469 B.R. 334
D. Colo.2012Background
- Debtor Christopher Waterman filed a Chapter 7 petition on January 13, 2009; discharged on April 23, 2009.
- Residence at 9982 Hawthorne Street, Highlands Ranch, CO 80126 with a second deed of trust held by First National Bank.
- Debtor later filed a Chapter 13 petition on October 11, 2010 to cure arrears and strip off the junior lien due to substantial value decline in the residence.
- Bankruptcy court confirmed the second Amended Chapter 13 Plan on March 23, 2011, allowing the lien strip despite § 1328(f)(1) ineligibility for discharge.
- Trustee appealed, arguing about Chapter 20 lien stripping; district court reviews de novo the legality of lien stripping in a no-discharge Chapter 13 context.
- Court affirms bankruptcy court’s ruling that a Chapter 20 debtor may strip off a wholly unsecured lien from the primary residence.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a Chapter 20 debtor may strip a wholly unsecured lien on principal residence. | Waterman | Waterman | Yes; Chapter 20 lien stripping permitted. |
| Whether § 1325(a)(5) bars lien stripping in Chapter 20. | Trustee | Waterman | No; § 1325(a)(5) applies only to allowed secured claims, which does not include wholly unsecured liens. |
| Whether allowing lien stripping in Chapter 20 is a de facto discharge. | Trustee | Waterman | No; lien stripping is not discharge of in personam liability. |
| Whether good faith supports Chapter 20 lien stripping despite prior Chapter 7 discharge. | Trustee | Waterman | Yes; plan proposed in good faith and not forbidden by law. |
Key Cases Cited
- United States v. Johnson, 501 U.S. 78 (U.S. 1991) (discharge vs. in rem distinction; in personam discharge unrelated to in rem liens)
- Dewsnup v. Timm, 502 U.S. 410 (U.S. 1992) (statutory framework and in rem vs in personam rights as guiding interpretation)
- Bateman v. Branigan, 515 F.3d 272 (4th Cir. 2008) (Chapter 13 rights vs discharge limitations for Chapter 20 debtors)