In re: Serge Michel Boukatch and Lori Jean Boukatch
AZ-14-1483-KiPaJu
| 9th Cir. BAP | Jul 9, 2015Background
- Debtors filed Chapter 13 in 2011, converted to Chapter 7; their residence was abandoned and they received a Chapter 7 discharge in March 2013.
- Debtors filed a new Chapter 13 case in April 2014 (a "chapter 20" situation because within 4 years of a Chapter 7 discharge) and again valued the residence at $187,500.
- Two mortgages: a first lien held by Wells Fargo (~$228,300) and a second junior lien held by MidFirst (~$67,485); MidFirst’s junior lien was wholly unsecured after valuation under § 506(a).
- Debtors moved to “strip off” MidFirst’s wholly unsecured junior lien under §§ 506(a) and 1322(b)(2); MidFirst did not appear or object.
- Bankruptcy court denied the lien-stripping motion, reasoning (following Victorio/Billingslea) that a chapter 20 debtor cannot permanently strip a junior lien when the debtor is ineligible for a Chapter 13 discharge.
- The BAP reversed: it held that § 506(a) valuation governs, a wholly unsecured junior lien may be stripped in chapter 20 cases, and plan completion (not discharge) renders avoidance permanent.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a chapter 20 debtor may avoid/"strip off" a wholly unsecured junior lien on principal residence when no Chapter 13 discharge will be entered | Debtors: § 506(a) classifies the lien as wholly unsecured; § 1322(b)(2) does not protect such unsecured claims, so lien stripping is permissible even if debtor is ineligible for discharge | Bankruptcy court / Victorio: Allowing permanent strip without discharge would circumvent § 1328(f) and create a "de facto" discharge or, at least, any avoidance is not permanent absent discharge or full payment | BAP: Reversed — lien stripping is permitted; § 506(a) determines status, § 1322(b)(2) antimodification protection does not apply to wholly unsecured claims, and plan completion (not discharge) makes avoidance permanent |
Key Cases Cited
- Zimmer v. PSB Lending Corp., 313 F.3d 1220 (9th Cir. 2002) (requires § 506(a) valuation first to classify claims before § 1322(b) analysis)
- Nobelman v. American Savings Bank, 508 U.S. 324 (1993) (antimodification principle in § 1322(b)(2) interpreted in light of secured-claim status)
- Dewsnup v. Timm, 502 U.S. 410 (1992) (limits use of § 506(d) in Chapter 7 to avoid consensual liens)
- Johnson v. Home State Bank, 501 U.S. 78 (1991) (permits Chapter 13 relief after a prior Chapter 7)
- Wells Fargo Bank, N.A. v. Scantling (In re Scantling), 754 F.3d 1323 (11th Cir. 2014) (holds chapter 20 debtors may permanently strip wholly unsecured junior liens)
- Branigan v. Davis (In re Davis), 716 F.3d 331 (4th Cir. 2013) (same: discharge eligibility is not determinative)