494 B.R. 227
W.D. Va.2012Background
- Debtor Angela White filed Chapter 13 in Western District of Virginia on April 11, 2011.
- Bank of America held a fully secured mortgage lien on Debtor’s real property for $10,812.
- FIA Card Services (successor to Bank of America) filed an unsecured claim for $9,512.09.
- Claim was transferred among Creditors (FIA → CR Evergreen II, LLC → East Bay Funding, LLC) without indicating secured status.
- Debtor filed an adversary complaint on February 23, 2012 to avoid the lien under § 506(d); Creditors did not respond, leading to a default judgment on May 29, 2012 and a merits ruling against lien avoidance.
- Bankruptcy Court held that § 506(d)(2) applied to unsecured claim due to last-antecedent rule and creditor participation, so lien was not avoidable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 506(d)(2) applies when a creditor files an unsecured claim but participates in the case. | White argues § 506(d)(2) should apply to any failure to file a proof of claim, not limited to secured claims. | Creditors contend § 506(d)(2) applies only to failures to file an unsecured or secured proof of claim as interpreted below. | Yes, § 506(d)(2) applies to failure to file a proof of claim broadly. |
| Whether the term ‘such claim’ in § 506(d)(2) refers only to secured claims. | White contends ‘such claim’ includes any claim not properly classified as secured due to creditor action. | Bankruptcy Court interpreted ‘such claim’ as referring only to secured claims. | No; court adopts broader reading that ‘such claim’ can refer to any claim when the creditor did not file an appropriate proof. |
| Is the correct interpretation of § 506(d)(2) consistent with the statute’s purpose and history? | White argues the broader reading aligns with pre-Code lien survival and purpose of 506(d). | Creditors rely on precedent and the last antecedent rule to justify a narrower interpretation. | Yes; the statute’s purpose and history support applying the exception when the creditor does not file an allowed claim or participates improperly. |
Key Cases Cited
- Cen-Pen Corp. v. Hanson, 58 F.3d 89 (4th Cir. 1995) (construction of 506(d) regarding when lien voids; supports broader reading of exception)
- In re Kressler, 40 Fed.Appx. 712 (3d Cir. 2002) (unpublished; noted in discussion of 506(d)(2) applicability)
- Dewsnup v. Timm, 502 U.S. 410 (U.S.) (pre-Code lien survival principle relevant to § 506(d) interpretation)
- U.S. Nat’l Bank v. Chase Nat’l Bank, 331 U.S. 28 (U.S.) (pre-Code lien survival and secured status principles)
- Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555 (U.S.) (historical context of liens post-bankruptcy)
- Long v. Bullard, 117 U.S. 617 (U.S.) (historical rule on lien preservation)
- United States Nat’l Bank v. Chase Nat’l Bank, 331 U.S. 28 (U.S.) (reiterates lien treatment in bankruptcy)