Shelton v. Citimortgage, Inc.
735 F.3d 747
8th Cir.2013Background
- Sheltons, Chapter 13 debtors, appeal the bankruptcy court's dismissal of their adversary proceeding to avoid Citimortgage's lien.
- Citimortgage held a lien on the Debtors' primary residence and filed a claim for $210,596.66 on August 22, 2011, after the claims bar date of January 25, 2011.
- Debtors objected to the timeliness of Citimortgage's claim but did not challenge the underlying debt or lien's validity.
- Before a timeliness hearing, the parties agreed to an order disallowing Citimortgage's claim.
- Debtors then sued to avoid Citimortgage's lien under 11 U.S.C. § 506, arguing the lien was void since the claim was not allowed.
- Bankruptcy court granted Citimortgage's dismissal motion, the BAP affirmed, and the appellate court also affirms that liens survive bankruptcy notwithstanding untimely claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §506(d) voids a lien when the related claim was disallowed only for untimeliness | Sheltons urge §506(d) voids the lien because the claim was not an allowed secured claim due to untimeliness. | Citimortgage contends liens generally survive bankruptcy even if the claim is untimely and disallowed, making lien avoidance inappropriate. | Lien not void; liens survive when only untimely disallowance exists. |
| Whether §506(d)(2) or (d)(1) applies to void the lien here | Argue §506(d) voids lien since disallowance was not under §502(b)(5) or §502(e). | Argue proper statutory construction aligns with lien survival despite untimely claim. | §506(d) does not void liens solely for untimely disallowance; lien survives. |
| Whether pre-Code and caselaw principles support lien survival when a claim is untimely but otherwise valid | Plain-language view supports lien voidance. | CS cites Dewsnup and circuit precedents for lien survival where untimely claims exist without invalidating underlying debt. | Court agrees with Fourth and Seventh Circuits; liens survive when only untimeliness caused disallowance. |
| What is the controlling precedent on lien survival after untimely claims | Be-Mac Transport is distinguishable and should control. | Be-Mac is not controlling; other circuits reject plain-text approach. | Aligned with Fourth and Seventh Circuits; Be-Mac distinguished or not controlling here. |
Key Cases Cited
- In re Tarnow, 749 F.2d 464 (7th Cir. 1984) (lien avoidance for untimely claims deemed inequitable; liens generally treated as property not extinguished)
- Dewsnup v. Timm, 502 U.S. 410 (Supreme Court 1992) (liens pass through bankruptcy unaffected; pre-Code practices inform Code interpretation)
- In re Hamlett, 322 F.3d 342 (4th Cir. 2003) (liens for disallowed claims survive if disallowance is solely untimeliness)
- In re Be-Mac Transp. Co., 83 F.3d 1020 (8th Cir. 1996) (lien survives despite untimely disallowance; no validity finding on underlying debt required)
- In re Tarnow, 749 F.2d 464 (7th Cir. 1984) (see above; repeated to emphasize caselaw trajectory toward lien survival)