Jose Alvarez v. HSBC Bank USA, N.A.
733 F.3d 136
| 4th Cir. | 2013Background
- Debtor Jose Alvarez filed Chapter 13; the residence was owned by Jose and his wife Meyber as tenants by the entirety; Meyber did not file for bankruptcy.
- Property value (~$442,400) was below the first mortgage balance, making the second-priority HSBC lien effectively valueless.
- Jose and Meyber jointly sued in bankruptcy court seeking to “strip off” HSBC’s valueless second lien under 11 U.S.C. §§ 506(a) and 1322(b)(2).
- Bankruptcy court denied relief, holding it lacked authority to strip a lien on entireties property when only one spouse filed; district court affirmed.
- On appeal, the Fourth Circuit considered Maryland property law on tenancies by the entirety, prior precedent on what interest becomes part of a debtor’s bankruptcy estate, and the statutory framework for lien-strips in Chapter 13.
Issues
| Issue | Alvarez’s Argument | HSBC/Respondent’s Argument | Held |
|---|---|---|---|
| Whether a Chapter 13 debtor (alone) can strip off a valueless lien on property held as tenants by the entirety | Joint complaint and Maryland law permitting spouses to act together meant the entireties property (and Mrs. Alvarez’s interest) was before the court, so lien may be stripped | Only the debtor’s individual interest entered the bankruptcy estate; a plan binds only the debtor and its creditors, so court cannot alter non-debtor spouse’s interest or lien rights | Court held debtor cannot strip lien on entireties property when only one spouse filed; only debtor’s undivided individual interest is in estate |
Key Cases Cited
- Dewsnup v. Timm, 502 U.S. 410 (Supreme Court) (discharge eliminates in personam liability but liens generally survive bankruptcy)
- Johnson v. Home State Bank, 501 U.S. 78 (Supreme Court) (distinguishing discharge of personal liability from in rem lien rights)
- Cen-Pen Corp. v. Hanson, 58 F.3d 89 (4th Cir.) (liens pass through bankruptcy; debtor must take action to strip)
- Branigan v. Davis, 716 F.3d 331 (4th Cir.) (Chapter 13 courts may strip completely valueless liens on a debtor’s primary residence under §§ 506(a) and 1322(b)(2))
- Butner v. United States, 440 U.S. 48 (Supreme Court) (property rights in bankruptcy are defined by state law)
- Greenblatt v. Ford, 638 F.2d 14 (4th Cir.) (when one spouse files, only that spouse’s individual undivided interest in entireties property becomes part of the bankruptcy estate)
- Beall v. Beall, 434 A.2d 1015 (Md.) (tenancy by the entirety cannot be severed by one spouse; both spouses must join to alter the estate)