465 B.R. 671
Bankr. M.D. Fla.2012Background
- Debtor filed a Chapter 20 case seeking to strip second and third mortgages on her principal residence, currently totaling about $104,000, while a first mortgage of about $122,000 remains.
- Value of homestead is approximately $118,000, making the second and third liens wholly unsecured and subject to stripping.
- Wells Fargo Bank, N.A. holds the second and third mortgages and objects to stripping based on the Debtor’s prior discharge in a Chapter 7 within four years.
- Debtor previously discharged in Chapter 7 (Nov. 27, 2009), and this Chapter 20 case follows within the four-year window, raising eligibility concerns for discharge.
- Parties bifurcated the hearing to decide, as a matter of law, whether a Chapter 20 debtor may strip a wholly unsecured junior lien in Chapter 13’s framework, with Eleventh Circuit precedent implicated but not directly addressing this precise issue.
- Court acknowledges split authority on the issue and that Nobelman/Tanner-type considerations guide the analysis below.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can a Chapter 20 debtor strip a wholly unsecured junior mortgage? | Wells Fargo argues stripping is improper due to discharge in prior Chapter 7. | Debtor contends Chapter 20 permits lien strip regardless of discharge eligibility. | Yes; a Chapter 20 debtor may strip a wholly unsecured junior mortgage. |
| Is discharge eligibility a prerequisite for lien stripping in Chapter 20? | Discharge in prior Chapter 7 bars relief in Chapter 20. | Eligibility for discharge is not required for lien stripping. | No; discharge eligibility is not a prerequisite for stripping. |
| Which Bankruptcy Code provisions govern stripping in Chapter 20? | §1325(a)(5) controls plan treatment of secured claims. | §1322(b)(2) and §506(a) govern lien strip in Chapter 20. | Strip occurs under §506(a) and §1322(b)(2); §1325(a)(5) does not apply to this relief. |
| Do Supreme Court precedents constrain Chapter 20 lien stripping? | Nobelman/Johnson principles limit modification where residence is involved. | Those cases guide but do not foreclose Chapter 20 stripping; Tanner supports it. | Precedents support lien stripping in Chapter 20; Nobelman does not bar wholly unsecured stripping. |
| Is good faith required and when is lien avoidance permanent? | Good faith required for plan confirmation; lien avoidance becomes permanent after full plan completion. |
Key Cases Cited
- Johnson v. Home State Bank, 501 U.S. 78 (1991) (debtors may file chapter 13 plans modifying secured/unsecured claims with in rem rights preserved)
- Dewsnup v. Timm, 502 U.S. 410 (1992) (§506(d) must operate with another provision to strip a lien)
- Nobelman v. American Savings Bank, 508 U.S. 324 (1993) (§1322(b)(2) protects rights of holders of encumbrances on principal residence; not limited to secured claims only)
- In re Tanner, 217 F.3d 1357 (11th Cir. 2000) (holding that chapter 20 lien stripping of wholly unsecured junior mortgage is permissible)