§ 74.13     Lien Retention after BAPCPA, Including in No-Discharge Cases
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 74.13, at ¶ ____, LundinOnChapter13.com (last visited __________).

 

[1]

Prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),1 there was controversy whether a confirmed Chapter 13 plan could require the release of a lien when the allowed secured claim was paid in full if the debtor had not yet completed payments under the plan.2 A majority of reported decisions found no prohibition on “early” lien release in § 1325(a)(5); a strong minority reasoned that only discharge at the completion of all payments under the plan could release a lien.3

[2]

Congress responded to this controversy in 2005, and § 1325(a)(5)(B)(i), as amended by BAPCPA, contains new lien retention rules.4 The Chapter 13 plan must provide that the holder of “each allowed secured claim” retains the lien until the earlier of “payment of the underlying debt determined under nonbankruptcy law” or “discharge under section 1328.”5 The plan must also provide that, if the Chapter 13 case is dismissed or converted without completion of payments, the lien is retained “to the extent recognized by applicable nonbankruptcy law.”6 The House Report gives this unenlightening account of the new lien retention provisions:

[A]s a condition of confirmation . . . a Chapter 13 plan [shall] provide that a secured creditor retain its lien until the earlier of when the underlying debt is paid or the debtor receives a discharge. If the case is dismissed or converted prior to completion of the plan, the secured creditor is entitled to retain its lien to the extent recognized under applicable nonbankruptcy law.7
[3]

The new lien retention rules apply only “with respect to each allowed secured claim provided for by the plan.” This predicate is fundamentally important, particularly when dealing with a wholly unsecured lien.8 Determining the existence and amount of an allowed secured claim invokes §§ 502 and 506. An allowed claim becomes a secured claim to the extent of the value of the creditor’s interest in the estate’s interest in property (or to the extent of a right of setoff).9 Under § 1325(a)(5)(B)(i), as amended by BAPCPA, the holder of “such claim” retains the lien until the earlier of payment of the underlying debt determined under nonbankruptcy law or discharge under § 1328. “Such claim” refers back to “each allowed secured claim” provided for by the plan and determined under § 506. The lien retention rights of creditors at confirmation after BAPCPA will vary depending on whether the creditor has an allowed secured claim. A lienholder with no allowed secured claim cannot claim the new lien retention entitlement in § 1325(a)(5)(B)(i).

[4]

There are two statutory exceptions to the ordinary operation of § 506(a) to determine the allowable amount of a secured claim in Chapter 13 cases. Claims secured only by a security interest in real property that is the debtor’s principal residence are protected from modification by § 1322(b)(2). In Nobelman v. American Savings Bank,10 the Supreme Court determined that bifurcation of an undersecured home mortgage into its secured and unsecured components was a prohibited modification.11 Discussed below,12 after BAPCPA, there is an exception to the normal operation of § 506 in a “hanging sentence” at the end of § 1325(a) for purchase money debt incurred for personal use within 910 days of the petition secured by a motor vehicle and for purchase money debt incurred within a year of the petition secured by any other thing of value.

[5]

How much allowed secured claim must a lienholder have before the lien retention entitlement in new § 1325(a)(5)(B)(i) is triggered? The new section is not specific to this point, but “each allowed secured claim” in the first sentence of § 1325(a)(5) seems to signal that any amount of allowed secured claim gives the lienholder the lien retention right in § 1325(a)(5)(B)(i). This creates another13 “peppercorn rule”: a lienholder with any toehold on a Chapter 13 debtor’s property—any amount of value whatsoever for § 506(a) purposes—is entitled to retain its lien until discharge or payment of the underlying debt in accordance with nonbankruptcy law.

[6]

There are several ways in which liens come into Chapter 13 cases but then fail to realize status as allowed secured claims. For example, a creditor with a nonpossessory, nonpurchase money security interest in household goods or a creditor with a judgment lien on property that can be exempted by the debtor will have its lien voided consistent with § 522(f)14—becoming an unsecured creditor for confirmation and distribution purposes. Perhaps more importantly, liens unsupported by value in the collateral are not allowable secured claims under § 506(a)—with the two exceptions noted above.

[7]

With some regularity, mortgage creditors with junior liens on a debtor’s residence fail to have value in the collateral to support their liens. Notwithstanding Nobelman, at least six circuit courts of appeals15 and three bankruptcy appellate panels16 have concluded that a wholly unsecured mortgage on a debtor’s principal residence is not protected from modification by § 1322(b)(2) and can be stripped off—becoming an unsecured claim in the Chapter 13 case.17

[8]

The lienholders just described will not have allowed secured claims and should not be able to assert lien retention rights at confirmation under § 1325(a)(5)(B)(i). When new § 1325(a)(5)(B)(i) is not applicable because the lienholder does not have an allowed secured claim, the pre-BAPCPA rule in the district will determine lien retention rights at confirmation.18

[9]

In the more typical case, the lienholder will have an allowable secured claim in some amount and the plan must satisfy § 1325(a)(5)(B)(i) to accomplish confirmation. Mimicking the language of § 1325(a)(5)(B)(i) seems like a good idea in this situation: simply provide in the plan that the holders of allowed secured claims retain their liens until the earlier of payment of the underlying debt determined under nonbankruptcy law or discharge under § 1328.

[10]

“Discharge under § 1328” seems like a simple enough concept, but there is at least the curiosity here that the new lien retention rule in § 1325(a)(5)(B)(i)(I)(bb) cross-references discharge under § 1328 without differentiation between discharge at completion of payments under § 1328(a)19 and hardship discharge before the completion of payments under § 1328(b).20 This all-inclusive cross-reference raises the theoretical possibility that a plan could be confirmed that would release liens at hardship discharge before (or after) the completion of payment of an allowed secured claim and before payment of the underlying debt determined under nonbankruptcy law, notwithstanding that discharge under § 1328(b) extends only to unsecured debts.21 It is unlikely this was an intended result and is probably just evidence of less than precise drafting.

[11]

Of more interest is the new phrase “the underlying debt determined under nonbankruptcy law.” This phrase is not defined by BAPCPA. “Debt” means liability on a claim,22 and “claim” carries with it all sorts of bankruptcy baggage that seems not intended by the modifiers “underlying” and “nonbankruptcy law.”

[12]

In the typical case, there may be little relationship of significance between the “underlying debt determined under nonbankruptcy law” and the amount of the lienholder’s allowed claim(s) in the Chapter 13 case. Interest, attorney fees and other contract charges will continue to accrue postpetition to determine the amount of the underlying debt under nonbankruptcy law. The allowable claim(s) in the bankruptcy case will not grow in the same way. The alternative conditions for lien retention in § 1325(a)(5)(B)(i)(I) will diverge: discharge under § 1328 will always be determined by the completion of payments under the confirmed plan or allowance of a hardship discharge; the underlying debt determined under nonbankruptcy law will be determined based on the contract without regard to the terms of the confirmed plan.

[13]

What this means for the mathematics of lien retention after BAPCPA is that the liens of allowed secured claim holders must be retained by the plan until discharge except in the unusual case in which the confirmed plan pays all of the allowed secured claim holder’s contract entitlements at some earlier time. For example, if the plan treats a lienholder as fully secured, to be paid in full in 36 monthly installments with 8 percent interest, completion of the 36 monthly payments will not entitle the debtor to release of the lien unless the 36 monthly installments plus 8 percent interest equal (or exceed) the contractual, nonbankruptcy entitlements of the lienholder. If the contractual interest rate was 16 percent, release of the lien on these facts must wait until discharge—which may or may not coincide with the completion of 36 monthly payments to the lienholder under the confirmed plan.

[14]

If the confirmed plan in this example treated the lienholder as undersecured and bifurcated the claim into secured and unsecured portions, completion of payment of the secured portion would not release the lien unless the debtor also became entitled to discharge at that same time. This would be true because both the secured and unsecured portions of the debt would accumulate contract interest under nonbankruptcy law and only a plan that respected and paid all contractual obligations would satisfy the alternative condition for release of liens.

[15]

Notice that even a 100 percent plan that pays the secured portion of an undersecured debt in full with interest and pays all allowed unsecured claims in full would not support lien release before discharge unless by happenstance payments on the secured and unsecured portions satisfy the nonbankruptcy entitlements of the lienholder at some earlier time. This is most unlikely because very few Chapter 13 plans pay postpetition interest to unsecured claim holders and the “present value” interest paid to secured claim holders at confirmation is almost always different than the contract interest rates in the underlying debt instrument.

[16]

Perhaps the only lining in this cloud is that discharge under § 1328 will be based on the completion of payments under the confirmed plan without regard to whether the underlying debt of an allowed secured claim holder has been paid in full under nonbankruptcy law. In other words, at discharge, liens can be released even if the entire contract rights of an allowed secured claim holder have not been paid through the confirmed plan.

[17]

What is the amount of the “underlying debt” determined under nonbankruptcy law when the debtor is not personally liable? Lack of personal liability comes about in lots of ways in Chapter 13 practice—for example, when the debt is nonrecourse to the debtor or when the debtor discharged personal liability in a prior bankruptcy case. Lack of personal liability will often be in tandem with ineligibility for discharge because a prior Chapter 7 discharge can cause both conditions.

[18]

The absence of personal liability does not tell us much about the “underlying debt determined under nonbankruptcy law.” That underlying debt typically can be a lien under state law without regard to personal liability. For example, an individual who puts up property to secure someone else’s debt has no personal liability, but the property stands as collateral for the debt and the amount of that debt could be determined under state law by looking at the note or other contract and doing the math.

[19]

If the debtor has no personal liability, the debt cannot be collected from the debtor under nonbankruptcy law and the debt becomes an allowable claim in the bankruptcy case only by virtue of the lien and the Supreme Court’s analysis in Johnson v. Home State Bank.23 Arguably, the amount of that debt determined under nonbankruptcy law will be the same with or without personal liability, but the lien retention right of the lienholder will depend on whether the lien is an allowable secured claim for purposes of § 1325(a)(5)(B)(i).

[20]

This point raises the related issue whether there is anything about the new lien retention provision in § 1325(a)(5)(B)(i) that impacts the preexisting broad power to modify claims in § 1322(b)(2).24 Put another way, can the debtor confirm a plan that modifies other contract rights of an allowed secured claim holder even though the plan must retain that creditor’s lien until discharge or payment of the underlying debt determined by nonbankruptcy law?

[21]

As a matter of ordinary statutory interpretation, there is no cross-reference in either § 1322(b)(2)—the power to modify—or § 1325(a)(5)(B)(i) to suggest that lien retention is a limitation on the power to modify. There is an exception to the modification power in § 1322(b)(2) for claims secured only by real property that is the debtor’s principal residence.25 Discussed below,26 BAPCPA created another exception to the power to modify for 910-day PMSI car claims and claims secured by any other thing of value incurred within a year of the petition in a “hanging sentence” at the end of § 1325(a). But there is no wholesale exception to the power to modify with respect to lien retention rights and there are many contract rights that are not lien rights.

[22]

When the debtor is eligible for a discharge, lienholders have argued with no success that BAPCPA allows liens to survive discharge to secure the payment of underlying debt determined under nonbankruptcy law notwithstanding the completion of payments under the plan.27 Chapter 13 debtors eligible for discharge do not have to pay contract interest rates and other contract charges to accomplish release of liens through the confirmed plan, but lien release must await discharge after BAPCPA when § 1325(a)(5)(B)(i) applies.

[23]

When the debtor is not eligible for discharge,28 one court found a limitation on modification in the lien retention provisions of § 1325(a)(5)(B)(i), but other courts have soundly disagreed. In In re Williams,29 the debtor received a Chapter 7 discharge on July 6, 2005, and within a few days bought a car with a contract interest rate of 19.75 percent. A year and one-half later, the debtor filed Chapter 13 and proposed a plan that modified the rights of the car lender. Because the car debt was incurred within 910 days of the petition and the hanging sentence at the end of § 1325(a) applied, the plan had to treat the debt as if it was fully secured.30 But the plan modified the interest rate to pay 10.25 percent. The lender objected to confirmation, arguing that the plan must pay contract interest to satisfy its debt according to nonbankruptcy law. The debtor responded that § 1322(b)(2) permitted modification of the rights of the car lender and 10.25 percent interest satisfied Till v. SCS Credit Corp.31

[24]

The bankruptcy court agreed that Till controlled the present value entitlement of a secured creditor at confirmation under § 1325(a)(5)(B)(ii), but the court found that BAPCPA trumped Till when the debtor was not entitled to a discharge:

Williams urges the court to give the words of the new statute their “plain meaning,” and asserts that “[n]othing in the plain language of the significantly amended section 1325(a) overrules Till.” . . . The court agrees that Till has not been overruled. In order to satisfy § 1325(a)(5)(B)(ii), a debtor must still pay an objecting secured creditor interest at a rate of prime plus a risk factor.
        But Congress chose completely different words to frame the requirement of how much a debtor must pay the holder of an allowed secured claim before its lien is released if that debtor is not going to receive a discharge. If Congress meant § 1325(a)(5)(B)(i)(I)(aa) to be interpreted as having the same meaning as § 1325(a)(5)(B)(ii), why wouldn’t it simply have written that a plan must provide that the holder of an allowed secured claim retain its lien either until discharge or until it receives “the value, as of the effective date of the plan, of . . . the allowed amount of such claim?” . . . Congress did not use the same language in § 1325(a)(5)(B)(i)(I)(aa) as in § 1325(a)(5)(B)(ii), and the court must therefore find that Congress meant something different.
        . . . .
        In this case, had Williams not filed for protection under the Bankruptcy Code, applicable nonbankruptcy law bound her to the terms of the Contract with AmeriCredit. Consequently, in order to pay AmeriCredit as determined under nonbankruptcy law, Williams must make the payments required by the Contract. The Contract calls for an interest rate of 19.75%, so AmeriCredit is entitled to retain its lien until it receives full payment at 19.75%. . . .
. . . AmeriCredit’s objection to confirmation is sustained and confirmation of Williams’s plan is denied.32
[25]

If Williams had only required the plan to retain AmeriCredit’s lien until it received full payment, including 19.75 percent interest, the decision could have been read to respect both the power to modify in § 1322(b)(2) and the lien retention entitlement in § 1325(a)(5)(B)(i)(I)(aa). Because Williams denied confirmation altogether, it was interpreted to limit the modification rights of a Chapter 13 debtor at confirmation when the debtor is not eligible for discharge.

[26]

Subsequent decisions from the Central and Northern Districts of Illinois reject the limitation on the power to modify in Williams. The bankruptcy court in In re Harrison33 gave this convincing explanation why the limitation on modification Williams found in § 1325(a)(5)(B)(i)(I)(aa) misinterprets the Code as amended by BAPCPA:

The Williams court determined that a debtor could not use the Supreme Court’s Till decision or “prime plus risk” formula approach to reduce the amount of interest due to a secured creditor that held a 910 claim. . . . The court provided, if Congress meant § 1325(a)(5)(B)(i)(I)(aa) to be interpreted as having the same meaning as § 1325(a)(5)(B)(ii) . . . it would have used the same statutory language for both statutes. . . .
        Conversely, the Debtors ask the Court to follow the more recent decision of In re Hopkins, 371 B.R. 324 (Bankr. N.D. Ill. 2007). . . . The court in Hopkins held that a secured creditor’s 910 claim that was fully secured retained a lien until the claim was paid in full pursuant to § 1325(a)(5)(B)(i)(I)(aa). . . . However, how the debtor proposes to pay the 910 claim under a Chapter 13 plan (the monthly payment, number of months, etc.) is not dependent upon the pre-petition contractual agreement between the debtor and secured claimant. . . . In essence, the court stepped away from Williams’ narrow application of Till. . . .
        . . . This Court concludes that the Hopkins approach is the better view and that the Till decision should not be narrowly applied as in Williams. Section 1322(b)(2) of the Code permits a Chapter 13 plan (regardless of whether the debtor is eligible for a discharge) to “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.” 11 U.S.C. § 1322(b)(2). Williams, in effect, nullified a debtor’s modification power provide[d] by the Code in § 1322(b)(2). Section 1325(a)(5)(B)(i)(I)(aa) says nothing about the rights of secured creditors other than how long those creditors can retain their lien.34
[27]

New § 1325(a)(5)(B)(i) overrules pre-BAPCPA cases that allowed Chapter 13 debtors to confirm plans that released liens upon payment of the allowed secured claim.35 But the changes in lien releasing go deeper because pre-BAPCPA law worked from the assumption that allowed secured claims are determined in the ordinary way for § 1325(a)(5) purposes—by application of § 506. This assumption is undermined by another provision of BAPCPA.

[28]

Mentioned above and detailed elsewhere,36 there is a new hanging sentence at the end of § 1325(a), which states, for purposes of § 1325(a)(5), § 506 “shall not apply” to a purchase money security interest securing a debt incurred within 910 days of the petition when the collateral is a motor vehicle acquired for the personal use of the debtor or the collateral consists of “any other thing of value” and the debt was incurred within one year of the petition.37 As explained above, the new lien retention rule in § 1325(a)(5)(B)(i) begins with a reference to “each allowed secured claim provided for by the plan.” An allowed secured claim can only be determined by application of § 506. If § 506 “shall not apply” to a claim described in the hanging sentence at the end of § 1325(a), is there an “allowed secured claim” to which the new lien retention provision in § 1325(a)(5)(B)(i) attaches?

[29]

Lienholders will argue that § 506 applies in the first instance to determine whether there is an allowed secured claim for purposes of § 1325(a)(5). Then the new lien retention rule applies to that allowed secured claim notwithstanding that the hanging sentence at the end of § 1325(a) disables application of § 506 when the debt is a 910-day PMSI car claim or the collateral is any other thing of value and the debt was incurred within a year of the petition. Debtors will be quick to point out that this same logic leads to the conclusion that “such claim” in § 1325(a)(5)(B)(ii) refers to the same “allowed secured claim,” leaving cramdown alive and well even with respect to the special collateral described in the hanging sentence at the end of § 1325(a).38

[30]

At this writing, almost all relevant decisions conclude that debts falling within the hanging sentence are fully secured for confirmation purposes without regard to the value of the collateral.39 The courts also overwhelmingly hold that modification under § 1322(b)(2) is otherwise unaffected by the hanging sentence—the plan can change interest rates, payment amount and payment duration with respect to a hanging-sentence claim, so long as the debt is treated as fully secured.40

[31]

The interaction of 910-day PMSI car claims and the new lien retention rights in § 1325(a)(5)(B)(i) should not present special problems. The plan must treat a hanging-sentence claim as fully secured and must retain the lien until discharge or payment of the debt as determined under nonbankruptcy law, but the plan can modify other contract rights in the usual ways.

[32]

After BAPCPA, all Chapter 13 plans should include a provision that allows secured claims provided for by the plan to retain liens until the underlying debt is paid in full under nonbankruptcy law or discharge—whichever occurs first.41 There is an improbable twist here for allowed secured claims that are not provided for by the plan. The phrase “provided for by the plan” has not received consistent treatment in the reported decisions.42 Some courts persist in the view that a claim is not “provided for” by the plan when the claim is paid directly by the debtor. This vestige of pre-Code practice is not accurate, but BAPCPA offers incentive for debtors to revive the concept to avoid the new lien retention rules.

[33]

Could a Chapter 13 plan propose “direct” payment of a secured debt and state that the lien will be released upon payment of the allowed secured portion of the claim? Chapter 13 debtors will test the boundaries of “provided for” in § 1325(a)(5) with plan provisions that attempt to control lien retention by not providing for payment through the Chapter 13 trustee.

[34]

The new lien retention rules raise the specter that Chapter 13 debtors will pay allowed secured claims in full but liens will remain attached because the debtor is not paying the underlying debt in full. Imagine a debt that is not protected from modification by § 1322(b)(2)43 and not within the special class described in the hanging sentence at the end § 1325(a).44 The plan provides for the debt in the usual manner under § 1325(a)(5)—an allowable secured claim to the extent of the value of the collateral and an unsecured claim for the balance. If the debt was undersecured, at some point during the plan the allowed secured portion will be paid in full. New § 1325(a)(5)(B)(i) will require that the plan provide for retention of the lien until discharge or payment of the entire underlying debt. No more payments will be made to the lienholder on account of its secured claim, but the collateral remains encumbered and the debtor cannot dispose of the collateral free of the lien.

[35]

At discharge, the lien would be released—assuming that the underlying contract debt was not sooner paid through the confirmed plan. The new lien retention provision delays the release of liens but does not change the general principle that—at least when the hanging sentence in § 1325(a) does not apply—a Chapter 13 debtor can satisfy a lien on personal property by paying the present value of the collateral. BAPCPA just delays that effect.

[36]

This delay will create problems for debtors who need to replace collateral during a Chapter 13 case. A creditor that has been paid its allowed secured claim (only) can refuse to release its lien and prevent the debtor from trading or selling the collateral. This is a punitive outcome for debtors. Once the debtor has paid the allowed secured claim in full, the lienholder has received the present value of its collateral—typically more than it would have realized had the collateral been surrendered at confirmation. The new lien retention rule allows lienholders to hold personal property hostage until the debtor completes payments under the plan or pays the underlying debt in full—including the unsecured portion of any undersecured claim, with all contract interest and other charges. This is a bad outcome for Chapter 13 debtors and a windfall for lienholders with security interests in personal property that is not worth as much as the debtor owes at the petition.

[37]

The new lien retention rule is another reason why well-advised Chapter 13 debtors will make greater use of the power to surrender collateral under § 1325(a)(5)(C).45 Even when a secured claim can be crammed down after BAPCPA, debtors will negotiate for lien retention rules different from new § 1325(a)(5)(B)(i) when collateral is depreciating and useful life is not likely to extend to the end of the plan. If the debtor will need to replace the collateral, the debtor may be better off surrendering the collateral at confirmation and getting replacement collateral through the plan that will serve the debtor until completion of payments.

[38]

Imagine a car that is not protected by the hanging sentence in § 1325(a) but the car has a useful life remaining of three years. In a five-year Chapter 13 plan, the debtor may be forced to pay the allowed secured claim in three years through the plan,46 but the new lien retention provision in § 1325(a)(5)(B)(i) will impede trading or selling the car until the underlying debt is paid in full. The debtor would be well-advised to negotiate an earlier lien release provision or surrender the car to the lienholder on the front end of the plan. The lienholder might well be better off to accept an earlier release of lien provision in exchange for the present value of its allowed secured claim through the plan—an amount that will almost always be greater than the liquidation value of the car in the event of surrender. Whenever the new lien retention provision in § 1325(a)(5)(B)(i) is at odds with the economic reality of the debtor’s plan and the useful life of the collateral, the alternatives—to surrender or negotiate an earlier lien release—should be on the debtor’s agenda. The lienholder may accept a plan provision for earlier lien release47 to avoid the economically disadvantageous option of surrender of its collateral.48

[39]

New § 1325(a)(5)(B)(i)(II) adds that the plan must provide with respect to each allowed secured claim that if the Chapter 13 case is “dismissed or converted without completion of the plan,” the lien is retained by the lienholder “to the extent recognized by applicable nonbankruptcy law.”49 This new lien retention rule seems intended to protect lienholders at conversion or dismissal before the debtor becomes entitled to discharge when the underlying debt has not been paid in full as determined under nonbankruptcy law.

[40]

Detailed elsewhere,50 BAPCPA significantly changed the rules with respect to the treatment of allowed secured claims at conversion or dismissal of a Chapter 13 case by amendments to § 348(f). Under new § 348(f)(1)(B) and (C), valuations of property and of allowed secured claims are no longer the same at conversion of a Chapter 13 case to Chapter 7 as at conversion of a Chapter 13 case to Chapter 11 or Chapter 12.51 In contrast, new § 1325(a)(5)(B)(i)(II) requires lien retention language—“to the extent recognized by applicable nonbankruptcy law”—at conversion of a Chapter 13 case without regard to the chapter to which the case is converted. The words in new § 348(f)(1)(C) intended to preserve the security of creditors at conversion from Chapter 13 when the full amount of the claim “determined under applicable nonbankruptcy law” has not been paid52 are different than the lien retention language now required by § 1325(a)(5)(B)(ii). It is not obvious whether different outcomes were intended by these similar provisions of BAPCPA.

[41]

When a Chapter 13 debtor is not eligible for discharge, the alternative in § 1325(a)(5)(B)(i)(I)(bb) for satisfying the lien retention rights of allowed secured claim holders is not available. To satisfy § 1325(a)(5)(B)(i), the plan must provide that each allowed secured claim holder retains its lien until “payment of the underlying debt determined under nonbankruptcy law” under § 1325(a)(5)(B)(i)(I)(aa).

[42]

After BAPCPA, it is increasingly common for debtors to be eligible for Chapter 13 relief but not eligible for discharge. Detailed elsewhere,53 § 1328(f) was amended by BAPCPA to preclude discharge within four years of the filing of a prior Chapter 7 case in which the debtor received a discharge or within two years of the filing of a prior Chapter 13 case in which the debtor received a discharge.54 A debtor not eligible for discharge under § 1328(f) can file a Chapter 13 case and can confirm a plan55 but to satisfy the lien retention rights of allowed secured claim holders, the plan must mimic the lien retention requirement in § 1325(a)(5)(B)(i)(I)(aa).

[43]

Can the same be said if the lien at issue is not an allowed secured claim? As pointed out above, the predicate for application of § 1325(a)(5)(B)(i) is that the lienholder has an “allowed secured claim.” If the debtor is not eligible for discharge, but the lien is not an allowable secured claim, a strong case can be made that § 1325(a)(5)(B)(i) does not apply and the lienholder cannot claim that BAPCPA enhanced its lien retention rights at confirmation.56

[44]

Perhaps the test of this proposition will be these facts: the debtor is not eligible for discharge because of a prior Chapter 7 discharge in a case filed within four years of the current petition; the debtor’s personal liability was discharged in the prior Chapter 7 case; and the lien that survived the prior Chapter 7 discharge is void or avoidable in the current Chapter 13 case. These facts are not improbable. A wholly unsecured lien on the debtor’s principal residence would be an example. If the courts of appeals and bankruptcy appellate panels are right that a wholly unsecured lien on a debtor’s principal residence is not protected from modification by § 1322(b)(2),57 lien avoidance would be available in this hypothetical Chapter 13 case and there would be no allowed secured claim for lien retention purposes at confirmation under § 1325(a)(5)(B)(i).

[45]

This fact pattern was directly addressed by the Bankruptcy Court for the Northern District of Illinois in In re Fenn;58 the bankruptcy court blinked—finding that lien stripping is not available when the debtor is not eligible for a discharge because of the BAPCPA amendment to § 1325(a)(5)(B)(i). The court’s analysis is good reason to expect anything but smooth sailing ahead in this area of Chapter 13 law.

[46]

The debtors in Fenn received a Chapter 7 discharge in September of 2009. The debtors filed a subsequent Chapter 13 case in which it was conceded that discharge was not available under § 1328(f). The debtors owned real property subject to two mortgages to Wells Fargo, and the junior mortgage was not supported by any value. The plan treated the junior mortgage as wholly unsecured and provided that the lien would be void. Wells Fargo objected to confirmation, claiming that its junior lien was protected from modification by § 1322(b)(2) and in the alternative, that the debtors could not modify the junior lien because they were not eligible for discharge under § 1328(f).

[47]

The Fenn court acknowledged that every circuit court of appeal and bankruptcy appellate panel to have addressed the issue concluded that a wholly unsecured lien can be stripped off without violating the protection from modification in § 1322(b)(2).59 The Seventh Circuit has not directly ruled on the issue, but the Fenn court found in BAPCPA a reason to predict the Seventh Circuit would not allow avoidance of Wells Fargo’s wholly unsecured junior lien when the debtors were not eligible for discharge:

        The five courts of appeals and two bankruptcy appellate panels that have ruled that a wholly unsecured junior mortgage can be avoided did not address the lien retention issue. Those decisions were issued before the specific lien retention provisions of §§ 1325(a)(5)(B)(i)(I)(aa) and (bb) became law. The timing of an avoidance may not have been an issue in those cases.
        The Bankruptcy Code was amended in 2005 pursuant to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, (BAPCPA), Pub. L. No. 109-8. That law added the specific lien retention provisions of §§ 1325(a)(5)(B)(i)(I)(aa) and (bb) to the Code. . . .
        * * * *
        The 2005 BAPCPA amendment added to § 1325(a)(5), subsection (B)(i)(I), now specifically requires that the lien be retained until the earlier of (aa) payment of the debt determined under nonbankruptcy law or (bb) discharge under section 1328. That amendment was enacted to prevent chapter 13 debtors from paying the secured claim as provided for in the plan and obtaining a release of the creditor’s lien prior to obtaining a Chapter 13 discharge. Allowing the Debtors herein to avoid Wells Fargo’s junior mortgage lien under the terms proposed in the . . . plan would offend this congressional policy.
. . . .
        The court finds generally that debtors may void wholly unsecured junior mortgage liens in chapter 13. However, because the Debtors herein are not eligible for a chapter 13 discharge and the . . . plan does not include the appropriate lien retention language, confirmation of that plan is denied.60
[48]

Oddly, Fenn cites the Eleventh Circuit’s opinion in Tanner v. FirstPlus Financial, Inc. (In re Tanner)61 to support its conclusion that lien stripping is not available because of § 1325(a)(5)(B)(i)(I)(aa). In Tanner, the Eleventh Circuit made the important point that to determine whether the protection from modification in § 1322(b)(2) is available to a mortgage holder, bankruptcy courts should first consult § 506(a) to determine whether there is an allowable secured claim. If there is no allowed secured claim, then the protection from modification in § 1322(b)(2) is not available. Fenn does just the opposite—Fenn finds in § 1325(a)(5)(B)(i) a reason to refuse to allow a Chapter 13 debtor with a wholly unsecured mortgage to use lien stripping without answering the question, why does § 1325(a)(5)(B)(i) apply when a creditor’s lien is wholly unsupported by any value in its collateral? The predicate to application of the lien retention provision in § 1325(a)(5)(B)(i)(I)(aa)62 is not exactly the same as the predicate to the protection from modification in § 1322(b)(2).63 But if Tanner has relevance, it stands for the proposition that a wholly unsecured mortgage holder cannot use the new lien retention provision in § 1325(a)(5)(B)(i) to avoid the effect of § 506(a) when there is no value to support its lien.

[49]

The stated congressional policy of protecting allowed secured claim holders from premature loss of their liens is not obviously fostered by extending that protection beyond the statute to lienholders that do not have allowable secured claims. BAPCPA could have positioned the new lien retention provisions in § 1325(a)(5)(B)(i) as an exception to the allowance of secured claims in § 506(a). That Congress did so with respect to 910-day PMSI car claims, and the hanging sentence at the end of § 1325(a) demonstrates that Congress knew how to do that. Instead, the new lien retention provisions contain no cross-reference to § 506(a). A lienholder that is not protected from modification must first prove that it has an allowable secured claim before it can assert the new lien retention entitlement in § 1325(a)(5)(B)(i). The lienholder in Fenn admittedly could not do so. The bankruptcy court in In re Hill64 gives this convincing account of why Fenn is wrongly decided:

        Those courts which prohibit lien strips in Chapter 20 cases . . . concentrate on the § 1325(a)(5)(B)(i)(I) requirement that the holder of a secured claim retain its lien until payment in full or discharge. These cases reason that since the Chapter 20 debtor cannot receive a discharge, the statutory condition of discharge found in § 1325(a)(5)(B)(i)(I) cannot be satisfied, and the lien cannot be stripped. . . .
        Because § 1325(a)(5) only applies to holders of secured claims, this Court respectfully disagrees that the statute imposes the condition of a discharge to allow a Chapter 20 lien strip. Section 1325(a)(5) has no applicability to unsecured claims, which are separately governed by the confirmation requirements of § 1325(a)(4). Controlling Ninth Circuit precedent treats CIT’s claim as an unsecured claim in this Chapter 13 case under § 1322. [Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220 (9th Cir. Dec. 24, 2002) (D.W. Nelson, T.G. Nelson, Schwarzer)]. . . . CIT’s unsecured claim cannot logically be treated differently under § 1325 than it is treated under § 1322. United States v. Snyder, 343 F.3d 1171, 1179 (9th Cir. 2003), held a creditor who did not hold a secured claim pursuant to § 506(a), had no right to other benefits of “secured status in the bankruptcy proceeding.” . . .
        That CIT’s claim is a non-recourse claim under [Johnson v. Home State Bank, 501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (June 10, 1991)], should not affect the applicability of § 506(a) or Zimmer . . . to treat CIT as an unsecured creditor under the Plan. . . . Nothing in either the statutory language of § 506(a) or the analysis of Zimmer . . . indicates non-recourse status is relevant to the lien stripping process.65
[50]

This issue is not going away easily because it is a species of the question whether lien stripping is a by-product of confirmation or of discharge.66 The better-reasoned view is that lien stripping occurs at confirmation because property of the estate vests in the debtor free and clear of the claims or interests of creditors except as provided in the plan or order of confirmation under § 1327.67 The vesting effect of confirmation is not discharge dependent.

[51]

Notice that if the debtor is not eligible for discharge but has personal liability, a lien that is not supported by value or protected from modification can be stripped off and the plan need not retain the lien to accomplish confirmation because § 1325(a)(5)(B)(i) does not apply; but the debtor remains personally liable on any amount of the debt that is not paid during the plan. The lien would be gone because the property would vest in the debtor free of the lien under § 1327, but the debtor’s personal liability could not be resolved when the debtor is not eligible for discharge.

[52]

In the more typical situation—when the debtor is not eligible for discharge but the lien is supported by value or protected from modification and cannot be stripped off—§ 1325(a)(5)(B)(i) will apply and the plan must provide that the lienholder retains its lien until payment in full consistent with nonbankruptcy law. For example, in In re Perez,68 the debtor had pledged property to secure a former spouse’s debt. The debtor was not personally liable to the mortgage holder. The debtor filed Chapter 13 soon after a prior Chapter 7 discharge and was not eligible for discharge in the Chapter 13 case. The plan proposed to cure default and maintain payments on the nonrecourse mortgage.

[53]

Citing Johnson v. Home State Bank,69 the bankruptcy court determined that the nonrecourse mortgage was a claim that could be managed through the Chapter 13 plan. With respect to the mortgage holder’s lien rights, because there was an allowed secured claim, the court applied § 1325(a)(5)(B)(i)(I)(aa) to require the plan to retain the mortgage lien until the underlying debt was paid in full—notwithstanding the absence of personal liability.

[54]

Similarly, in Bank of the Prairie v. Picht (In re Picht),70 a bank financed the debtors’ business and took a security interest in business assets and a second mortgage on the debtors’ residence. The debtors were discharged of personal liability in a prior Chapter 7 case but filed the current Chapter 13 case within the four-year bar to discharge in § 1328(f). The plan proposed to strip down the second mortgage to the value of the property available in excess of a first lien. The bank conceded that its mortgage could be modified but argued that it was entitled to retain its lien under § 1325(a)(5)(B)(i)(I)(aa) until its contract debt was paid in full. There was approximately $15,000 of value available to secure the bank’s claim, but after discharge in the Chapter 7 case and before the filing of the Chapter 13 case, a state court entered an in rem judgment in favor of the bank for the full amount of the bank’s debt—$127,000. The bankruptcy court held that the plan need only retain the bank’s lien to the extent of the $15,000 of value available to secure its claim. The Bankruptcy Appellate Panel for the Tenth Circuit reversed because the bank had an allowed secured claim and § 1325(a)(5)(B)(i)(I)(aa) required payment of the state court judgment in full before the lien could be released:

[B]ecause the Pichts are not entitled to a discharge upon the completion of their Chapter 13 plan, subsection (bb) of § 1325(a)(5)(B)(i)(I) . . . is inapplicable. Thus, the Pichts’ only remaining option is to propose a plan that complies with subsection (aa) . . . . [T]he state court entered an in rem judgment in favor of the Bank and against the residence in the amount of $127,000. The judgment established the amount of “the underlying debt . . . determined under nonbankruptcy law.” The Pichts’ plan requires the Bank to release its lien upon receipt of approximately $15,000, which is less than the amount the Bank is entitled to recover from the residence under nonbankruptcy law. . . . Although the Bank’s § 506(a) “allowed secured claim” of approximately $15,000 may have been properly provided for in the plan (again assuming that § 1322(b)(2) is not applicable in this case), the plan improperly discharged or extinguished the portion of the Bank’s lien that exceeded the value of the residence as of the date of confirmation, even though the Pichts are not entitled to the benefit of a Chapter 13 discharge. Under nonbankruptcy law, the Bank’s lien would encumber the Pichts’ residence regardless of whether the value of the residence exceeded the first mortgage at any point in time.71
[55]

Citing Picht, a bankruptcy court in the Tenth Circuit has gone further to require compliance with the lien retention provisions in § 1325(a)(5)(B)(i)(I) without regard to whether the lien is supported by value. In this regard, the bankruptcy court in In re Woolsey72 reaches the same outcome as Fenn but by a different route.

[56]

The debtors in Woolsey were eligible for a discharge. They listed real property worth $295,800 subject to a first mortgage for $333,000 and a second mortgage, held by CitiBank, for $42,903. The debtors filed an adversary proceeding to avoid the second mortgage, consistent with the Tenth Circuit’s holding in Griffey v. U.S. Bank (In re Griffey).73 CitiBank filed a secured proof of claim but amended to hold an unsecured claim.

[57]

The Chapter 13 trustee objected to confirmation because the plan contained no lien retention provision consistent with § 1325(a)(5)(B)(i)(I). The debtors responded that because the second mortgage was a wholly unsecured claim, it would be void under § 506(d) and no lien retention provision was required. The bankruptcy court decided that § 506(d) was not available because of Dewsnup v. Timm74 and along the way explained that CitiBank’s wholly unsecured lien was nonetheless an allowed secured claim that triggered application of § 1325(a)(5)(B)(i)(I) in a Chapter 13 case:

The Court determines it is bound by Dewsnup to not permit avoidance of the CitiBank lien by the Debtors under § 506(d).
        Lien avoidance is, however, permissible if permitted under other sections of the Code. Thus, debtors in chapter 13 cases can avoid a wholly unsecured lien or have it rendered satisfied, even if the only collateral is the debtor’s primary residence. See Griffey . . . . Their ability to do so, however, depends on a similarly disjunctive reading of “allowed secured claim.” While § 1322(b)(2) permits alteration by a chapter 13 plan of the rights of a holder of a secured claim, section 1325(a)(5) imposes requirements for confirmation of a plan in relation to each “allowed secured claim” addressed by the plan. This Court finds that in order for these two provisions to be sensibly read . . . the “secured claim” referenced in § 1322 relates to § 506(a), which focuses on the term “secured;”and the “allowed secured claim” referenced in § 1325 is similar to that of § 506(d), which focuses on the term “allowed” as utilized under § 502. . . . Thus, a claim must receive the treatment required under § 1325(a)(5) if it has been allowed under § 502 and is “secured by a lien with recourse to the underlying collateral” . . . .
. . . As there is no dispute that CitiBank holds a mortgage on the property, it has recourse to the property, and is thus an allowed secured claim for purposes of §§ 506(d) and 1325(a)(5), despite CitiBank’s claim being completely unsecured under §§ 506(a) and 1322(b)(2). . . .
        Because this is an allowed secured claim for purposes of § 1325(a)(5), the Plan must conform with one of the subsections of § 1325(a)(5). . . .
        The Plan before the Court does not contain the provisions providing for the retention of the lien until discharge or payment in full and for reinstating the lien upon conversion or discharge. . . . [T]he Plan must contain such language to be confirmed.75
[58]

Although the debtors in Woolsey were entitled to discharge, the bankruptcy court addressed in dicta “no discharge” Chapter 13 cases: “Avoidance of a lien is only available upon discharge or full payment of the underlying debt. . . . In addition, the amount that must be paid to satisfy the ‘underlying debt’ obligation under § 1325(a)(5)(B)(i)(I)(aa) is not limited to the amount of an allowed claim that is secured as determined by § 506(a).”76

[59]

A case like Fenn, Hill, Picht or Woolsey is likely to be the context that serves up to the Supreme Court the issue whether a wholly unsecured mortgage on a debtor’s principal residence can be stripped off notwithstanding § 1322(b)(2) and Nobelman.77 By different routes, Fenn and Woolsey conclude that § 1325(a)(5)(B)(i) is a good reason to preclude lien stripping unless the underlying debt is paid in full as determined by nonbankruptcy law when the debtor is not eligible for a discharge. This logic has a fundamentally circular effect: stripping off the wholly unsecured lien becomes discharge dependent notwithstanding that the lien is nonrecourse because personal liability was discharged in a prior Chapter 7 case. Dewsnup bears on this discussion only because it supports an interpretation of Nobelman that would prohibit lien stripping of a wholly unsecured lien in the first instance—not because of § 1325(a)(5)(B)(i)(I) but because of the protection from modification in § 1322(b)(2). Fenn and Woolsey go well beyond the protection from modification in § 1322(b)(2) to find lien protection in § 1325(a)(5)(B)(i)(I) even for a wholly unsecured, nonrecourse lien.

[60]

There is another puzzler buried here: what is the nature and allowable amount of the claim that exists only by virtue of a lien that survived discharge in a prior bankruptcy case with respect to which the debtor has no personal liability when that lien is avoidable or otherwise not protected from stripdown in the Chapter 13 case? The Supreme Court told us in Johnson that a lien unsupported by personal liability that comes out of a Chapter 7 case is an allowable claim in a subsequent Chapter 13 case because the lien is itself a “right to payment.” If it is the surviving lien that gives rise to the right to payment in the subsequent Chapter 13 case, what becomes of that right to payment if the lien can be stripped off? If there is no personal liability and no lien, is there an allowable unsecured claim?

[61]

Arguably, a debt that is not enforceable against the debtor or against property of the estate would be disallowed under § 502. This creditor would lose its lien in the Chapter 13 case, there would be no lien retention right under § 1325(a)(5)(B)(i) and there would be no unsecured claim that must be paid in the Chapter 13 case.

[62]

This is not so startling an outcome. There is no Chapter 13 analogue to the artificial nonrecourse claim created by § 111(b) in Chapter 11 cases.78 The debtor just imagined came into Chapter 13 without personal liability, and there’s no obvious reason why avoidance of a lien that is unsupported by value should generate greater rights in the creditor. Section 1325(a)(5)(B)(i) only affords lien retention rights to creditors that have unavoidable liens. A lienholder that loses its lien in the Chapter 13 case can then assert an unsecured claim only when there is a basis for that unsecured claim—personal liability, for example.

[63]

When new § 1325(a)(5)(B)(i) does not apply, the default lien retention rule in the district will be the pre-BAPCPA rule79—including much controversy whether the plan can release liens upon payment of the allowed secured portion of an undersecured claim. This issue is less robust after BAPCPA because the hanging sentence at the end of § 1325(a) protects from valuation under § 506(a) many undersecured liens on motor vehicles incurred within 910 days of the petition.80


 

1  Pub. L. No. 109-8, 119 Stat. 23 (2005).

 

2  See cases collected in § 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA.

 

3  See cases collected in § 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA.

 

4  See also § 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA.

 

5  11 U.S.C. § 1325(a)(5)(B)(i)(I)(aa), (bb).

 

6  11 U.S.C. § 1325(a)(5)(B)(i)(II).

 

7  H.R. Rep. No. 109-31, at 84.

 

8  See below in this section, and see §§ 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA and 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA.

 

9  11 U.S.C. § 506(a)(1), discussed in § 105.1 [ Valuation, Claim Splitting and Dewsnup ] § 76.1  Valuation, Claim Splitting and Dewsnup.

 

10  508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993).

 

11  See § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

12  See below in this section, and see discussion beginning at § 75.1  In General: Modification Without § 506.

 

13  See § 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA. See also Ransom v. FIA Card Servs., N.A., __ U.S. __, 131 S. Ct. 716, __ L. Ed. 2d __ (Jan. 11, 2011) (“Some” amount of debt or lease is predicate to allowance of Transportation Ownership Cost deduction under §§ 1325(b)(3) and 707(b)(2)(A)(ii)(I).).

 

14  See discussion of 11 U.S.C. § 522(f) beginning at § 49.1  Available in Chapter 13 Cases.

 

15  See Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220 (9th Cir. Dec. 24, 2002) (D.W. Nelson, T.G. Nelson, Schwarzer); Lane v. Western Interstate Bancorp (In re Lane), 280 F.3d 663, 667–69 (6th Cir. Feb. 7, 2002) (Nelson, Daughtrey, Moore); Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122, 126 (2d Cir. May 31, 2001) (Newman, Cabranes, Thompson); Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357, 1359–60 (11th Cir. July 13, 2000) (Black, Carnes, Kravitch); Bartee v. Tara Colony Homeowners Ass’n (In re Bartee), 212 F.3d 277, 292 (5th Cir. May 15, 2000) (Higginbotham, Parker, Atlas); McDonald v. Master Fin., Inc. (In re McDonald), 205 F.3d 606, 615 (3d Cir. Mar. 9, 2000) (Sloviter, Roth, Cowen).

 

16  See Griffey v. U.S. Bank (In re Griffey), 335 B.R. 166 (B.A.P. 10th Cir. Dec. 12, 2005) (Bohanon, Cornish, Michael); Domestic Bank v. Mann (In re Mann), 249 B.R. 831, 840 (B.A.P. 1st Cir. June 30, 2000) (Queenan, Haines, Boroff); Lam v. Investors Thrift (In re Lam), 211 B.R. 36, 41 (B.A.P. 9th Cir. July 3, 1997) (Hagan, Ryan, Ollason).

 

17  See § 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA.

 

18  See § 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA.

 

19  See 11 U.S.C. § 1328(a), discussed beginning at § 157.1  Broadest Discharge Available.

 

20  See 11 U.S.C. § 1328(b), discussed beginning at § 160.1  In General.

 

21  See 11 U.S.C. § 1328(c), discussed in § 354.1 [ Exceptions to Hardship Discharge ] § 160.6  Exceptions to Hardship Discharge before BAPCPA.

 

22  11 U.S.C. § 101(12).

 

23  501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (June 10, 1991). See below in this section, and see §§ 146.1 [ Debts Discharged in Prior Bankruptcy and Nonrecourse Debts ] § 85.5  Debts Discharged in Prior Bankruptcy and Nonrecourse Debts and 305.1 [ Nonrecourse Claims and Claims Discharged in Prior Bankruptcy Case ] § 138.4  Nonrecourse Claims and Claims Discharged in Prior Bankruptcy Case.

 

24  See 11 U.S.C. § 1322(b)(2), discussed in § 104.1 [ The Power to Modify ] § 74.11  The Power to Modify.

 

25  See § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

26  See below in this section, and see discussion beginning at § 75.1  In General: Modification Without § 506.

 

27  See, e.g., In re White, 352 B.R. 633, 648–49 (Bankr. E.D. La. Sept. 29, 2006) (Magner) (Under § 1325(a)(5)(B)(i)(I), car lien must be retained until completion of payments under confirmed plan—an amount that may not be the same as underlying debt determined under nonbankruptcy law. “Capital One argues that the lien must be retained until the entire debt, calculated under state law is paid. Under Capital One’s interpretation, all charges due under state law including, but not limited to, post-petition interest and attorney’s fees as allowed by contract, would have to be paid prior to the release of its lien. But this interpretation would render meaningless the provisions of §§ 502(a), and 1325(a) which calculate the claim and provide for its satisfaction. . . . Section 1325(a)(5)(B)(i)(I) does not define the claim or its calculation. Section 1325 merely provides for treatment of the secured claim once it is defined by other provisions of the Bankruptcy Code. Therefore, in order to provide effect to all sections of the Bankruptcy Code, § 1325(a)(5)(B)(i)(I) can only require that Capital One retain its lien over the vehicle until the earlier of, satisfaction of the amounts due and as calculated under state law, or completion of Debtor’s obligations under the confirmed plan.”); In re Fleming, 339 B.R. 716, 723–24 (Bankr. E.D. Mo. Mar. 27, 2006) (Schermer, Surratt-States) (Lien retention language in § 1325(a)(5)(B)(i)(I)(aa) requires that car lender retain its lien until payment of underlying debt determined under nonbankruptcy law; lien retention language does not require contract interest. “If the debtor completes all payments pursuant to a plan which pays the Car Creditor the present value of the balance owed as of the petition date, the debtor will receive a discharge. At that point in time, the Car Creditor’s lien may be discharged with its claim under § 1325(a)(5)(B)(i)(I)(bb). If, on the other hand, the debtor fails to complete payments under the Chapter 13 plan, the debtor will not receive a discharge. In this scenario, the lien remains and the Car Creditor is entitled to collect the amount of its claim as determined under non-bankruptcy law—including interest at the contract rate—under § 1325(a)(5)(B)(i)(I)(aa). . . . The Car Creditor’s lien may be wiped out at the time of discharge. 11 U.S.C. § 1325(a)(5)(B)(i)(I). Therefore, if the debtor completes the confirmed plan, the Car Creditor will not retain a lien for post-petition interest at the contract rate if the plan provided to the contrary.”).

 

28  See below in this section, and see 11 U.S.C. § 1328(f), discussed in §§ 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

29  367 B.R. 625 (Bankr. N.D. Ill. Apr. 23, 2007) (Hollis).

 

30  See § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

31  541 U.S. 465, 124 S. Ct. 1951, 158 L. Ed. 2d 787 (May 17, 2004). See § 77.1  “Value, As of the Effective Date of the Plan” Means Interest§ 77.2  Interest Rate Anarchy: Present Value before Till and § 77.3  Present Value after Till.

 

32  367 B.R. at 628–29.

 

33  394 B.R. 879 (Bankr. N.D. Ill. Oct. 14, 2008) (Squires).

 

34  394 B.R. at 882–83. Accord In re Lilly, 378 B.R. 232, 235–37 (Bankr. C.D. Ill. Oct. 30, 2007) (Perkins) (Rejecting In re Williams, 367 B.R. 625 (Bankr. N.D. Ill. Apr. 23, 2007) (Hollis), and accepting in part In re Hopkins, 371 B.R. 324 (Bankr. N.D. Ill. July 10, 2007) (Goldgar), when debtor is not eligible for discharge because of § 1328(f)(1), plan can modify interest rate and other terms of a 910-day PMSI car claim, but lien survives bankruptcy and debtor remains personally liable for balance of debt, including contract interest. “The DEBTOR . . . is not eligible for a discharge and AFS’s claim may not be bifurcated. By operation of Section 1325(a)(5)(B)(i)(I), AFS’s lien is retained until payment of the underlying debt determined under nonbankruptcy law . . . . The Hopkins court determined that the lien retention provision of Section 1325(a)(5)(B)(i) does not override or cancel out a debtor’s power to modify the terms of the contract under Section 1322(b)(2) and cram down a secured claim at the Till rate under Section 1325(a)(5)(B)(ii). This Court agrees with that reasoning. . . . [T]he lien retention provision is properly interpreted as not affecting the amount that must be paid on a secured claim . . . . The Court departs, however, from the determination reached in Hopkins, that the phrase ‘debt determined under nonbankruptcy law’ refers to the petition date balance . . . . [T]he lien is retained until the entire amount of the debt, calculated without regard to the modifications permitted in bankruptcy, is paid. Where a Chapter 13 debtor is entitled to receive a discharge, the interest rate reduction permitted by Section 1325(a)(5)(B)(ii) and Till becomes permanent and binding on the creditor when the debtor completes the plan and receives a discharge. . . . Where a debtor does not receive a discharge, however, any modifications to a creditor’s rights imposed in the plan are not permanent and have no binding effect once the term of the plan ends. . . . Since the DEBTOR is not entitled to a discharge, and Section 1325(a)(5)(B)(i)(I)(bb) is not operative, AFS is entitled to a plan provision that it shall retain its lien until ‘the payment of the underlying debt determined under nonbankruptcy law.’ The DEBTOR, however, is entitled to confirm a plan over AFS’s objection that pays interest at the Till rate, not the contract rate. . . . The DEBTOR remains liable for the full amount of the underlying debt determined under nonbankruptcy law, including her liability for interest calculated at the contract rate. If the interest rate reduction achieved under a confirmed plan was determined to be permanent and binding on the creditor, that would result in a de facto discharge of a portion of the underlying debt, a benefit to which the DEBTOR is not entitled. Once the plan is completed, the DEBTOR remains liable for the balance of the ‘underlying debt determined under nonbankruptcy law,’ which remains secured by the lien under Section [1325(a)(5)(B)(ii)](I)(aa).”); In re Hopkins, 371 B.R. 324 (Bankr. N.D. Ill. July 10, 2007) (Goldgar) (Rejecting In re Williams, 367 B.R. 625 (Bankr. N.D. Ill. Apr. 23, 2007) (Hollis), that debtor is not eligible for discharge because of § 1328(f)(1) does not preclude modification of 910-day PMSI car claim to pay debt as fully secured with an interest rate and monthly payment different from those in the contract.).

 

35  See § 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA.

 

36  See discussion beginning at § 75.1  In General: Modification Without § 506.

 

37  Hanging sentence at end of 11 U.S.C. § 1325(a).

 

38  See § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

39  See § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

40  See § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

41  See, e.g., In re Thompson, No. 08-63957, 2009 WL 1758757, at *2 (Bankr. N.D. Ohio June 17, 2009) (unpublished) (Kendig) (Form plan in district appropriately provided that car lienholder would retain its lien until “the earlier of payment of the entire balance under applicable nonbankruptcy law or entry of the discharge.”).

 

42  See §§ 234.1 [ Failure to Provide For ] § 121.3  Failure to Provide For and 349.1 [ Claims Not Provided for by the Plan or Disallowed under § 502 ] § 158.5  Claims Not Provided for by the Plan or Disallowed under § 502.

 

43  See § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

44  See above in this section, and see § 451.1 [ In General: Modification Without § 506 ] § 75.1  In General: Modification Without § 506.

 

45  See § 446.1 [ Surrender of Collateral ] § 74.6  Surrender, Sale, Vesting in Lienholder and Payment with Property after BAPCPA.

 

46  See the new “adequate protection” requirement in 11 U.S.C. § 1325(a)(5)(B)(iii)(II), discussed in § 449.1 [ “Adequate Protection” after Confirmation ] § 74.15  “Adequate Protection” after Confirmation after BAPCPA.

 

47  See 11 U.S.C. § 1325(a)(5)(A), discussed in § 445.1 [ Acceptance of Plan ] § 74.4  Acceptance of Plan after BAPCPA.

 

48  See 11 U.S.C. § 1325(a)(5)(C), discussed in § 446.1 [ Surrender of Collateral ] § 74.6  Surrender, Sale, Vesting in Lienholder and Payment with Property after BAPCPA.

 

49  11 U.S.C. § 1325(a)(5)(B)(i)(II).

 

50  See § 145.3  Lienholders’ Rights at Conversion under § 348(f) after BAPCPA and § 153.2  Consequences of Dismissal Added or Changed by BAPCPA.

 

51  See 11 U.S.C. § 348(f)(1)(B) & (C), discussed in §§ 533.1 [ Lienholders’ Rights at Conversion under § 348(f) ] § 145.3  Lienholders’ Rights at Conversion under § 348(f) after BAPCPA, 536.1 [ New Incentives to Convert to Chapter 11 ] § 146.3  Incentives to Convert to Chapter 11 after BAPCPA and 537.1 [ New Incentives to Convert to Chapter 12 ] § 147.2  Incentives to Convert to Chapter 12 after BAPCPA.

 

52  11 U.S.C. § 348(f)(1)(C), discussed in § 533.1 [ Lienholders’ Rights at Conversion under § 348(f) ] § 145.3  Lienholders’ Rights at Conversion under § 348(f) after BAPCPA.

 

53  See §§ 371.1 [ Eligibility of Repeat Filers after BAPCPA ] § 23.2  Eligibility of Repeat Filers after BAPCPA and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

54  See 11 U.S.C. § 1328(f), discussed in §§ 371.1 [ Eligibility of Repeat Filers after BAPCPA ] § 23.2  Eligibility of Repeat Filers after BAPCPA and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

55  See §§ 371.1 [ Eligibility of Repeat Filers after BAPCPA ] § 23.2  Eligibility of Repeat Filers after BAPCPA and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

56  See § 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA.

 

57  See § 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA.

 

58  428 B.R. 494 (Bankr. N.D. Ill. May 17, 2010) (Cox), on further reh’g, No. 09 B 49343, 2010 WL 2293419 (Bankr. N.D. Ill. June 8, 2010) (Cox).

 

59  428 B.R. at 502 (“Each court of appeals that has considered this issue has held that § 1322(b)(2) does not prohibit avoidance of liens associated with wholly unsecured claims. See, e.g., Lane v. W. Interstate Bancorp (In re Lane), 280 F.3d 663, 667-69 (6th Cir. 2002); Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122, 126 (2d Cir. 2001); Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357, 1359-60 (11th Cir. 2000); Bartee v. Tara Colony Homeowners Ass’n., et al (In re Bartee), 212 F.3d 277, 292 (5th Cir. 2000); McDonald v. Master Fin., Inc. (In re McDonald), 205 F.3d 606, 615 (3d Cir. 2000). Two Bankruptcy Appellate Panels have held likewise. See, e.g., Domestic Bank v. Mann (In re Mann), 249 B.R. 831, 840 (1st Cir. BAP 2000); Lam v. Investors Thrift, et al. (In re Lam), 211 B.R. 36, 41 (9th Cir. BAP 1997).).”

 

60  428 B.R. at 502–04.

 

61  217 F.3d 1357 (11th Cir. July 13, 2000) (Black, Carnes, Kravitch).

 

62  See 11 U.S.C. § 1325(a)(5) (“each allowed secured claim”).

 

63  See 11 U.S.C. § 1322(b)(2) (“holders of secured claims”).

 

64  440 B.R. 176 (Bankr. S.D. Cal. Nov. 29, 2010) (Mann).

 

65  440 B.R. at 182–83.

 

66  See §§ 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA and 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA.

 

67  See §§ 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA, 230.1 [ 11 U.S.C. § 1327(b): Vesting Effect on Property of Estate ] § 120.3  11 U.S.C. § 1327(b): Vesting Effect on Property of Estate and 231.1 [ 11 U.S.C. § 1327(c): Free and Clear Effect on Liens ] § 120.4  11 U.S.C. § 1327(c): Free and Clear Effect on Liens.

 

68  No. 07-90216-BHL-13, 2007 WL 1670248 (Bankr. S.D. Ind. May 31, 2007) (unpublished) (Lorch).

 

69  501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (June 10, 1991).

 

70  428 B.R. 885 (B.A.P. 10th Cir. May 4, 2010) (Thurman, Rasure, Romero).

 

71  428 B.R. at 890–93.

 

72  438 B.R. 432 (Bankr. D. Utah Oct. 8, 2010) (Thurman).

 

73  335 B.R. 166 (B.A.P. 10th Cir. Dec. 12, 2005) (Bohanon, Cornish, Michael), discussed in § 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA.

 

74  502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992).

 

75  438 B.R. at 435–36.

 

76  438 B.R. at 438.

 

77  See § 128.1 [ Modification of Unsecured Home Mortgage: Before and After BAPCPA ] § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA.

 

78  11 U.S.C. § 1111(b) provides:

(b)(1)(A) A claim secured by a lien on property of the estate shall be allowed or disallowed under section 502 of this title the same as if the holder of such claim had recourse against the debtor on account of such claim, whether or not such holder has such recourse, unless—
(i) the class of which such claim is a part elects, by at least two-thirds in amount and more than half in number of allowed claims of such class, application of paragraph (2) of this subsection; or
(ii) such holder does not have such recourse and such property is sold under section 363 of this title or is to be sold under the plan.
(B) A class of claims may not elect application of paragraph (2) of this subsection if—
(i) the interest on account of such claims of the holders of such claims in such property is of inconsequential value; or
(ii) the holder of a claim of such class has recourse against the debtor on account of such claim and such property is sold under section 363 of this title or is to be sold under the plan.
(2) If such an election is made, then notwithstanding section 506(a) of this title, such claim is a secured claim to the extent that such claim is allowed.

 

79  See § 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA.

 

80  See discussion beginning at § 75.1  In General: Modification Without § 506.