MEMORANDUM DECISION
This matter is before the Court pursuant to an adversary proceeding filed by Douglas R. Orkwis and Barbara E. Orkwis (the “Debtors” or the “Plaintiffs”) against MERS as Nominee for Countrywide Home Loans, Inc., and Bank of America, as Servicer (collectively, the “Defendant”) seeking to avoid as wholly unsecured the Defendant’s second mortgage lien encumbering the Debtors’ residence (the “Property”). The Defendant defaulted in the adversary proceeding, and the Debtors request that the Defendant’s mortgage lien be avoided upon entry of the judgment by default in favor of the Debtors, and that it not be conditioned upon entry of the Debtors’ discharge. The Debtors argue that this Court’s ruling in
In re Mulder,
No. 810-74217-reg,
Facts
The Debtors filed a petition for relief under Chapter 13 of the Bankruptcy Code on March 25, 2011 (the “Petition Date”). The Property has an estimated value of $230,000.00 as of the Petition Date. The Property is encumbered by a first mortgage lien in the approximate amount of $235,828.00 as of the Petition Date. The Defendant holds the second mortgage lien and is owed approximately $65,939.00 as of the Petition Date. The Debtors commenced this adversary proceeding on April 21, 2011 to determine the secured status of the Defendant’s mortgage lien, and to avoid the Defendant’s mortgage lien to the extent it is wholly unsecured. The Defendants cite to Bankruptcy Code § 506(a) and (d) as the operative sections for relief under the complaint. In the complaint, the Debtors request that the Defendant’s lien be declared void upon entry of a judgment in favor of the Debtors, and request that any claim filed by the Defendant with *246 respect to the mortgage lien be reclassified as unsecured.
The Debtors filed a Plan providing that the Defendants’ second mortgage lien “is to be avoided and crammed down.” The summons and complaint in this adversary proceeding was served upon the Defendant, and the Defendant failed to file an answer or otherwise respond to the complaint. At the hearing on the adversary proceeding on June 1, 2011, the Court noted the Defendant’s default and directed the Debtors to file a motion for default judgment. On June 7, 2011, the Debtors filed a motion for default judgment and the Defendant failed to respond. The Defendant failed to appear at the hearing on July 6, 2011, and at the adjourned hearing on July 14, 2011. At the hearing on July 14, 2011, the Court granted the relief requested in the motion for default judgment but reserved on the issue of whether the Defendant’s lien could be avoided as of the date of entry of the judgment by default in the adversary proceeding.
The Court also confirmed the Debtors’ Plan, which proposes to pay the Defendant and all unsecured creditors at least 1% over forty-eight months.
Discussion
Counsel to the Debtors argues that this Court should extend to the instant case its holding in In re Mulder, in which the Court held that relief under Bankruptcy Code § 522(f) is not dependent upon entry of the debtor’s discharge and is effective upon entry of the order granting such relief. According to the Debtors, it is logical to extend the reasoning of In re Mulder, which applies to non-consensual judicial liens, to the avoidance of wholly unsecured junior mortgage liens in Chapter 13 cases pursuant to §§ 506 and 1322, and there is no statutory basis to condition the actual avoidance of the mortgage lien upon entry of the Debtors’ discharge.
In
In re Mulder,
this Court analyzed the language of Bankruptcy Code § 522(f) and concluded that there was nothing in this section which conditioned or linked the avoidance of a judicial lien which impairs the debtor’s homestead exemption to the entry of the debtor’s discharge. This Court also reviewed Bankruptcy Code § 349, which provides that dismissal of a case reinstates any lien avoided under section 522.
2
In re Mulder,
In the case currently before the Court, the Debtors are seeking to avoid, or “strip off,” a wholly unsecured junior mortgage lien and to pay a small percentage on the remaining unsecured claim, along with all of the Debtors’ other unsecured creditors, pursuant to the Plan. While the Court’s analysis in In re Mulder required a review *247 of Bankruptcy Code §§ 522(f) and 349, the question before the Court in this case requires a more in-depth review of a host of Bankruptcy Code provisions. The proper starting point for this review is Bankruptcy Code § 506, which applies to cases under Chapters 7, 11, 12 and 13 of the Bankruptcy Code pursuant to Bankruptcy Code § 103.
Section 506(a) provides, in relevant part: An allowed claim of a creditor secured by a lien on property in which the estate has an interest ... is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property ... and is an unsecured claim to the extent that the value of such creditor’s interest ... is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor’s interest.
11 U.S.C. § 506(a)(1). Section 506(d) provides that “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.” 11 U.S.C. § 506(d).
A debtor may not strip liens in a Chapter 7 case, whether they are partially secured or wholly unsecured. In
Dewsnup v. Timm,
The prohibition on lien stripping enunciated in Dewsnup extends to liens secured solely by a debtor’s residence in Chapter 13 cases so long as there is any value in excess of the amount of a senior lien to which the junior lien can attach. The operative sections of the Code are contained in §§ 1322 and 1325.
11 U.S.C. § 1322(b)(2) provides:
(b) Subject to subsections (a) and (c) of this section, the plan may — •
(2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims.
11 U.S.C. § 1322(b)(2).
11 U.S.C. § 1325(a)(5) provides:
(a) Except as provided in subsection (b), the court shall confirm a plan if—
(5) with respect to each allowed secured claim provided for by the plan—
(A) the holder of such claim has accepted the plan;
(B)(i) the plan provides that—
(I) the holder of such claim retain the lien securing such claim until the earlier of—
(aa) the payment of the underlying debt determined under nonbankrupt-cy law; or
(bb) discharge under section 1328; and
(II) if the case under this chapter is dismissed or converted without com *248 pletion of the plan, such lien shall also be retained by such holder to the extent recognized by applicable non-bankruptcy law
11 U.S.C. § 1325(a)(5).
While Bankruptcy Code § 1322(b)(2) permits a Chapter 13 debtor to modify the rights of holders of secured claims pursuant to a plan, claims “secured only by a security interest in real property that is the debtor’s principal residence” are excepted from this category. As a result, a mortgagee with a security interest in the debtor’s principal residence can demand payment in full on its secured claim in the plan. 11 U.S.C. § 1322(b)(2). In
Nobelman v. American Savings Bank,
While bankruptcy courts agree that Bankruptcy Code § 1322(b)(2) plays an essential role in this process, courts are divided as to how and when junior lien avoidance, more commonly referred to “lien stripping,” takes place. In the instant case, the Debtors seek to fix the defining event as the date of entry of judgment by default in this adversary proceeding, which occurs prior to confirmation of the plan in this Court. Because the Debtors choose entry of judgment by default in this adversary proceeding as the effective date of the lien avoidance, Debtors are implicitly advocating that the plan process is irrelevant to the lien avoidance. While the Court understands that the Debtors’ approach is based on their assumption that avoidance of a wholly unse *249 cured mortgage lien in a Chapter 13 context should operate just as lien avoidance does under Bankruptcy Code § 522(f), their assumption is flawed. First, Bankruptcy Code § 522(f) clearly states that “the debtor may avoid the fixing of a lien” which impairs the debtor’s homestead exemption, thus giving a debtor the authority to seek avoidance of the lien outside the plan process. Second, Bankruptcy Code § 349(b)(1)(B) provides that upon dismissal of the Chapter 7 case, the lien avoided under § 522(f) is “reinstated.” A lien cannot be reinstated unless it is first avoided, which compels a finding that the lien is actually avoided upon entry of the order avoiding the hen. In contrast, Bankruptcy Code § 1322(b)(2) only permits modification of the creditor’s rights in the plan process. As a result, any attempt to use the adversary proceeding to value a claim as unsecured and to avoid the lien upon entry of a judgment is incorrect and runs afoul of Dewsnup and its progeny. Dewsnwp teaches us that §§ 506(a) and (d) do not avoid liens, and these sections have no power standing alone to modify the rights conferred upon mortgage lien holders under applicable state law.
Having considered and rejected the Debtor’s request, the Court is left with the task of determining when the wholly unsecured mortgage lien of the Defendants is removed. Courts considering this issue generally fall within two schools of thought. According to one position, which has been referred to as the majority position, the lien is removed only upon entry of the debtor’s discharge.
See In re Gerardin,
Resolution of this issue in this case merely changes the timing of when the Defendant’s lien is removed. See 11 U.S.C. § 1328(a). However, in cases where a Chapter 13 debtor is ineligible to receive a discharge, determining what triggers removal of the junior lien has a significant effect. For example, in so-called “Chapter 20” cases, where a debtor received a Chapter 7 discharge in a case filed within four years of the date of entry of an order for relief in a Chapter 13 case, a debtor is ineligible to receive a discharge in the Chapter 13 case pursuant to 11 U.S.C. § 1328(f)(1). 4 Chapter 13 debtors *250 whose cases are closed without entry of the discharge for failure to obtain a personal financial management certificate pursuant to Bankruptcy Code § 727(a)(ll) could also be affected by a resolution of this issue.
Analysis
This Court finds that the Defendant’s lien is not removed until entry of the debtor’s discharge. While § 506(a) operates to classify the Defendant’s “claim” as unsecured, which exempts the claim from the anti-modification provisions set forth in § 1322(b), the lien against the Property exists as of the date the Debtors’ case was filed, and remains a lien against the Property as of the date of confirmation of the Plan. This is true in what is commonly called a Chapter 20 case as well, where the
in personam
obligation of the debtor has been previously discharged, leaving only the
in rem
lien as a claim pursuant to
Johnson v. Home State,
The
Fenn
court effectively resolved this tension by finding that “§ 506(a) allows the bifurcation of the rights of holders of secured claims, rather than the modification of a secured claim. It does not change the rights immediately allowing the permanent modification of a secured claim to unsecured status, as strip off or avoidance occurs at discharge.”
In re Fenn,
Other sections of the Bankruptcy Code support this interpretation that the lien securing the Defendant’s claim remains secured, despite the classification process of § 506(a). For example, if a Chapter 13 case is converted to a case under Chapter 7, creditors holding completely unsecured junior mortgage liens retain their secured *251 status notwithstanding the confirmation of a plan which provides for treatment of their claim as unsecured, unless such creditor has received payment of its claim in full pursuant to applicable nonbankruptcy law. Section 348(f)(1)(C) provides:
(C) with respect to cases converted from chapter 13—
(1) the claim of any creditor holding security as of the date of the filing of the petition shall continue to be secured by that security unless the full amount of such claim determined under applicable nonbankruptcy law has been paid in full as of the date of conversion, notwithstanding any valuation or determination of the amount of an allowed secured claim made for the purposes of the case under chapter 13: ...
11 U.S.C. § 348(f)(1)(C). It is clear from this section, which was added to the Bankruptcy Code pursuant to BAPCPA, that claims secured by liens on property, even if the value of the property is insufficient to collateralize the debt, do not disappear upon the filing of the petition, or upon entry of an order of confirmation, or upon completion of plan payments. Only payment in full under non-bankruptcy law, entry of the discharge or surrender of the collateral to the creditor extinguishes the lien.
The Gemrdin court correctly summarized the interplay between §§ 1325(a)(5) and 348 as follows:
The language added to § 1325(a)(5) in BAPCPA is consistent with and works in tandem with § 348 by clarifying that the hen existing on the filing date remains in place until the debt is discharged or paid in full, § 1325(a)(5)(B)(i)(I), and by specifically providing that the lien on the petition date remains intact if the case is dismissed or converted. 11 U.S.C. § 1325(a)(5)(B)(i)(II). Thus, there is no doubt that Congress fully intended for lien strips, whether strip downs or strip offs, to be dealt with under § 1325(a)(5).
This interpretation does not contradict the Second Circuit’s holding in
In re Pond, supra.
The Second Circuit concluded that a wholly unsecured claim “as defined under Section 506(a), is not protected under the antimodification exception of Section 1322(b)(2).”
In re Pond,
This approach is also consistent with
Dewsnup,
in which the Supreme Court recognized that Congress did not intend to grant to the debtor the right to declare an allowed claim as “unsecured” solely by virtue of § 506(a).
To refer to this process as a “strip off’ of a lien mischaracterizes the process that actually takes place, as it implies that the debtor is “taking” property without giving anything in return. The statutory scheme applicable in Chapter 13 cases actually creates a quid pro quo in that the debtor must comply with the terms of the plan, and the lien remains on the property until the payments under the plan are completed. The lien is removed only upon satisfaction of the plan obligations and entry of the discharge pursuant to § 1325(a)(5).
Conclusion
For the foregoing reasons, the Debtors’ request to avoid the Defendant’s lien on the Property upon entry of judgment by default in this adversary proceeding is denied. The Defendant’s mortgage lien may not be removed from the Property unless and until the Debtors receive a discharge. An order consistent with this Memorandum Decision shall be entered forthwith.
Notes
. Any such adversary proceedings which are pending as of the date of this Memorandum Decision shall proceed, unaffected by the requirement that such relief be sought by motion and treatment of such unsecured claim in the proposed plan.
. Section 349(b) provides:
(b) Unless the court, for cause, orders otherwise, a dismissal of a case other than under section 742 of this title—
(1) reinstates—
(A)any proceeding or custodianship superseded under section 543 of this title;
(B) any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724(a) of this title, or preserved under section 510(c)(2), 522(f)(2), or 551 of this title; and
(C) any lien voided under section 506(d) of this title
11 U.S.C. § 349(b).
.
See Lane v. W. Interstate Bancorp (In re Lane),
. Bankruptcy Code § 1328(f)(1) provides in relevant part, that:
(f) ... the court shall not grant a discharge of all debts provided for in the plan or disallowed under section 502, if the debtor has received a discharge—
(1) in a case filed under chapter 7 — ... of this title during the 4-year period preceding the date of the order for relief under this chapter.
11 U.S.C. § 1328(f)(1).