In Re Victorio
454 B.R. 759
| Bankr. S.D. Cal. | 2011Background
- Debtors Ricardo and Jenny Victorio filed a Chapter 7 petition in 2007; their home valued at $455,000 carried senior lien by Indymac ($359,909) and junior lien by CitiMortgage ($89,083); Chapter 7 discharge granted in 2008.
- In 2010, they filed Chapter 13, asserting current home value at $213,500 and retaining the same senior lien amounts; they accrued taxes and $7,969 in Indymac arrears since filing.
- Debtors proposed to strip CitiMortgage’s junior lien on the principal residence, arguing there was no equity to attach, and to pay 100% of unsecured claims.
- Chapter 13 Trustee objected, claiming the lien strip is not final until discharge and that dismissal could reinstate the lien under § 349; argued potential in rem effects and non-discharge status.
- The court considered whether a Chapter 20 case may end with a permanent lien strip absent a discharge, including argument for a post-BAPCPA “fourth option” of closing without discharge, and ultimately held such permanent relief is not permitted absent payment or discharge.
- The court concluded that a Chapter 20 debtor cannot permanently strip a wholly unsecured junior lien without paying the claim or obtaining a discharge; the plan as proposed could not be confirmed and required amendment within 45 days.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Can a Chapter 20 debtor permanently strip a wholly unsecured junior lien on a principal residence without a discharge? | Victorios argue for a '4th option' of administrative closing to make lien strip permanent. | Trustee and Court reject permanent lien strip absent discharge or full payment; rely on Dewsnup, Nobelman, Leavitt, and pre-BAPCPA practice. | Permanent lien strip without discharge is not allowed; plan not confirmable as proposed. |
| Does the possibility of a Chapter 13 discharge within four years affect eligibility to strip the lien? | Debtors rely on post-BAPCPA interpretations to permit end without discharge. | Statutory framework for discharge within four years does not permit permanent lien avoidance without discharge. | Disallowance of permanent lien strip without discharge; discharge status governs permanence. |
| Is administrative closing without discharge a valid end to a Chapter 13 case after BAPCPA? | Debtors advocate administrative closing as a fourth option to end the case. | Court rejects the judicially created fourth option and relies on statutory structure for closing without discharge being inconsistent with congressional design. | No sanctioned 'fourth option' of closing without discharge; not a basis to permanently strip liens. |
| What is the status of CitiMortgage’s claim after a prior Chapter 7 discharge of personal liability? | Objection seeks disallowance or zero value due to discharge of personal liability. | Johnson v. Home State Bank recognizes lien survives as in rem or claim against estate; still enforceable against property. | CitiMortgage retains an unsecured claim against the estate; plan cannot treat it as fully discharged. |
Key Cases Cited
- In re Lam, 211 B.R. 36 (9th Cir. BAP 1996) (establishes non-modification when no equity to attach to junior lien)
- In re Zimmer, 313 F.3d 1220 (9th Cir. 2002) (confirms limitation on lien modification when value is zero)
- Dewsnup v. Timm, 502 U.S. 410 (U.S. 1992) (lien stays with bankruptcy; §506(d) not to strip down liens in Chapter 7)
- Nobelman v. American Savings Bank, 508 U.S. 324 (U.S. 1993) (protects mortgagee's rights under §1322(b)(2); no stand-alone lien avoidance in Chapter 13)
- Johnson v. Home State Bank, 501 U.S. 78 (U.S. 1991) (discharge of personal liability does not erase secured lien rights)
- In re Leavitt, 171 F.3d 1219 (9th Cir. 1999) (three exits to Chapter 13: dismissal, conversion, discharge)
- In re Okosisi, 451 B.R. 90 (Bankr. D. Nev. 2011) (discusses post-BAPCPA end states for Chapter 20 liens and the 'fourth option')
- Dewsnup v. Timm (repeated for emphasis), 502 U.S. 410 (U.S. 1992) (fundamental discussion on pre-Code lien treatment and §506(d))