In Re Okosisi
451 B.R. 90
| Bankr. D. Nev. | 2011Background
- Debtors filed Chapter 13 after a prior Chapter 7 discharge; they are ineligible for discharge in the current case but seek to reorganize.
- Debtors’ primary residence is encumbered by a first priority mortgage to Citimortgage for $383,000 and a second priority mortgage to Nevada State Bank for $302,125; value of residence estimated at $342,000.
- The second-priority lien on the residence was unopposed and motioned to be avoided; the court granted lien avoidance preliminarily.
- The plan incorporates the lien avoidance and seeks to treat the Nevada State Bank lien as wholly unsecured; the Chapter 13 trustee objected to confirmation.
- The court held the lien avoidance may be permanent upon completion of the plan and confirmed the Chapter 13 plan despite no discharge in this Chapter 20 scenario.
- This decision analyzes lien avoidance under 11 U.S.C. §§ 506(a), 1322(b)(2), 1325(a)(5), and 1327 in the context of a no-discharge Chapter 13 case.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can a Chapter 20 debtor permanently avoid a lien on a primary residence without discharge | Nevada State Bank argues lien avoidance cannot be permanent absent discharge | Debtors argue 506(a) classification and 1322(b)(2) allow permanent avoidance | Yes; lien avoidance can be permanent upon plan completion when properly classified as unsecured under 506(a) and protected by 1322(b)(2) and 1327. |
| Does 1325(a)(5) apply to unsecured claims in a Chapter 20 case | Creditors rely on 1325(a)(5) to retain liens until discharge or payoff | unsecured status after 506(a) removes secured-status rights; 1325(a)(5) inapplicable | No; 1325(a)(5) does not apply to unsecured claims; lien treatment proceeds under 1322(b)(2). |
| Whether lien avoidance in a no-discharge Chapter 13 case becomes permanent upon plan completion | Debtors may avoid lien but permanence is uncertain without discharge | No-discharge status does not defeat permanency; permanence secured by 1327 and plan confirmation | Permanent upon successful completion of all plan payments; case closed without discharge but lien avoidance survives. |
| Was the plan proposed in good faith and proper under Code requirements | Trustee alleges potential bad faith in use of Chapter 13 post-discharge | Plan cures arrearage, addresses taxes, and reflects best effort to repay creditors | Yes; plan proposed in good faith and for proper bankruptcy purposes. |
Key Cases Cited
- Nobelman v. American Sav. Bank, 508 U.S. 324 (1993) (distinguishes secured vs. unsecured in bankruptcy (506(a)) and scope of rights)
- Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220 (9th Cir. 2002) (antimodification protection applies when a claim remains secured after 506(a))
- Lane v. Goepfert? (In re Lane), 280 F.3d 663 (6th Cir.2002) (recognizes treatment of unsecured claims post-506(a))
- Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122 (2nd Cir.2001) (unsecured status after 506(a) allows modification under 1322(b)(2))
- Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357 (11th Cir.2000) (unclear secured status leads to plan modification under 1322(b)(2))
- Bartee v. McCall? (In re Bartee), 212 F.3d 277 (5th Cir.2000) (analysis of secured vs unsecured status in Chapter 13)
- McDonald v. Master Fin. Inc. (In re McDonald), 205 F.3d 606 (3rd Cir.2000) (role of secured status in Chapter 13 treatment)
- Griffey v. U.S. Bank (In re Griffey), 335 B.R. 166 (10th Cir. BAP 2005) (BAP addressing lien avoidance and Chapter 20)
- Mann v. U.S. Bank (In re Mann), 249 B.R. 831 (1st Cir. BAP 2000) (recognizes lien avoidance within Chapter 13 framework)
- Leavitt v. United States (In re Leavitt), 171 F.3d 1219 (9th Cir.1999) (pre-BAPCPA framework for Chapter 13 outcomes)
- Tran v. Bank of America (In re Tran), 431 B.R. 230 (Bankr.N.D. Cal.2010) (no-discharge Chapter 13 and permanency of lien avoidance)
- Johnson v. Home State Bank, 501 U.S. 78 (1991) (limits on repeat filings; supports balancing reorganization tools)
- Dewsnup v. Timm, 502 U.S. 410 (1992) (Dewsnup limit on removing lien purely by downplaying value)
- United States v. Snyder, 343 F.3d 1171 (9th Cir.2003) (concepts of secured status in bankruptcy)
- In re Davis, 447 B.R. 738 (Bankr.D.Md.2011) (supports unsecured-status lien avoidance in Chapter 13)