In Re Scotto-Diclemente
459 B.R. 558
Bankr. D.N.J.2011Background
- Debtor executed a $180,000 loan to Amboy Bank in 2003 secured by a First Mortgage on the Keansburg residence.
- Debtor also executed a $75,000 Equity Line with a Second Mortgage on the same property in 2005.
- In 2008, Debtor executed a $363,279.57 Installment Note secured by a Third Mortgage; Debtor guaranteed it.
- Debtor filed Chapter 7 in 2010 and received a discharge; six months later filed Chapter 13 in 2011 seeking to cure arrears and strip the Second and Third Mortgages.
- Plan proposes to cure First Mortgage arrears and strip entirely the Second and Third Mortgages; other creditors are unsecured or unaffected.
- Court must decide (a) good faith under §1307(c) and (b) whether §1325(a)(5) allows lien-stripping in a Chapter 20 context and whether §109(e) debt limits defeat eligibility.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Good faith of Chapter 13 filing | Amboy argues filing is bad faith to strip liens. | Scotto-DiClemente contends plan seeks legitimate reorganization and arrears cure. | Court finds good faith overall; not dismissed solely on good faith. |
| Authority to strip wholly unsecured residential liens in Chapter 20 | Amboy contends lien-stripping should not be permitted in no-discharge Chapter 13. | Debtor asserts Chapter 13 can strip wholly unsecured liens if plan completes and is made in good faith. | Lien-stripping of wholly unsecured junior liens allowed in Chapter 20 with good faith and plan completion. |
| Effect of Chapter 7 discharge on lien avoidance and 1325(a)(5) | Amboy relies on lien retention rules and discharge limitations. | Debtor argues in rem claims persist and can be avoided under 506(a) and 1322(b)(2). | In rem liens remain; wholly unsecured in rem liens may be avoided if plan is otherwise confirmable. |
| Eligibility under 11 U.S.C. §109(e) after lien-stripping | Amboy contends debt limits exceed §109(e) thresholds. | Debtor argues only unsecured debts matter after discharge, not in rem claims. | Debtor exceeds §109(e) debt limits when in rem unsecured claims are counted; case must be dismissed. |
| Effect of §1325(a)(5) to wholly unsecured claims | Amboy contends §1325(a)(5) applies only to secured claims. | Debtor argues §1325(a)(5) can govern treatment of unsecured claims via avoidance. | §1325(a)(5) does not apply to wholly unsecured liens; lien avoidance can proceed. |
Key Cases Cited
- In re Lilley, 91 F.3d 491 (3d Cir. 1996) (non-exhaustive grounds for dismissal include bad faith filing)
- Johnson v. Home State Bank, 501 U.S. 78 (Supreme Court, 1991) (discharge of debtor in personam; in rem rights survive)
- Nobelman v. American Sav. Bank, 508 U.S. 324 (Supreme Court, 1993) (limits on strip-down of partially secured liens under 1322(b)(2))
- McDonald v. Master Fin., Inc. (In re McDonald), 205 F.3d 606 (3d Cir. 2000) (majority rule permitting lien modification of wholly unsecured junior liens)
- Dewsnup v. Timm, 502 U.S. 410 (Supreme Court, 1992) (no authority to strip-down partially secured lien under 506)