Wong v. Green Tree Servicing, LLC (In re Wong)
488 B.R. 537
Bankr. E.D.N.Y.2013Background
- Debtor Manuel Wong seeks to avoid two junior liens on his principal residence and classify the underlying claims as unsecured under 1322(b) and 506(a).
- Trustee moves to dismiss, arguing that a Chapter 7 discharge in the prior four years bars lien modification in Chapter 13.
- Property value is $350,000; first priority lien (HSBC) is $393,597, leaving negative equity and junior liens of Green Tree ($198,511) and Mortgage World ($25,082).
- Debtor filed Chapter 13 in 2012, acknowledging in the plan that the junior liens would be treated as unsecured; discharge eligibility is ineligible under 1328(f).
- Disputed issue is whether a debtor ineligible for discharge may modify junior liens under 1322(b)(2) and treat them as unsecured in plan.
- Courts are divided on whether 1322(b)(2) antimodification applies to wholly unsecured liens or whether lien avoidance requires discharge.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| May an ineligible Chapter 13 debtor modify a wholly unsecured lien under 1322(b)(2)? | Wong argues yes; 1322(b)(2) allows modification of unsecured rights. | Green Tree and Mortgage World argue no; 506(a) value renders liens secured or unresolved by discharge. | Yes; wholly unsecured liens may be modified under 1322(b)(2). |
| Are Green Tree and Mortgage World holders of allowed claims under 101(5)? | Wong contends these liens survive discharge as claims against property. | Green Tree and Mortgage World contend they hold allowed secured/secured claims against property. | They are holders of claims under 101(5). |
| Are the Defendants' claims secured under 506(a) given the property's value? | Wong argues the liens are wholly unsecured because collateral value is less than the first lien. | Green Tree and Mortgage World argue liens are secured by an interest in the residence. | Liens are wholly unsecured under 506(a) since equity is negative. |
| Does 506(d) allow lien avoidance when the claim is unsecured under 506(a)? | Wong relies on 506(d) to void liens for unsecured claims if allowed. | Defendants argue 506(d) applies only to unsecured claims not otherwise allowed or secured. | 506(d) does not independently void liens for unsecured claims; treatment under 1322(b)(2) controls. |
| Does 1325(a)(5) prevent treating the claims as unsecured because discharge is unavailable? | Wong contends 1325(a)(5) does not apply to unsecured claims under 506(a). | Trustee argues 1325(a)(5) requires lien retention until discharge or full payment. | 1325(a)(5) does not apply to claims unsecured under 506(a); liens may be avoided. |
Key Cases Cited
- Nobelman v. American Savings Bank, 508 U.S. 324 (1993) (valuation under 506(a) governs secured status; anti-modification depends on equity)
- In re Pond, 252 F.3d 122 (2d Cir. 2001) (wholly unsecured junior liens may be modified; no anti-modification if no equity)
- Dewsnup v. Timm, 502 U.S. 417 (1991) (liens pass through bankruptcy unaffected; 506(d) limited)
- In re Okosisi, 451 B.R. 90 (Bankr. Nev. 2011) (unsecured 506(a) claims lack secured status for 1322/1325 purposes)
- In re Hill, 440 B.R. 176 (Bankr.S.D. Cal. 2010) (unsecured lien under 506(a) cannot have secured status under 1322/1325)
- In re Orkwis, 457 B.R. 243 (Bankr. E.D.N.Y. 2011) (discharge governs lien retention in Chapter 13; Pond distinguished)
- Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220 (9th Cir. 2002) (secured vs unsecured rights may be modified under 1322(b)(2) when no equity)
- Lane v. Western Interstate Bancorp (In re Lane), 280 F.3d 663 (6th Cir. 2002) (no value means lien may be modified under 1322(b)(2))
- In re Miller, 462 B.R. 421 (Bankr. E.D.N.Y. 2011) (discharge ineligibility does not bar lien avoidance under 1322/1325)
- In re Frazier, 469 B.R. 889 (Bankr. E.D. Cal. 2012) (no value collateral means no 1322(b)(2) protection)