v. Amer. Elec. & Gas Co., 252 F.3d 122 (2d Cir. 2001) (establishes that anti-modification does not apply where the lien is wholly unsecured; use §506(a) to determine secured status)
- Nobelman v. Am. Savings Bank, 508 U.S. 324 (Sup. Ct. 1993) (no strip-down of partially secured residential lien; value determined under §506(a) in plan context)
- Dewsnup v. Timm, 502 U.S. 410 (Sup. Ct. 1992) (distinguishes chapter 7 outcomes; affects treatment of liens absent discharge in other chapters)
- Johnson v. Home State Bank, 501 U.S. 78 (Sup. Ct. 1991) (mortgage lien survives discharge-defeating personal liability; lien as a claim may be treated in plan)
- Harmon v. United States, 101 F.3d 574 (8th Cir. 1996) (interprets 'allowed secured claim' in §1225/§1325 context by §506(a) bifurcation)