§ 80.13     Modification of Unsecured Home Mortgage: Before and After BAPCPA
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 80.13, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

What started as a balanced disagreement—whether a security interest in real property that is the debtor’s principal residence is protected from modification by § 1322(b)(2) if there is no value in the property to secure the debt—has become a rout as one court of appeals after another caves to the view that wholly unsecured mortgages are not protected from modification.1 Prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”),2 this controversy was fed by conflicting interpretations of what the Supreme Court said and didn’t say about §§ 506(a), 506(d) and 1322(b)(2) in Dewsnup v. Timm3 and Nobelman v. American Savings Bank.4 BAPCPA substantially complicated the issue—not by amending the protection from modification in § 1322(b)(2); but amendments to other Code sections dealing with lien retention,5 conversion6 and successive discharges7 impact the confirmation of plans that modify wholly unsecured home mortgages.

[2]

In Nobelman, a unanimous Supreme Court read the protection from modification in § 1322(b)(2) broadly to prohibit Chapter 13 debtors from modifying any of the contract or state law rights of a claim holder with a security interest in real property that is the debtor’s principal residence.8 The immediate issue before the Supreme Court was whether § 1322(b)(2) prohibited splitting an undersecured home mortgage into its secured and unsecured portions for purposes of confirmation of a Chapter 13 plan. Justice Thomas focused on the phrase “rights of holders” in § 1322(b)(2) and concluded that § 1322(b)(2) prohibits modification of all the rights defined by contract or by state law:

The bank’s “rights,” therefore, are reflected in the relevant mortgage instruments. . . . They include the right to prepayment of the principal in monthly installments over a fixed term at specified adjustable rates of interest, the right to retain the lien until the debt is paid off, the right to accelerate the loan upon default and to proceed against petitioners’ residence by foreclosure and public sale, and the right to bring an action to recover any deficiency remaining after foreclosure. . . . These are the rights that are “bargained for by the mortgagor and the mortgagee,” Dewsnup v. Timm, [502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992),] . . . and are rights protected from modification by § 1322(b)(2).9
[3]

Justice Thomas acknowledged that it was appropriate in a Chapter 13 case to look to § 506(a) “for a judicial valuation of the collateral to determine the status of the bank’s secured claim.”10 But Justice Thomas then specifically rejected the argument that § 1322(b)(2) only protects claims that would be allowable as secured claims under § 506(a):

Congress chose to use the phrase “claim secured . . . by” in § 1322(b)(2)’s exception, rather than repeating the term of art “secured claim.” The unqualified word “claim” is broadly defined under the Code. . . . It is also plausible, therefore, to read “a claim secured only by a [homestead lien]” as referring to the lienholder’s entire claim, including both the secured and the unsecured components of the claim. . . . This latter interpretation is the more reasonable one. . . . The bank’s contractual rights are contained in a unitary note that applies at once to the bank’s overall claim, including both the secured and unsecured components.11
[4]

Although the bank’s claim in Nobelman was only partially secured by real property that was the debtor’s principal residence, Justice Thomas tied the protection from modification in § 1322(b)(2) to the existence of a lien on real property, without regard to whether the claim holder also had an allowed secured claim after valuation under § 506(a). The clear implication of this analysis is that even a completely unsecured claim holder with a lien on real property that is the debtor’s principal residence would be protected from modification by § 1322(b)(2), notwithstanding that such an “unsecured” lienholder could not have an allowable secured claim under § 506(a). Justice Thomas’s focus on the rights of the holders of a “claim secured only by a [homestead lien]” in § 1322(b)(2) extends the protection from modification to claims that are secured by a lien on the debtor’s principal residence, without regard to the allowance of secured claims under § 506(a). In other words, the predicate for Justice Thomas’s protection of rights analysis is the existence of a lien, not the presence of value to support that lien.

[5]

In most states, even a mortgage holder with no value in the collateral can ride the property in hopes of future appreciation or can exercise the right to foreclose its lien and sell the property. The unsecured lienholder may not receive any proceeds from the foreclosure sale, but it can force such a sale for whatever strategic advantages it may realize under its contract or state law. Nobelman supports the view that § 1322(b)(2) prohibits the Chapter 13 plan from modifying any of the contract or state law rights of even an unsecured claim holder with a (totally unsecured) lien on real property that is the debtor’s principal residence.

[6]

A strong majority of the reported decisions—including the Courts of Appeals for the Second, Third, Fifth, Sixth, Ninth and Eleventh Circuits, and the Bankruptcy Appellate Panels for the First, Eighth, Ninth and Tenth Circuits—rejects the proposition that Nobelman prohibits modification of a totally unsecured lien on a Chapter 13 debtor’s principal residence.12 These courts interpret Justice Thomas’s one-sentence reference to § 506(a) to require the existence of an allowable secured claim before the protection from modification in § 1322(b)(2) is available. Ironically,13 the Fifth Circuit explains this reading of Nobelman by contrasting its own decision in Nobelman:

[I]t is the first part of Justice Thomas’s analysis that is fundamental to the resolution of this case, namely the confirmation that § 506(a) is the starting point in the analysis. See [Nobelman v. American Savings Bank, 508 U.S. 324, 328, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993)]. . . . If it is correct to ‘look[ ] to § 506(a) for a judicial valuation of the collateral to determine the status of the bank’s secured claim,’ then it stands to reason that valuation will control the determination of the mortgagee’s security interest . . . . ‘Once we accept that courts must apply § 506(a), then it follows, even under Nobelman, that a wholly unsecured mortgage holder does not have a secured claim.’ In re McDonald, 205 F.3d 606, 611 (3d Cir. 2000). In the case of a wholly unsecured junior mortgage, the valuation function of § 506(a) obviates the need to even consult § 1322(b)(2). . . . Without an allowed secured claim, a creditor cannot invoke § 1322(b)(2). . . . [C]ourts holding to a minority view are . . . left to argue that § 506(a) and § 1322(b)(2) are essentially in conflict and that § 1322(b)(2) prevails. . . . However, we know this position to be untenable, since it was the one we espoused in our Nobelman opinion, a position unambiguously rejected by the Supreme Court. . . . We find the minority view to be a misreading of Nobelman, that creates a false conflict in the Bankruptcy Code.14
[7]

This is an odd reading of Justice Thomas’s opinion in Nobelman. Justice Thomas avoided the textural conflict between §§ 506(a) and 1322(b)(2) found by the Fifth Circuit by focusing on the phrase “claim secured . . . by” in § 1322(b)(2). That Congress did not use the term of art “secured claim” in § 1322(b)(2) allowed Justice Thomas to conclude that the prohibition against modification included the unsecured claim held by the undersecured mortgagee. The Fifth Circuit turns this phrase parsing by Justice Thomas on its head.

[8]

These courts do not explain why Justice Thomas went to such pains to link the protection from modification in § 1322(b)(2) to the existence of an “unqualified . . . claim” secured by a lien on a debtor’s principal residence if, in addition, the creditor must have an allowable secured claim.

[9]

Linking the antimodification protection in § 1322(b)(2) to the existence of any allowable secured claim means that a mortgage holder with one dollar of collateral value is protected from modification to the extent of its entire debt, while a mortgage holder pennies “under water” forfeits the protection from modification with respect to its entire mortgage. This ascribes to Congress the odd intent to extend the antimodification protection in § 1322(b)(2) to residential mortgage holders with any toehold on the debtor’s property and to refuse that same protection when collateral values have shifted a peppercorn below the creditor’s position. The lien rights of either creditor under state law—rights of much concern to Justice Thomas in Nobelman—are typically the same whether the mortgage holder is a dollar above or a dollar below the allowed secured claim threshold. This reading of Nobelman puts an undeserved premium on valuation of residential real property—it assumes a degree of accuracy in the valuation process that is without foundation in reality. A minority of courts, many overruled by subsequent appellate decisions, have read Nobelman and § 1322(b)(2) to prohibit modification of even a wholly unsecured mortgage on a Chapter 13 debtor’s principal residence.15

[10]

The majority view—that Nobelman does not extend the protection from modification in § 1322(b)(2) to a wholly unsecured lien on the debtor’s principal residence—tests the interaction of several Supreme Court decisions and invites further review by the Supreme Court. In Dewsnup, the Supreme Court held that a Chapter 7 debtor could not use § 506(d) to “strip down” an undersecured mortgage holder’s lien to the value of the property.16 Put another way, in Dewsnup the Supreme Court prohibited a Chapter 7 debtor from limiting an undersecured lien to the portion of the debt that was actually secured by value in the property. This holding has not been confined to undersecured mortgage holders in the Chapter 7 context. For example, in Ryan v. Homecomings Financial Network (In re Ryan),17 the Fourth Circuit held that a wholly unsecured lien on real property may not be stripped off in a Chapter 7 case.18 The ultimate test of lien stripping is likely to come in the distressing context of a no-discharge Chapter 13 case in which the debtor seeks to strip off a wholly unsecured junior lien and the resulting unsecured claim is likely to not be allowable for lack of personal liability or lien.19

[11]

Despite strong consensus—before and after BAPCPA—that Chapter 13 debtors can strip off wholly unsecured liens on a personal residence, that consensus does not extend to the details of lien stripping. The reported decisions have not settled on which Code sections or statutory mechanism actually accomplishes lien stripping in a Chapter 13 case.20 There is anarchy with respect to the proper procedure for lien stripping.21 Valuation is at the heart of lien stripping, but the courts disagree about the date at which valuation should occur.22 And then there is exploding disagreement about when lien stripping is effective in a Chapter 13 case—especially if the debtor is not eligible for discharge.23

[12]

Several of these disputes were aggravated by BAPCPA, and BAPCPA added a few new ones. Disrupting both the statutory framework and the timing of lien stripping, § 1325(a)(5)(B) was amended by BAPCPA to add new lien retention rules.24 BAPCPA rewrote § 348(f) in ways that substantially changed the stripping off of liens in the event of conversion from Chapter 13 to Chapter 7.25 BAPCPA amended § 1328(f) to dramatically limit successive discharges impacting lien stripping when the Chapter 13 debtor is not eligible for a discharge.26

[13]

Near unanimity with respect to the availability of lien stripping of wholly unsecured mortgages has produced no consensus with respect to the proper procedure. A recent survey on the subject found at least four pathways to lien stripping in active practice:

There appear to be four different ways which are used individually or in some combination with one another to accomplish [lien stripping]. Some courts allow lien stripping through the confirmation process. Still others require an adversary proceeding to void the worthless mortgage. A select minority have allowed the debtor to strip a creditor’s lien by objecting to the secured creditor’s position concerning the value of its collateral as stated on its proof of claim.27
[14]

Motion. Courts endorsing lien stripping by motion28 rely on Bankruptcy Rule 3012:

The court may determine the value of a claim secured by a lien on property in which the estate has an interest on motion of any party in interest and after a hearing on notice to the holder of the secured claim and any other entity as the court may direct.
[15]

Accepting the motion route to lien stripping depends, at least in part, on whether lien stripping is properly characterized as a question of valuation or whether it engages “a proceeding to determine the validity, priority, or extent of a lien.”29 Using the valuation model, the debtor wins or loses depending on whether there is value in the collateral to secure any portion of the target lien(s).30 Even in courts that accept a motion as the appropriate lien-stripping procedure, there may be circumstances when the adversary proceeding alternative is required.

[16]

For example, in Stewart v. JP Morgan Chase Bank (In re Stewart),31 the bankruptcy court held that a plan alone was not sufficient to lien strip, “absent the utilization of a separate proceeding, either a contested matter under Rule 3012 or an adversary proceeding under Rule 7001(2).”32 The Stewart debtor attempted to strip two junior mortgages, which triggered priority issues in addition to valuation:

If only one allegedly stripable mortgage were involved, the court would—and does—allow the utilization of Fed. R. Bankr. P. 3012 as the mechanism for determining the effectiveness of the “strip down” provision of a debtor’s plan. However, when there are more than two “security interests” in a residential property, the provisions of Fed. R. Bankr. P. 7001(2) must be followed to determine the priority of the mortgage interests in relation to the valuation sought to be enforced by the debtor.33
[17]

The Stewart court looked for guidance to In re Hanson34—a Seventh Circuit decision addressing the due process rights of student loan creditors when the confirmed plan discharged student loan debt without a finding of undue hardship.35 Hanson was decided before the Supreme Court addressed the identical issue in United Student Aid Funds, Inc. v. Espinosa.36 Hanson is questionable authority after Espinosa.37

[18]

Applying the elusive distinction between lien invalidation and lien stripping found in SLW Capital, LLC v. Mansaray-Ruffin (In re Mansaray-Ruffin),38 the bankruptcy court in In re Kemp39 held that a motion can reclassify a wholly unsecured mortgage as an unsecured claim, without filing an adversary proceeding:

Here, the debtor is not seeking to invalidate the lien of HSBC. Rather, the debtor seeks to strip the HSBC lien based on the value of the collateral. The Mansaray-Ruffin court . . . confirmed that Rule 7001 does not require a debtor to file an adversary complaint where the debtor seeks to modify the lien amount based on the value of the collateral.40
[19]

Adversary Proceeding. As just noted, if you reason that lien stripping involves the validity, priority or extent of the wholly unsecured lien, or if you believe that lien stripping inherently requires heightened procedural safeguards, an adversary proceeding may be required. For example, some bankruptcy decisions in the Seventh Circuit interpret Hanson to require an adversary proceeding to lien strip.41 More recently, in the same circuit, a different bankruptcy judge in In re Ginther42 observed that an adversary proceeding is required by Bankruptcy Rule 7001(2), but the creditor waives its right to that procedure by failure to object:

[A]s the Supreme Court recently held in [United Student Aid Funds, Inc. v. Espinosa, __ U.S. __, 130 S. Ct. 1367, 176 L. Ed. 2d 158 (2010)], a creditor can lose its right to an adversary proceeding by failing to object, at least where it received reasonable or actual notice. Espinosa clarified that the Bankruptcy Rules are procedural rules, and therefore overruled In re Hanson, 397 F.3d 482 (7th Cir. 2005), which had held that constitutional due process required compliance with notice provisions in the Rules.43
[20]

One lienholder in Ginther objected to motion practice; another did not. For the objecting creditor, the debtors were required to file an adversary proceeding. The first lesson of Ginther is that notice is required for waiver. Then, if the creditor objects to a motion or plan providing for lien stripping, some courts will require the filing of an adversary proceeding.44

[21]

Although it is not always clear from the reported decisions why the debtor filed an adversary proceeding rather than motion, a fair number of courts have held, or at least implied, that an adversary proceeding is the required procedure for lien stripping.45 When the confirmed plan provided that the debtor would file an adversary proceeding to strip off a wholly unsecured mortgage, the court in In re Tran46 held that confirmation would be revoked if an adversary proceeding was not timely filed.

[22]

Plan. When the plan language is clear and notice to the affected creditor is satisfactory,47 there is authority that the plan alone is an available route to lien stripping.48 Participation by the lienholder in the plan process is submission to jurisdiction, and any resulting stripdown after a contested confirmation hearing will be binding.49 Many local form plans contain a motion for valuation and/or lien stripping. In 2006, one court stated the “majority” position that stripping could occur either through a plan or by motion.50

[23]

Some courts seem to allow lien stripping through a plan provision but only if the plan contains a valuation motion and the plan is served as required for service of a motion. For example, in In re Millspaugh,51 the plan would have been an acceptable mechanism for lien stripping had it been served in conformity with Bankruptcy Rule 7004. The Millspaugh court reasoned that loss of the protection from modification in § 1322(b)(2) attends valuation of property and valuation is an ordinary contested matter initiated by motion:

[S]tripping off a lien is simply a result that flows under § 506(d) from the valuation of the allegedly unsecured mortgage. Valuation is a contested matter initiated by motion pursuant to Rule 3012. . . . This sort of valuation process is regularly conducted, in regard to partially secured creditors, through plan confirmation and plan-related motions. . . . The Court sees no compelling reason to require a different procedural vehicle for valuation of an allegedly wholly unsecured creditor. . . . [A] Rule 3012 motion (either within or without a plan) must be served on the affected creditors in accord with Rule 7004.52
[24]

Some decisions indicate that a plan provision for lien stripping is a necessary predicate for a separate motion or adversary proceeding. For example, in In re Tessema,53 the debtor’s motion to determine secured status of a junior mortgage was not specific enough, when the plan did not provide for treatment of the claim or address stripping of the wholly unsecured lien. The Tessema court held that although Tanner v. FirstPlus Financial, Inc. (In re Tanner)54 recognized the right to strip off wholly unsecured residential liens in Chapter 13 cases, the plan had to say so even when a separate motion or complaint was filed:

Sections 506(a) and (d) do not provide an independent mechanism for this result. Because the Debtors seek to modify a secured creditor’s rights, a motion or adversary proceeding is appropriate. But the relief sought by motion or complaint must be predicated on a chapter 13 plan that provides for such a modification.55
[25]

Valuation is critical in lien stripping because the logic of the appellate decisions allowing modification of a lien on a principal residence notwithstanding § 1322(b)(2) is that there is not one iota of value in the collateral to secure the lien.56 Timing, methodology and evidence become important because movement of the valuation determination as little as one dollar can move an entire mortgage into or out of the protection from modification in § 1322(b)(2).

[26]

Detailed elsewhere,57 valuation is controlled by § 506. This section was amended by BAPCPA with respect to the valuation of personal property58 but not with respect to real property that could be a debtor’s principal residence. Section 506(a)(1) states ominously that “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.”59 This language has not led to conformity in the decisions with respect to the timing of valuation of property in lien-stripping cases.

[27]

It is sometimes said that value is appropriately determined as of the filing of the bankruptcy petition.60 Particular facts have inspired courts to vary that timing.61 The quoted language of § 506(a) has quite reasonably led many courts to measure value as of the effective date of the plan,62 or even later.63

[28]

The complexity of a valuation hearing with respect to lien stripping depends on the nature of the property, the lien structure, how close the issue appears and the quality of proof ginned up by the parties.64 Valuation for lien-stripping purposes almost always involves accurately determining the amount of the first mortgage lien65—not always a simple task.66 Competing expert testimony is common.67 Credibility and persuasiveness are important.68 Because Chapter 13 debtors are retaining the property, fair market value is the standard typically applied.69

[29]

The general rule seems to be that any dollar amount of value to secure the junior lien triggers the protection from modification in § 1322(b)(2)—even one dollar. A series of decisions from the Bankruptcy Court for the Western District of New York demonstrates the difficulties of applying the one-dollar rule to determine whether a mortgage is protected from modification by § 1322(b)(2). Since In re Pond70 in 2001, Chapter 13 debtors in the Second Circuit can modify a wholly unsecured mortgage. Determining whether there is value for purposes of Pond has proved to be anything but simple because valuation is not simple,71 and the differing language of mortgage contracts affects who wins the search for the magic dollar.

[30]

In In re Dziendziel,72 the Bankruptcy Court for the Western District of New York held that in a Pond valuation proceeding, the burden of proof was on the debtor “to demonstrate that there is not even $1.00 of value over prior valid liens to support the mortgage lien to be avoided.”73 The court described the debtor’s burden as

naturally . . . higher . . . when: (1) it appears that there is equity to support the mortgage that is to be avoided at the time it was executed; (2) the alleged value deficiency may have been created in part because of a debtor’s failure to make payments on superior mortgages, or to pay obligations . . . and (3) the alleged value deficiency is not substantial.74
[31]

In a fascinating bit of data collection, the court revealed that “91.9% of the 272 Pond Motions filed in the Division have been granted by default.” The court then found that the “current fair market value” of the debtor’s residence was “at least $103,500,” which exceeded the mortgage balance of $103,417 by “at least” $83. Accordingly, the second mortgage could not be modified.

[32]

Eighty-three dollars is a remarkably close call. The criteria listed by the court in Dziendziel are curious. Prepetition deficiencies are ubiquitous in Chapter 13 cases that contain home mortgages. Why would the debtor’s burden of proof be higher when the “value deficiency” is “not substantial” given the rule that any amount of value supports the protection from modification? Do close calls go to the lienholder? And what does equity at the time the mortgage was executed have to do with whether a security interest is protected from modification years later when the borrower files a Chapter 13 case? A cynic might characterize Dziendziel as a bankruptcy court expressing unhappiness with the large percentage of Pond motions going down by default in favor of debtors.

[33]

The same bankruptcy court found $953 to be the margin in favor of the mortgage holder in In re Fisher.75 Applying the three criteria from Dziendziel, the court in Fisher held that the debtor could not strip off a second mortgage because the property value was “at least $100,000” and the first mortgage balance was $99,047. In Fisher, the court fleshed out one of the criteria for measuring a Pond motion: the debtor’s failure to pay real estate taxes and water bills “which become a superior lien on the property” pushed the debtor’s burden of proof “naturally . . . higher.”76

[34]

Digging into the documents, in In re Smith,77 the Bankruptcy Court for the Western District of New York distinguished Pond to hold that the debtor could not modify a lien retained by the seller of a residence notwithstanding a mortgage that exhausted the value of the property. Interpreting New York law, because there was no subordination agreement, the retained lien of the seller had priority over the mortgage—draining the logic of Pond and saving the seller’s lien from modification.

[35]

Digging deeper into the paperwork, in In re Mooney,78 the Bankruptcy Court for the Western District of New York found a subsidized first mortgage that included a Subsidy Repayment Agreement. This Agreement permitted the first mortgage lender to recapture a portion of the subsidy upon a hypothetical sale if the sale price produced equity. As analyzed by the bankruptcy court, if there was one dollar of value ceded to the debtor after calculation under the Subsidy Repayment Agreement, then the second mortgage holder could avoid modification by proving that it had a lien on that dollar.79 Because the answer to that question was somewhere in the second mortgage instrument, the bankruptcy court adjourned its decision to permit the second mortgage holder to come forward with that evidence. In the Western District of New York, debtors have an elevated burden of proof in Pond hearings; creditors have two bites at the apple.

[36]

These cases from a single district illustrate the complexities of applying the one-dollar rule. And the one-dollar rule in Pond is the same in every circuit that has reached the question whether a wholly unsecured mortgage is protected from modification by § 1322(b)(2).80 These cases also suggest a bankruptcy court straining to find the dollar that will prohibit modification. Perhaps this lean away from the debtors’ position is consistent with the intent to protect home mortgages that prowls behind § 1322(b)(2). That same leaning is hardly apparent in the court of appeals decisions finding no protection for wholly unsecured mortgages in § 1322(b)(2) or in Nobelman.

[37]

Of course, there may be more than one junior lien at issue. For example, in In re Zmora,81 a third mortgage was unsupported by value and the lien avoidable, but a second mortgage had value that was protected from modification. At least one court, in In re Rosas,82 has recognized that avoidance of a wholly unsecured second lien does not move the third lienholder into a better position.

[38]

Before and after BAPCPA, courts do not agree whether lien stripping occurs at confirmation or at some other time such as entry of a valuation order, completion of payments or entry of discharge.83 This issue is somewhat obscured by another question: what provision of the Bankruptcy Code actually accomplishes what we call lien stripping? The amendments to §§ 1325(a)(5)(B) and 348(f) in 2005 and the enactment at the same time of the limitation on successive discharges in § 1328(f) have dramatically impacted the question, when is lien stripping effective in a Chapter 13 case?

[39]

Some courts pin the stripping of a wholly unsecured lien on § 506(d). This logic starts with § 506(a), which provides that an allowed claim is a secured claim “to the extent of the value of such creditor’s interest in the estate’s interest in such property.”84 To the extent a creditor’s lien is not secured by value in the estate’s interest in property, the debt becomes an unsecured claim.

[40]

Section 506(d) then states, “To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.”85 On its face, § 506(d), combined with § 506(a), automatically voids a lien to the extent the allowed claim secured by that lien is unsupported by value in the collateral.

[41]

For example, in Rosas, Wells Fargo’s wholly unsecured third mortgage was voided by § 506(d). Wells Fargo then argued that its third position had moved up to second position because the debtor also avoided another lien that was senior to its third position. The bankruptcy court held that voidance of the wholly unsecured second mortgage did not improve Wells Fargo’s position because of the way § 506(d) functions.

[42]

The flaw in Wells Fargo’s logic was the assumption that a lien is not voided under § 506(d) until a motion is brought to value the collateral. However, unlike other avoidance sections which provide that a trustee or debtor may void a lien or transfer86 Section 506(d) provides that a lien not supported by value in collateral is void. This distinction is clearly reflected in § 551, which differentiates between avoided transfers and liens that are void under § 506(d). This means that a motion under § 506(d) is technically not brought to avoid a lien but only to declare that the lien unsupported by value is already void as a matter of law. Rosas makes the point that there is no need for the debtor to bring motions in reverse order of seniority to avoid junior liens moving up as wholly unsecured liens are voided by § 506(d).87

[43]

In Dewsnup the Supreme Court held that § 506(d) is not available in Chapter 7 cases to void the unsecured portion of an undersecured lien.88 Notwithstanding that Dewsnup was a Chapter 7 case and that the Supreme Court confined its holding accordingly, some courts have held that § 506(d) cannot perform its lien-voiding function in a Chapter 13 case. For example, in Carroll v. Key Bank (In re Carroll),89 the bankruptcy court held that an unsecured third mortgage lien was not voided by § 506(d) because the holding in Dewsnup applied in Chapter 13 cases:

Because § 506(d) does not allow a debtor to “strip down” a creditor’s lien if the creditor has a claim that is allowed pursuant to § 502, a debtor may not “strip off” a creditor’s lien if the creditor has a claim that is allowed pursuant to § 502.90
[44]

Other courts more robustly anchor lien stripping in the power to modify at confirmation under § 1322(b)(2) and the vesting effect of confirmation under § 1327(b) and (c). As explained by the bankruptcy court in Ginther:

[E]ven if Dewsnup was not distinguishable and § 506(d) was not a source of power to strip a lien, a Chapter 13 debtor would still have the power to strip a lien through other provisions of Chapter 13. The Bankruptcy Code gives the express power to strip a lien through a plan or plan confirmation under Section 1322(b)(2) and Section 1327.
        Section 1322(b)(2) provides that a Chapter 13 plan may, with certain limitations, “modify the rights of holders of secured claim.”. . . The “rights” of creditors referred to in the statute are those rights provided under state law, including those “reflected in the relevant mortgage instruments, which are enforceable under [the relevant state] law.” . . . One of these rights is “the right to retain the lien until the debt is paid off.” . . . Thus, the Bankruptcy Code provides for the power to modify or strip a lien through a Chapter 13 plan. An additional source for stripping a lien is in Section 1327. Under Section 1327(c), “[e]xcept as otherwise provided in the plan or in the order confirming the plan, the property vesting in the debtor . . . is free and clear of any claim or interest of any creditor provided for by the plan.” The court in [In re Hernandez, 175 B.R. 962, 967 (N.D. Ill. Dec. 13, 1994) (Nordberg),] held that the “free and clear” language “provides the mechanism by which Chapter 13 Debtors can strip down creditor’s liens without resorting to Code section 506(d).”91
[45]

We know from Johnson v. Home State Bank92 that even a nonrecourse lien is a claim in a Chapter 13 case. Before and after the 2005 amendments, § 1327(b) and (c) operate at confirmation to vest all property of the estate in the debtor “free and clear of any claim or interest of any creditor provided for by the plan” except as provided in the plan or the order of confirmation.93 There is nothing in the Bankruptcy Code to prevent the plan from vesting a principal residence in the debtor (or leaving it in the estate) free and clear of the claims of a wholly unsecured lienholder in any circuit that permits lien stripping of wholly unsecured residential mortgages. It follows that § 1327(b) and (c) would then vest the residence free of a wholly unsecured lien as directed by the plan.94 In United Student Aid Funds, Inc. v. Espinosa,95 the Supreme Court reminded the bankruptcy community that confirmation orders in Chapter 13 cases are binding with the full force of any federal court judgment unless and until revoked96 or undone by some other provision of the Bankruptcy Code.

[46]

BAPCPA has confused this picture, though not as badly as some reported decisions suggest. Detailed elsewhere,97 BAPCPA amended § 1325(a)(5)(B) to require, with respect to each allowed secured claim, that the plan provide for the retention of liens until the earlier of “payment of the underlying debt determined under nonbankruptcy law; or . . . discharge under section 1328.”98 The plan must also provide that if the case is dismissed or converted without completion of the plan, liens are retained “to the extent recognized by applicable nonbankruptcy law.”99

[47]

BAPCPA also amended § 348(f) with respect to the effects of conversion of a Chapter 13 case.100 Section 348(f) now provides:

(f)(1) [W]hen a case under chapter 13 of this title is converted to a case under another chapter under this title—
        . . . .
(B) valuations of property and of allowed secured claims in the chapter 13 case shall apply only in a case converted to a case under chapter 11 or 12, but not in a case converted to a case under chapter 7, with allowed secured claims in cases under chapters 11 and 12 reduced to the extent that they have been paid in accordance with the chapter 13 plan; and
(C) with respect to cases converted from chapter 13—
(i) the claim of any creditor holding security as of the date 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; and
(ii) unless a prebankruptcy default has been fully cured under the plan at the time of conversion, in any proceeding under this title or otherwise, the default shall have the effect given under applicable nonbankruptcy law.101
[48]

Prior to BAPCPA, it was arguable that, after confirmation of an appropriately worded plan, a wholly unsecured lien was not an allowable secured claim at conversion to Chapter 7 because of pre-BAPCPA § 348(f).102 BAPCPA substantially changed the effects of conversion from Chapter 13 to Chapter 7. The “valuations of property” and of “allowed secured claims” during the Chapter 13 case that applied at conversion to Chapter 7 under pre-BAPCPA law103 now apply only at conversion from Chapter 13 to Chapter 11 or Chapter 12.104 Allowed secured claims are reduced in accordance with payments during the Chapter 13 plan only at conversion to Chapter 11 and Chapter 12—not at conversion to Chapter 7.105

[49]

BAPCPA also added two new consequences at conversion from Chapter 13 to Chapter 7. Under new § 348(f)(1)(C)(i), the claim of any creditor holding security at the petition “shall continue to be secured by that security” unless the full amount of the claim “determined under applicable nonbankruptcy law” was paid before conversion. New § 348(f)(1)(C)(ii) further provides that any prebankruptcy default has the effect “given under applicable nonbankruptcy law” unless the default was “fully cured under the plan at the time of conversion.”106

[50]

Finally, § 1328(f) was enacted by BAPCPA to limit the availability of successive discharges in Chapter 13 cases:

(f) Notwithstanding subsections (a) and (b), 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, 11, or 12 of this title during the 4-year period preceding the date of the order for relief under this chapter, or
(2) in a case filed under chapter 13 of this title during the 2-year period preceding the date of such order.107

For current purposes, the principal effect of new § 1328(f) is that debtors filing Chapter 13 within four years of the filing of a prior Chapter 7 case—a so-called “Chapter 20” case—are eligible for Chapter 13 relief108 but not eligible to receive a discharge in the Chapter 13 case for purposes of § 1325(a)(5)(B)(i)(I)(bb).109

[51]

The confluence of these three amended sections—§ 1325(a)(5)(B), § 348(f) and § 1328(f)—has complicated the timing, if not the availability, of lien stripping in Chapter 13 cases.

[52]

Several courts—perhaps not reading § 1325(a)(5)(B) carefully—have concluded that the new lien retention provision applies to a wholly unsecured lien, and thus to accomplish confirmation, the plan must retain even a wholly unsecured lien until full payment or discharge.110 Orkwis v. MERS (In re Orkwis)111 gives this unsatisfying account of this line of cases:

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. . . . Sections 1325(a)(5)(B)(i)(I) and (II) . . . clarified that, regardless of the treatment afforded in the Chapter 13 plan, a secured creditor retains its lien until the entry of the discharge. . . . The tension created by these sections is, if the Defendant’s claim is “unsecured” under § 506(a), how can the provisions of § 1325(a)(5) apply as this section covers only “allowed secured claims”? The [In re Fenn, 428 B.R. 494 (Bankr. N.D. Ill. May 17, 2010) (Cox),] 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.” . . . Furthermore, “sections 1322(b)(2), 1325(a)(5) and 506(d) can be reconciled to mean that section 506(d) allows lien avoidance where the claim secured by the lien has been disallowed, and that the specific provisions of § 1325(a)(5) govern the subject of lien retention in the context of chapter 13 plans.” . . . Because § 1325(a)(5) governs lien retention in Chapter 13 cases, a discharge is required pursuant to subsection (B)(i)(I) before the lien is removed. The [In re Gerardin, 447 B.R. 342 (Bankr. S.D. Fla. Mar. 28, 2011) (Mark, Isicoff, Cristol),] court cited Fenn with approval, finding that a “discharge under Chapter 13 is a necessary condition for stripping off an unsecured lien” based on the express language of § 1325(a)(5). . . . This Court agrees.112
[53]

The compelling response to this shaky logic is provided by Judge Markell in In re Okosisi:113

Considering the statutory text, it would seem that a prerequisite to the application of Section 1325(a)(5)(B) is that the claim first be classified as “an allowed secured claim” within the meaning of Section 1325(a)(5). Under [Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993),] and [Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220 (9th Cir. Dec. 24, 2002) (D.W. Nelson, T.G. Nelson, Schwarzer)], . . . when a creditor is wholly unsecured after application of Section 506(a), the creditor has only an unsecured claim for purposes of Section 1322(b)(2). The creditor is not the holder of a secured claim, and as such, Section 1325(a)(5), which, by its language applies only to secured claims, does not apply to the wholly unsecured creditor. . . . This court agrees that “[a] creditor who [does] not hold a secured claim pursuant to [Section] 506(a)” does not have the “right to other benefits of ‘secured status in the bankruptcy proceeding.’” . . . Accordingly, these unsecured creditors’ rights are subject to modification through the chapter 13 plan—pursuant to Section 1322(b)(2)—and do not qualify to be treated as secured creditors for purposes of Section 1325(a)(5).114
[54]

In a Chapter 13 case in which the debtor is eligible for discharge115 application of § 1325(a)(5)(B) to a wholly unsecured lien is (at least) a minor inconvenience in the sense that the plan can provide for the wholly unsecured lien as an unsecured claim and also provide that the lien will be extinguished and released at discharge without regard to whether the unsecured claim has been paid in full. To be positioned to use discharge to effectuate a lien strip, debtors have gone the extraordinary step of seeking to vacate a prior discharge that triggers § 1328(f).116

[55]

When the debtor is not eligible for discharge—when § 1328(f) is in play117—the issue is starkly joined whether § 1325(a)(5)(B) applies and requires lien retention until payment in full of the debt underlying the wholly unsecured lien because the “discharge under § 1328” option in § 1325(a)(5)(B)(i)(I)(bb) is not available?

[56]

The cases are badly split with respect to application of § 1325(a)(5)(B) to wholly unsecured liens when the debtor is not eligible for discharge because of § 1328(f).118 With ample citations, the bankruptcy court in In re Jennings119 identified three conflicting positions with respect to whether debtors ineligible for discharge because of § 1328(f) can strip off wholly unsecured liens without violating the antimodification protection in § 1322(b)(2):

There is an accruing split of authority among courts across the country regarding the permissibility of chapter 20 lien stripping. . . . [T]his split of authority can be grouped into three approaches. In the first approach courts hold that chapter 20 lien stripping is impermissible because it amounts to a de facto discharge. . . . [T]he second approach permit[s] chapter 20 lien stripping; however after plan consummation, without a discharge, the parties’ pre-bankruptcy rights are reinstated. . . . [T]he third approach allow[s] chapter 20 lien stripping because nothing in the Bankruptcy Code prevents it. . . . [N]othing in the Bankruptcy Code prevents chapter 20 lien stripping. Pursuant to BAPCPA, Congress was deliberate in only prohibiting discharge in a chapter 20 case. . . . Lien-stripping is one of the tools in the chapter 13 toolbox. And use of the chapter 13 lien stripping tool is not conditioned on discharge eligibility. . . . Although Debtors may strip the liens securing the claims of the second mortgagees, the plans must treat the allowed claims as unsecured claims. . . . [S]ection 1325(a)(5) does not apply. . . . [I]f the plan is filed in good faith, a chapter 20 debtor may strip off the lien of a wholly underwater second mortgage in a chapter 13 plan.120
[57]

Given that a wholly unsecured lien cannot be an allowable secured claim under § 506(a), the better reasoned view is that § 1325(a)(5)(B) does not apply to wholly unsecured liens—without regard to whether the debtor is eligible for discharge under § 1328(f).121 No other Code provision imposes discharge as a condition for lien stripping. It follows that discharge is not a prerequisite to the stripping of a wholly unsecured lien on a debtor’s principal residence in a Chapter 13 case. There is no consensus in support of this conclusion.122

[58]

The question then becomes, when is lien stripping effective in a Chapter 13 case if § 1325(a)(5)(B) is not applicable? Many reported decisions finesse this question by simply imposing discharge as a condition on lien stripping—typically without citation of any Code provision other than § 1325(a)(5)(B) itself.123 Perhaps these courts are acknowledging that §§ 348 and 349 would mandate survival, if not revival, of a stripped-off wholly unsecured lien in the event of conversion124 or dismissal125 of the Chapter 13 case. In other words, the vesting free and clear effect of confirmation under § 1327(b) and (c) would be undone with respect to a wholly unsecured lien if the case is converted or dismissed before the debt underlying the wholly unsecured lien has been paid in full. To hedge that possibility, many courts simply impose a nonstatutory condition that lien stripping is not “effective” or “permanent” until discharge. This position has been characterized as the “majority” position.126

[59]

This finesse, of course, is a self-fulfilling prophecy when the debtor is not eligible for discharge. Courts holding that stripping of a wholly unsecured lien is available without regard to discharge are forced to say more clearly, when is stripping of the wholly unsecured lien effective? The repartee between Bankruptcy Judges Markell and Bowie in In re Okosisi127 and In re Victorio128 beautifully illustrates why there will be no consensus on this issue in the near term. In Okosisi Judge Markell explains that lien stripping with respect to a wholly unsecured junior mortgage occurs at confirmation but becomes permanent at the completion of payments in a Chapter 13 case in which the debtor is not eligible for discharge:

[L]iens avoided through a confirmed chapter 13 plan remain avoided so long as the plan and the order confirming it remain in effect. This is because an order confirming a chapter 13 plan is binding, and res judicata precludes a creditor from bringing a collateral attack of that order. . . . This res judicata effect, and, thus, the treatment afforded to a creditor under a confirmed chapter 13 plan, can only be undone if plan confirmation is revoked, 11 U.S.C. § 1330, or if the case is converted or dismissed. 11 U.S.C. § 349(b) . . . . [A]ssuming all plan payments are made, confirmation will not be revoked, and the case will not be converted or dismissed. It will be closed, and the res judicata effect of the confirmed chapter 13 plan will remain in place. . . . Section 1328(f) only prohibits discharge. . . . If Congress’s goal was to limit the operation of Sections 1322(b)(2) and 1327 as well as discharge, it could have explicitly drafted the statute to achieve this goal.129
[60]

Judge Bowie in Victorio responds that there is no permanence to lien stripping that occurs in a Chapter 13 case in which the debtor is not eligible for a discharge:

With a wave of the virtual wand of 11 U.S.C. § 506(a), one instantly determines that for purposes of the Chapter 13 case the creditor’s bundle of state law rights in the property have disappeared. That is the instruction of the Ninth Circuit Court of Appeals in In re Zimmer . . . . [B]efore enactment of BAPCPA, even when a debtor was eligible for a discharge, the only way to make “permanent” a lien strip under § 506(d) and § 1322(b) was to earn a discharge. . . . “A debtor who files a Chapter 13 case despite not being eligible for a discharge, nevertheless has the power to modify a secured creditor’s rights under Section 1322(b)(2), and the power to pay the creditor’s claim with interest at the [Till v. SCS Credit Corp., 541 U.S. 465, 124 S. Ct. 1951, 158 L. Ed. 2d 787 (May 17, 2004)], rate under Section 1325(a)(5)(B)(ii). Without a discharge, however[,] these modifications are effective only for the term of the plan.” . . . There is nothing . . . which even hints that Congress intended to change the pre-existing state of the law that the only way a debtor could make a lien strip “permanent” was through a discharge . . . . [D]ebtors in a Chapter 20 case cannot “permanently” avoid a wholly unsecured junior lien without a discharge, or without paying it in full. They could not do so before BAPCPA, and there is nothing in the 2005 amendments that even hints that Congress believed that any ending other than conversion or dismissal was possible, much less desirable.130
[61]

Okosisi has the better of this debate. The first reported appellate decisions on the subject agree with Okosisi that a Chapter 13 debtor ineligible for discharge can, subject to review for good faith,131 strip off a wholly unsecured junior lien.132 Section 1325(a)(5)(B) does not apply to wholly unsecured liens, and discharge is not a statutory prerequisite to the vesting free and clear effect of confirmation under § 1327(b) and (c). Lien stripping is effective at confirmation—subject to being undone by § 348 or § 349 if the Chapter 13 case is converted or dismissed. Absent those events, the confirmation order remains binding on the world forever with exactly the effect stated in a properly worded plan that strips off a wholly unsecured junior lien.

[62]

Of course, the quid pro quo for eliminating a wholly unsecured lien is that the Chapter 13 plan must satisfy other confirmation requirements, including the best-interests-of-creditors test,133 disposable income test134and good faith.135 After BAPCPA, there are two good-faith conditions on confirmation: that the case was filed in good faith;136 and that the plan was proposed in good faith.137 Many courts have analyzed good faith at confirmation as a limit on stripping off a wholly unsecured lien—particularly when the debtor was recently discharged in a Chapter 7 case and the Chapter 13 case seems designed solely as a vehicle to strip off a wholly unsecured lien that survived the prior discharge.138

[63]

A knotty issue lurking here is the possibility that the debt left after lien stripping is not an allowable unsecured claim in the Chapter 13 case. When the debtor has been discharged of personal liability to a lienholder in a prior Chapter 7 case, the lien that survives that discharge under Johnson is an in rem claim in a subsequent Chapter 13 case. What is the nature of that in rem claim if it is then stripped off in the Chapter 13 case? The nonrecourse debt that results would be an allowable claim in a Chapter 11 case because of § 1111(b).139 There is no analogue to § 1111(b) in Chapter 13 cases. Upon objection, it is not unreasonable that the bankruptcy court will disallow the debt remaining after lien stripping in a “Chapter 20” case because that debt is neither enforceable against the debtor nor enforceable against property of the estate.140 At this writing, the reported decisions allow the stripped-off wholly unsecured lien as an unsecured claim without much analysis.141

[64]

From another perspective, treating a wholly unsecured mortgage lien as the unsecured claim that it really is only re-establishes the equality of distribution that Dewsnup and Nobelman unbalanced.142 Chapter 13 trustees and allowed unsecured claim holders have standing143 and much incentive to insist that a wholly unsecured mortgage lien that can be stripped off and with respect to which the debtor discharged personal liability is not an allowable claim of any kind in the Chapter 13 case.

[65]

Unless all the circuits align with the current majority, the dwindling protection of wholly unsecured mortgages won’t be finally resolved short of congressional action or Nobelman II. Congress may have already acted with respect to home mortgages when the last payment “on the original payment schedule” is due before the final payment under the plan. Discussed elsewhere,144 the 1994 amendments to § 1322(c)(2) may have reduced the effect of Nobelman with respect to “short term” home mortgages that would otherwise be protected from modification by § 1322(b)(2). At least one court found support in § 1322(c)(2) for the view that wholly unsecured liens are avoidable.145 The reach of new § 1322(c)(2) and the question whether the new section permits modification of home mortgages within its reach are controversial.146

[66]

The power to modify a wholly unsecured mortgage recognized by the majority courts must be exercised at confirmation, else it may be lost. It has been held that a Chapter 13 debtor cannot use modification after confirmation under § 1329147 to strip off a wholly unsecured mortgage if the original plan treated the lien as a secured claim—even when an intervening court of appeals decision announced the new rule that § 1322(b)(2) did not protect a wholly unsecured lien.148

[67]

A few reported decisions have struggled with modification of an unsecured mortgage when the Chapter 13 debtor’s principal residence is owned as tenants-by-the-entireties and only one spouse is a debtor. As explained in Hunter v. Citifinancial, Inc. (In re Hunter):149

The debtor seeks to avoid the creditor’s mortgage lien not only to his interest in the property, but also his wife’s interest. The debtor’s spouse has not sought relief under title 11. Neither she nor her interest in the Pennsylvania property is before the court. . . . An individual debtor cannot avoid a lien—whether partially or wholly unsecured—on tenants by the entireties property under 11 U.S.C. § 506(d).150
[68]

Another bankruptcy court acknowledged that the nonfiling spouse lacked standing to join in the debtor’s complaint to strip a wholly unsecured mortgage,151 but allowed stripping of the unsecured junior lien on entireties property through the sole debtor’s complaint under § 506(a) and (d). Rejecting the argument that avoidance of the lien would permit the nondebtor spouse to benefit without filing for Chapter 13 relief, the court in Strausbough v. Co-op Services Credit Union (In re Strausbough)152 first applied § 506(a) to conclude that the lienholder’s claim was secured only to the extent of value of the creditor’s interest in the estate’s interest in the property. The court then explained that the estate had no such interest because of the limited nature of what came into the estate under entireties law:

[F]rom both a legal and a practical perspective, a bankruptcy estate’s interest in entireties property is in whatever equity is available in the entireties property that can be liquidated for the benefit of the joint creditors of the debtor and the nonfiling spouse. In each case here, the value of the property at issue is less than the amount due on the first mortgage. As a result, there is no equity available to pay joint claims. Therefore, the court must conclude that these estates have no interest in the entireties property of the debtors and the nonfiling spouses.153

Applying Lane v. Western Interstate Bancorp (In re Lane),154 the Strausbough court held that the plain language of § 506(a) and (d) meant that the unsecured mortgage holder did not have an allowed secured claim, and its lien was void. The Strausbough court pointedly disagreed with Hunter:

[Hunter] does not analyze the value of the junior lien holder’s interest in the estate’s interest in the entireties property, as § 506(a) requires when the issue is whether to avoid a lien under § 506(d). . . . This Court appreciates the Hunter court’s concern that the non-filing spouse’s property is not before the bankruptcy court in these cases, as well as its further concern that the debtor is seeking to use the Bankruptcy Code to benefit the non-filing spouse without the resulting burdens. Ultimately, however, the issue is one of Congressional intent: Did Congress intend to allow the avoidance of a junior lien on entireties property when only one spouse files bankruptcy? While the concerns expressed by the Hunter court certainly should be considered in determining whether Congress so intended, they are not determinative. Of substantially greater weight, however, is the statute itself, which . . . allows a junior lien to be avoided whether both spouses have assumed the burdens of bankruptcy or only one. The reality is that every day, bankruptcy courts construe and apply chapter 13 in ways that benefit non-filing spouses. The most important of these benefits is probably the benefit that the non-filing spouse enjoys when his or her spouse files a chapter 13 case for the purpose of maintaining possession of the entireties property while curing the default in the mortgage on the property. Nothing in the Bankruptcy Code requires both parties to join in the filing for both of them to obtain that benefit. Similarly, nothing in the Bankruptcy Code requires a joint filing in a chapter 13 case to obtain the benefits of lien avoidance under § 506(a) and (d).155
[69]

The bankruptcy court’s refusal in Hunter to allow modification of an unprotected lien on entireties property raises more questions than it answers. What about the lien on the debtor’s interest that is property of the Chapter 13 estate? Would the court in Hunter confirm a plan that modified the wholly unsecured mortgage with respect to the debtor’s interest (only)? This alternative plan would leave the lienholder with an unmodified lien on the nonfiling spouse’s interest—a split personality that probably isn’t easily described or digested under state property law. In a case involving joint ownership of property, rather than entireties ownership, one court permitted stripping of a wholly unsecured lien only as to the debtor’s undivided interest, with the lien continuing to exist on the other joint owner’s one-half interest.156 Obviously, this result leaves title to the property in a cloud.

[70]

Perhaps the scarier aspect of Hunter is that its logic would extend to the modification of liens in Chapter 13 cases on property other than the debtor’s principal residence. What about a car lien when both spouses own the car but only one spouse files a Chapter 13 case? Is the lien modified through the plan only with respect to the debtor’s interest in the car? Refusing the power to modify when collateral is co-owned by a nonfiling spouse is a nonstatutory limitation on § 1322(b)(2) that has serious implications for all of Chapter 13 practice.

[71]

Courts that permit the stripping of wholly unsecured liens must consider the impact of lien stripping on eligibility for Chapter 13.157 For example, the Bankruptcy Appellate Panel for the Ninth Circuit in Lantzy v. Rojas (In re Lantzy)158—citing Scovis v. Henrichsen (In re Scovis),159 Zimmer v. PSB Lending Corp. (In re Zimmer),160 and Smith v. Rojas (In re Smith)161—held that a wholly unsecured junior lien was counted as unsecured debt, rendering the debtors ineligible for Chapter 13, notwithstanding that lien avoidance would not be complete until discharge.

A determination under section 506(a) that a creditor is wholly unsecured effectively excuses debtors from treating the creditor’s claim as secured under the chapter 13 plan. . . . [T]he flip side of this strategy is that it changes a creditor’s claim status from secured to unsecured, which can adversely affect a chapter 13 debtor’s eligibility under section 109(e). . . . “Section 506(a) allows the court to value the property. Once the court values the property, § 506(d) voids any lien or portions of a lien securing a debt that exceeds the value of the property. This lien is then void for purposes of the bankruptcy. Once the court issues a Chapter 13 discharge . . . , the lien avoidance is complete. . . . [D]ecisions subsequent to Dewsnup [v. Timm, 502 U.S. 410 (Jan. 15, 1992),] limit its applicability to the Chapter 7 context in which the issue arose.”162

In a real estate market where property values have declined, the avoidance of a wholly unsecured mortgage lien, shifting the claim to unsecured status, will leave many debtors in formerly high-value homes at risk of not being eligible for Chapter 13.


 

1  Cases discussing modification of wholly unsecured mortgages are collected by circuit in App. M.

 

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

 

3  502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992).

 

4  508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993).

 

5  See 11 U.S.C. § 1325(a)(5)(B), discussed below in this section and in §§ 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA, 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

6  See 11 U.S.C. § 348(f), discussed below in this section and in § 533.1 [ Lienholders’ Rights at Conversion under § 348(f) ] § 145.3  Lienholders’ Rights at Conversion under § 348(f) after BAPCPA.

 

7  See 11 U.S.C. § 1328(f), discussed below in this section and in §§ 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

8  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.

 

9  508 U.S. at 329–30.

 

10  508 U.S. at 328.

 

11  508 U.S. at 331.

 

12  See App. M. See, e.g., Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220 (9th Cir. Dec. 24, 2002) (D.W. Nelson, T.G. Nelson, Schwarzer) (Joining five other courts of appeals and two bankruptcy appellate panels, wholly unsecured second mortgage on the debtor’s principal residence is not protected from modification by § 1322(b)(2).); Lane v. Western Interstate Bank Corp. (In re Lane), 280 F.3d 663 (6th Cir. Feb. 7, 2002) (Nelson, Daughtrey, Moore) (Although “strictly as a matter of syntactics” Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), can be read to prohibit modification of even a wholly unsecured mortgage, “the Supreme Court’s recognition of § 506(a) as the starting point in the analysis means that it must make a difference whether the overall claim belongs in the pigeon hole marked ‘secured claims’ or the pigeon hole marked ‘unsecured claims’ . . . . FirstPlus is . . . the holder of an ‘unsecured claim,’ pure and simple—and if the words of § 1322(b)[(2)] mean what they plainly say, the rights of a creditor holding such a claim ‘may’ be modified by the debtor’s Chapter 13 plan. . . . It is true . . . that the Nobelman court was unmoved by ‘the so-called “rule of the last antecedent”’ . . . . The implications of this portion of the Nobelman opinion, it seems to us, do not extend beyond the situation to which the language . . . alludes—the situation in which the lienholder’s claim for the amount due has both a secured and an unsecured component. . . . A ‘secured claim/unsecured claim’ touchstone may seem arbitrary . . . however, we live in a world that abounds with arbitrary distinctions.”); Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122 (2d Cir. May 31, 2001) (Newman, Cabranes, Thompson) (Adopting majority view, wholly unsecured fourth lien on real property is not protected from modification by § 1322(b)(2).); Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357, 1359–60 (11th Cir. July 13, 2000) (Black, Carnes, Kravitch) (“Although this is a close issue, we find the reasoning of the Third and Fifth Circuits persuasive and adopt the majority view. We agree with those courts that the only reading of both sections 506(a) and 1322(b)(2) that renders neither a nullity is one that first requires bankruptcy courts to determine the value of the homestead lender’s secured claim under section 506(a) and then to protect from modification any claim that is secured by any amount of collateral in the residence.”); Bartee v. Tara Colony Homeowners Ass’n (In re Bartee), 212 F.3d 277, 293–95 (5th Cir. May 15, 2000) (Higginbotham, Parker, Atlas) (Wholly unsecured lien for homeowners association maintenance assessment is not protected from modification by § 1322(b)(2). “Because secondary lending is targeted primarily at personal spending, allowing wholly undersecured second mortgages under the umbrella of the antimodification clause would be unlikely to positively impact home building and buying. . . . [T]he minority view would upset the delicate balance that Congress established between rights of purchase-money lenders and over-extended debtors . . . by creating an incentive for lenders to take a security interest in a borrower’s principal residence notwithstanding the absence of value in the residence for the creditor. . . . The majority view better serves the policy imperatives of the Bankruptcy Code by encouraging debtors to first consult Chapter 13 before seeking either to reorganize pursuant to the more expensive and cumbersome Chapter 11 or liquidate pursuant to Chapter 7.”); McDonald v. Master Fin., Inc. (In re McDonald), 205 F.3d 606, 611–13 (3d Cir. Mar. 9, 2000) (Sloviter, Roth, Cowen) (Wholly unsecured junior mortgage is not protected from modification by § 1322(b)(2). “Once we accept that courts must apply § 506(a), then it follows, even under Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 ([June 1,] 1993), that a wholly unsecured mortgage holder does not have a secured claim. . . . [If] the value of the collateral were irrelevant, then it is hard to see why Justice Thomas would instruct that the debtors ‘were correct in looking to § 506(a) for a judicial valuation of the collateral to determine the status of the bank’s secured claim.’ . . . We think the Supreme Court’s discussion of 506(a) and 1322(b)(2) is consistent. . . . [W]hile the antimodification clause uses the term ‘claim’ rather than ‘secured claim’ and therefore applies to both the secured and unsecured part of a mortgage, the antimodification clause still states that the claim must be ‘secured only by a security interest in . . . the debtor’s principal residence.’ . . . If a mortgage holder’s claim is wholly unsecured, then after the valuation that Justice Thomas said that debtors could seek under § 506(a), the bank is not in any respect a holder of a claim secured by the debtor’s residence. The bank simply has an unsecured claim and the antimodification clause does not apply. On the other hand, if any part of the bank’s claim is secured, then, under Justice Thomas’s interpretation of the term ‘claim,’ the entire claim, both secured and unsecured parts, cannot be modified. We think this reading reconciles the various parts of the Court’s opinion. . . .  Justice Thomas’s statement that it is correct to apply § 506(a) is critical to Nobelman’s holding, for if the petitioner’s home had not retained some value as collateral, the Supreme Court’s discussion of § 506(a) implies that the result would have been different. . . . Because second mortgages are rarely used to purchase a home, making wholly unsecured second mortgages subject to the antimodification clause would have at best a minimal impact in encouraging home building and buying. . . . Bright-line rules that use a seemingly arbitrary cut-off point are common in the law.”); Fisette v. Keller (In re Fisette), 455 B.R. 177, 182-87 (B.A.P. 8th Cir. Aug. 29, 2011) (Schermer, Venters, Nail) (Chapter 13 debtor ineligible for discharge because of § 1328(f) can strip off wholly unsecured junior liens on residence at completion of payments under plan; § 1325(a)(5)(B)(i)(I)(bb) does not apply because wholly unsecured liens are not allowable secured claims. “[Section] 1322(b)(2) does not bar a Chapter 13 debtor from stripping off a wholly unsecured lien on his principal residence, a position that has been adopted by all Circuit Courts of Appeal to address this issue. . . . In accordance with the language of § 1322(b)(2), only if the creditor is the holder of a secured claim, meaning that its claim is at least partially secured after application of § 506(a), will it be eligible for the protection of § 1322(b)(2)’s antimodification provision. . . . [N]othing in the Bankruptcy Code conditions a Chapter 13 debtor’s ability to modify a wholly unsecured creditor’s lien under § 1322(b)(2) on his eligibility for a discharge. . . . [Section] 1325(a)(5)(B)(i)(I)(bb)[ ] does not apply in the case of a wholly unsecured lien on a debtor’s principal residence. . . . [N]othing in § 1328(f)(1) . . . limits the debtor’s rights under § 1322(b)(2).”); Griffey v. U.S. Bank (In re Griffey), 335 B.R. 166 (B.A.P. 10th Cir. Dec. 12, 2005) (Bohanon, Cornish, Michael) (Agreeing with majority view, § 1322(b)(2) permits avoidance of wholly unsecured mortgage.); Domestic Bank v. Mann (In re Mann), 249 B.R. 831, 840 (B.A.P. 1st Cir. June 30, 2000) (Queenan, Haines, Boroff) (“We agree with the Third and Fifth Circuit Courts of Appeals, the Ninth Circuit Bankruptcy Appellate Panel, and the several bankruptcy and district courts making up the majority view. Pursuant to § 506(a) and § 1322(b)(2), and notwithstanding the antimodification provision in the latter, Chapter 13 plans may void residential real property liens that are wholly unsecured. We believe that a literal reading of § 1322(b)(2) and § 506(a) mandates this result and that our view is congruent with the Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), decision which relegated the role of the antimodification provision of § 1322(b)(2) to claims first made subject to § 506(a) treatment. We decline to read Nobelman as mandating better rights for unsecured creditors holding a document purporting to be a residential real property mortgage than for unsecured creditors without.”); Lam v. Investors Thrift (In re Lam), 211 B.R. 36, 40–41 (B.A.P. 9th Cir. July 3, 1997) (Hagan, Ryan, Ollason) (Wholly unsecured mortgage is not protected from modification by § 1322(b)(2) or Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993). “[T]he state law ‘rights’ afforded a holder of an unsecured ‘lien’, if such a situation exists, indicates [sic] these rights are empty rights from a practical, if not a legal, standpoint. . . . The policies behind section 1322(b)(2) lend further support to this view. . . . [E]xtending section 1322(b)(2)’s protection to secured creditors holding completely unsecured claims ‘might induce more debtors who would qualify for chapter 13 relief to file chapter 11 cases’ . . . . A point of concern is that . . . outcomes of cases will turn on appraisers’ estimates of property values. . . . [A] one dollar difference in property value could have a profound effect on a secured creditor’s rights. . . . We believe this concern to be unfounded.”).

 

13  Prior to the Supreme Court’s decision in Nobelman, the Fifth Circuit was the only court of appeals to conclude that lien stripping of an undersecured home mortgage was prohibited by § 1322(b)(2)—the view ultimately adopted by the Supreme Court in Nobelman. See Nobelman v. American Sav. Bank (In re Nobelman), 968 F.2d 483 (5th Cir. 1992), aff’d, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993). See also Apps. J and K.

 

14  Bartee v. Tara Colony Homeowners Ass’n (In re Bartee), 212 F.3d 277, 290–91 (5th Cir. May 15, 2000) (Higginbotham, Parker, Atlas). See App. M.

 

15  See App. M. See, e.g., In re Loban, 426 B.R. 805, 806 (Bankr. D. Minn. Apr. 2, 2010) (O’Brien) (Citing In re Hughes, 402 B.R. 325 (Bankr. D. Minn. Mar. 16, 2009) (O’Brien), wholly unsecured second mortgage cannot be stripped; § 506(a) does not apply “to claims secured only by a lien on a debtor’s principal residence. See 11 U.S.C. § 1322(b)(2).”). See also American Gen. Fin., Inc. v. Dickerson (In re Dickerson), 222 F.3d 924, 926 (11th Cir. Aug. 15, 2000) (Birch, Roney, Fay) (Citing Tanner v. FirstPlus Financial, Inc. (In re Tanner), 217 F.3d 1357 (11th Cir. July 13, 2000) (Black, Carnes, Kravitch), wholly unsecured mortgage is not protected from modification by § 1322(b)(2); but panel would depart from the Tanner rule if not bound by it. “In In re Tanner, a panel of this court considered the interplay between sections 506(a) and 1322(b)(2) of the Bankruptcy Code and determined that creditors whose liens are wholly unsecured under § 506(a) are not entitled to the protection of § 1322(b)(2) even if their claim [sic] was secured solely by a lien on the debtors’ principal residence. . . . However, were we to decide this issue on a clean slate, we would not so hold. We find persuasive the district court’s reasoning that providing ‘anti-modification’ protection to junior mortgagees where the value of the mortgaged property exceeds the senior mortgagee’s claim by at least one cent, as prescribed by the Supreme Court’s decision in [Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993),]. . . but denying that same protection to junior mortgagees who lack that penny of equity, places too much weight on the valuation process.”).

 

16  See § 105.1 [ Valuation, Claim Splitting and Dewsnup ] § 76.1  Valuation, Claim Splitting and Dewsnup.

 

17  253 F.3d 778 (4th Cir. June 1, 2001) (Luttig, Traxler, Thornburg).

 

18  Accord Laskin v. First Nat’l Bank of Keystone, 222 B.R. 872 (B.A.P. 9th Cir. June 30, 1998) (Brandt, Jones, Ollason); Orkwis v. MERS (In re Orkwis), No. 8-11-8935-reg, 2011 WL 4368414, at *3 (Bankr. E.D.N.Y. Sept. 19, 2011 (Grossman) (“A debtor may not strip liens in a Chapter 7 case, whether they are partially secured or wholly unsecured.”).

 

19  See below in this section, and see §§ 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges. See also App. M.

 

20  See below in this section, and see § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases§ 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors,  § 120.3  11 U.S.C. § 1327(b): Vesting Effect on Property of Estate, § 120.4  11 U.S.C. § 1327(c): Free and Clear Effect on Liens and § 156.2  Limitations on Successive Discharges. See also App. M.

 

21  See below in this section. See also App. M.

 

22  See below in this section, and see § 107.1 [ As of What Date Is Value Determined? ] § 76.3  As of What Date Is Value Determined?. See also App. M.

 

23  See below in this section, and see §§ 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

24  See below in this section, and see §§ 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA and 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases.

 

25  See below in this section, and see §§ 320.1 [ In Cases Filed after October 22, 1994 ] § 145.2  In Cases Filed after October 22, 1994 and 533.1 [ Lienholders’ Rights at Conversion under § 348(f) ] § 145.3  Lienholders’ Rights at Conversion under § 348(f) after BAPCPA.

 

26  See below in this section, and see §§ 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

27  11 Norton Bankr. L. Adviser 1, 3 (2011) (endnotes omitted).

 

28  See App. M. See, e.g., In re Erb, No. 1:10-bk-08958MDF, 2011 WL 2600647 (Bankr. M.D. Pa. June 29, 2011) (France) (Wholly unsecured liens may be avoided by either filing motion or providing for avoidance in plan. Debtor bears burden of proof on valuation under § 506(a).); Melendez v. First Am. Bank (In re Melendez), No. 10 AP 01098, 2010 WL 3156126 (Bankr. N.D. Ill. Aug. 4, 2010) (unpublished) (Schmetterer) (With no value to support second lien on home, claim was not secured and debtor may value collateral under Bankruptcy Rule 3012—contingent on confirmation, completion of plan and entry of discharge.); Taylor v. CitiFinancial (In re Taylor), No. 10-00803, 2010 WL 2933699 (Bankr. N.D. Ill. July 23, 2010) (unpublished) (Schmetterer) (With no value to support second lien on home, claim was not secured and debtor may value collateral under Bankruptcy Rule 3012—contingent on confirmation, completion of plan and entry of discharge.); Gueorguiev v. Chase (In re Gueorguiev), No. 10 AP 01162, 2010 WL 2933659 (Bankr. N.D. Ill. July 23, 2010) (unpublished) (Schmetterer) (With no value to support second lien on home, claim was not secured and debtor may value collateral under Bankruptcy Rule 3012—contingent on confirmation, completion of plan and entry of discharge.); In re Pelosi, 382 B.R. 582 (Bankr. D. Mass. Feb. 21, 2008) (Feeney) (Motion to determine status of unsecured mortgage holder is granted, based on proof that second mortgage has no value. Citing Domestic Bank v. Mann (In re Mann), 249 B.R. 831 (B.A.P. 1st Cir. June 30, 2000) (Queenan, Haines, Boroff), court predicted that First Circuit would adopt majority view, allowing stripping of wholly unsecured liens.); In re Dziendziel, 295 B.R. 184, 188 (Bankr. W.D.N.Y. June 18, 2003) (Ninfo) (“[Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122 (2d Cir. May 31, 2001) (Newman, Cabranes, Thompson),] valuation proceedings . . . are authorized to be brought initially by motion.”); In re Sadala, 294 B.R. 180, 182–85 (Bankr. M.D. Fla. June 2, 2003) (Jennemann) (“Section 506 of the Bankruptcy Code allows a debtor to value a claim to determine if the claim is secured or unsecured and to declare void a lien for a totally unsecured claim. . . . Bankruptcy Rule 3012 specifically permits 506(a) collateral valuations to be requested on motion provided notice and an opportunity for hearing is [sic] given to the affected party. . . . Interpreting [the Official Committee Notes to § 506(d)], it appears that an adversary proceeding is only needed when the basis of the lien itself is in dispute. . . . [N]o adversary proceeding is needed simply to value and to declare void a totally unsecured claim. . . . [A] party moving to value collateral and to void an unsecured lien under Section 506 . . . may do so by motion, unless the dispute involves a determination of the validity, priority, or extent of the underlying lien. In that case, an adversary proceeding is needed. If the court values the security interest at zero, the lien shall be declared void, or ‘stripped off,’ pursuant to Section 506(d) without further litigation.”); In re Fisher, 289 B.R. 544 (Bankr. W.D.N.Y. Jan. 29, 2003) (Ninfo) (Absent objection from the mortgage holder, a “[Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122 (2d Cir. May 31, 2001) (Newman, Cabranes, Thompson),] Motion” can be prosecuted by motion rather than adversary proceeding.).

 

29  Fed. R. Bankr. P. 7001(2). See below in this section.

 

30  In re Edmunds, 373 B.R. 5 (Bankr. W.D. Ky. Aug. 31, 2007) (Lloyd) (Under Lane v. Western Interstate Bancorp (In re Lane), 280 F.3d 663 (6th Cir. Feb. 7, 2002) (Nelson, Daughtrey, Moore), wholly unsecured junior mortgage is subject to modification, but debtors’ motion to strip off judgment lien is denied because lien has value above first mortgage.).

 

31  408 B.R. 215 (Bankr. N.D. Ind. July 1, 2009) (Klingeberger).

 

32  408 B.R. at 219.

 

33  408 B.R. at 219 (footnote omitted).

 

34  397 F.3d 482 (7th Cir. Feb. 2, 2005) (Bauer, Manion, Evans).

 

35  See §§ 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors, 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation, 346.1 [ Student Loans ] § 158.2  Student Loans and 553.1 [ Student Loans: § 523(a)(8) ] § 159.6  Student Loans: § 523(a)(8).

 

36  __ U.S. __, 130 S. Ct. 1367, 176 L. Ed. 2d 158 (Mar.  23, 2010).

 

37  See below in this section, and see §§ 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation, 346.1 [ Student Loans ] § 158.2  Student Loans and 553.1 [ Student Loans: § 523(a)(8) ] § 159.6  Student Loans: § 523(a)(8).

 

38  530 F.3d 230 (3d Cir. June 24, 2008) (Rendell, Greenberg, Van Antwerpen). See §§ 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors and 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation for discussion of Mansaray-Ruffin.

 

39  391 B.R. 262 (Bankr. D.N.J. July 17, 2008) (Wizmur).

 

40  391 B.R. at 265 (citations omitted).

 

41  See, e.g., In re Forrest, 424 B.R. 831, 833 (Bankr. N.D. Ill. Sept. 16, 2009) (Schmetterer) (Applying Rule 7001(2), plan cannot strip unsecured junior mortgage; debtor must file adversary proceeding. Citing Hanson, “[w]hen a junior mortgage is declared to be void as wholly unsecured, it is not simply valued; it is obliterated.”).

 

42  427 B.R. 450 (Bankr. N.D. Ill. Apr. 22, 2010) (Barbosa).

 

43  427 B.R. at 456–57 (citation and footnote omitted). See §§ 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors and 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation for discussion of Espinosa.

 

44  See also In re Pereira, 394 B.R. 501, 507 (Bankr. S.D. Cal. Aug. 25, 2008) (Adler) (Although Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220 (9th Cir. Dec. 24, 2002) (D.W. Nelson, T.G. Nelson, Schwarzer), permits stripoff of wholly unsecured mortgage without filing adversary proceeding, when plan specified adversary proceeding to determine stripoff and value of property, plan is not confirmable over objection of trustee until stripoff has been determined. “The matter of stripping off National City’s allegedly wholly unsecured lien should be litigated prior to, or in connection with the hearing on confirmation of the Plan because the Trustee needs to know how to treat the claim to administer the plan. Additionally, the Plan needs to clearly and conspicuously specify when the § 506(a) hearing to value the Residence will take place.” Junior mortgage holder was not served with plan or notice of hearing on confirmation sufficient to determine stripoff or valuation.).

 

45  See App. M. See, e.g., In re Swanson, No. 10-10643-SSM, 2011 WL 240508 (Bankr. E.D. Va. Jan. 24, 2011) (Mitchell) (Plan that ambiguously valued collateral of wholly unsecured second mortgage creditor at $69,233, while paying creditor $0, did not void lien under § 506. Creditor’s failure to file proof of claim does not affect validity of lien under § 506(d)(2). Absent adversary proceeding to avoid deed of trust, confirmation would have no effect on enforcement of deed of trust after plan completion.); In re Kahn, No. 09- 20056-SSM, 2010 WL 2507031 (Bankr. E.D. Va. June 16, 2010) (unpublished) (Mitchell) (Wholly unsecured junior mortgage may not be stripped off in plan but must be accomplished through adversary proceeding.); Swift v. Robert (In re Swift), No. A08-8071-TJM, 2009 WL 3208352 (Bankr. D. Neb. Oct. 6, 2009) (unpublished) (Mahoney) (Second lien was wholly unsecured and may be stripped off in adversary proceeding.); In re Tyus, No. 09-00003, 2009 WL 3246286 (Bankr. D.D.C. Oct. 3, 2009) (unpublished) (Teel) (Observing that attempt to strip lien on residential real property required adversary proceeding, issue was moot when IRS was not asserting real property lien.); In re Swiatkowski, No. 09-00168, 2009 WL 3202611 (Bankr. D.D.C. Sept. 29, 2009) (unpublished) (Teel) (Motion to avoid junior deed of trust was denied without prejudice to filing an adversary proceeding when it would be necessary for court to determine value and relative priority of competing liens.); Karakas v. Bank of N.Y. (In re Karakas), Nos. 06-32961, 06-80245, 2007 WL 1307906 (Bankr. N.D.N.Y. May 3, 2007) (unpublished) (Gerling) (On debtor’s complaint to reclassify second mortgage, court found no value in home and claim was reclassified as wholly unsecured.); Aubain v. LaSalle Nat’l Bank (In re Aubain), 296 B.R. 624, 635–38 (Bankr. E.D.N.Y. Aug. 1, 2003) (Bernstein) (Debtor can strip off wholly unsecured second mortgage in an adversary proceeding filed after reinstatement of a case dismissed in the 57th month when the debtor defaulted in payments; to refuse stripoff would be a windfall to second mortgage holder that failed to file a proof of claim but has benefited from payments toward the first mortgage during the Chapter 13 case and from appreciation of the underlying real property. LaSalle’s second mortgage was wholly unsecured. Servicing agent did not file a proof of claim, and confirmed plan treated the second mortgage as an unsecured debt. Debtor defaulted in the 57th month, and the case was dismissed. When the debtor moved to reinstate, LaSalle opposed reinstatement. Debtor responded with an adversary proceeding to strip off the LaSalle lien. “Once LaSalle appeared in this Court, it is a fair conclusion of law and equity to rule that LaSalle opened itself up to any claims or causes of action to strip off the second mortgage lien that the debtor had as of the petition date. The policy rationale is that the extended concept of a fresh start, embodied in the strip-off doctrine . . . , should be the predominant consideration, and as between the two parties, the most straightforward, least creative, and ultimately most principled approach is to deny LaSalle any benefit from an intervening appreciation in the market value of the debtor’s residence. . . . Since the parties have stipulated that the second mortgage was unsecured as of the petition date, the anti-modification provision does not apply and the second mortgage lien may be avoided under 11 U.S.C. § 506(d).”). See also In re Schneider, No. 10-11878, 2011 WL 66045, at *1 (Bankr. N.D. Cal. Jan. 10, 2011) (Jaroslovsky) (Wholly unsecured tax lien can be treated as unsecured for distribution purposes, but lien cannot be stripped off unless taxes are determined to be dischargeable in an adversary proceeding. Motion can be used to value tax liens at zero for plan treatment purposes, but liens would not be avoided unless adversary proceeding determined that tax debt was dischargeable. Section 506(a) “can be used to permanently remove a lien only to the extent that the lien secures a dischargeable debt. The debtors have cited no authority, nor has the court found one, for avoidance of a tax lien securing nondischargeable taxes. When the tax lien secures a nondischargeable tax, it will remain as a lien on the property after bankruptcy notwithstanding valuation unless the underlying tax debt has been fully satisfied pursuant to the debtors’ plan.”).

 

46  No. 10-10589-SSM, 2010 WL 2024697 (Bankr. E.D. Va. May 17, 2010) (unpublished) (Mitchell) (Plan was confirmed on condition that debtor file separate adversary proceeding to strip off wholly unsecured mortgage, giving credit union opportunity to resist remedy. If adversary proceeding was not filed within 30 days, confirmation would be revoked.). See also In re Stassi, No. 09-71563, 2009 WL 3785570 (Bankr. C.D. Ill. Nov. 12, 2009) (unpublished) (Gorman) (Citing Bankruptcy Rules 9014(b) and 7004(h), confirmation order that stripped junior lien must be vacated because notice of plan was not served in same manner as service of adversary complaint.).

 

47  See Beal Bank, S.S.B. v. Fernandez (In re Fernandez), No. 05-03705, 2006 WL 3147385 (Bankr. N.D. Tex. Oct. 27, 2006) (unpublished) (Hale) (Confirmed plan that treated mortgage as unsecured was not properly noticed to mortgagee. Creditor had no notice that dismissed case had been reinstated or opportunity to object to plan. Court granted mortgagee relief from plan and awarded attorney fees.). See also §§ 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors and 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation for discussion of adequacy of notice of plans.

 

48  See App. M. See, e.g., In re Rascon, 321 B.R. 48, 52 (N.D. Cal. Feb. 18, 2005) (White) (Chapter 13 plan which specifically mentions creditor by name and states that value of property securing one of creditor’s two claims is equal to amount of claim secured by a first lien implies that creditor’s second lien is void under § 506; property vested in debtor at confirmation free of junior lien. After completion of plan, creditor asserted that its junior lien was still in place. Debtor reopened bankruptcy case for determination of the extent of the lien. Although unchallenged liens pass through bankruptcy unaffected, “a creditor’s lien may be avoided through the Chapter 13 plan confirmation process where the basis for avoidance is lack of collateral value. . . . The lien stripping effect of § 506 is consistent with § 1322(b)(2) . . . . [C]onfirmation of a plan can void an unsecured lien if the creditor is ‘provided for by the plan.’ . . . Therefore, to satisfy due process requirements, and thus ‘provide for’ the creditor, a plan must provide notice that is ‘reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.’”); Sims v. Charter One (In re Sims), No. 10 AP 02398, 2011 WL 240658 (Bankr. N.D. Ill. Jan. 24, 2011) (Schmetterer) (Second mortgage lien was not “secured” as term is used in § 1322(b); plan may value collateral under Bankruptcy Rule 3012 and strip off lien, contingent on confirmation, completion of plan and entry of discharge.); O’Brien v. PNC Mortgage (In re O’Brien), No. 10 A 01508, 2010 WL 5137658 (Bankr. N.D. Ill. Dec. 13, 2010) (Schmetterer) (Wholly unsecured junior mortgage could be stripped off in plan.); In re Queja Cadiz, No. 09-01903, 2010 WL 4916575 (Bankr. D. Haw. Dec. 1, 2010) (Faris) (Junior mortgage was wholly unsecured and confirmed plan would strip off mortgage.); In re Dendy, 396 B.R. 171 (Bankr. D.S.C. May 5, 2008) (Waites) (Confirmed plan providing that second mortgage was wholly unsecured and lien was void is binding on creditor with notice that failed to object; however, creditor is not obligated to release or cancel mortgage of record after discharge of debtors’ personal liability. Lien is void as result of confirmation and debt is uncollectible, discharged obligation.); Scott v. Countrywide Home Loans, Inc. (In re Scott), 376 B.R. 285, 291, 293 (Bankr. D. Idaho Sept. 4, 2007) (Pappas) (“[V]alueless lien may be stripped under a chapter 13 plan[,]” citing Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220 (9th Cir. Dec. 24, 2002) (D.W. Nelson, T.G. Nelson, Schwarzer). Having previously held “that an adversary proceeding is not required to strip a lien; it may be accomplished through the chapter 13 plan confirmation process, In re Millspaugh, 302 B.R. [90, 97–98 (Bankr. D. Idaho Oct. 24, 2003) (Myers)][,]” court finds plan contains clear lien-stripping language. Although nothing but plan was sent to Countrywide, lender and its privy Mortgage Electronic Registration Systems, Inc. “were afforded sufficiently clear and conspicuous notice and information about the proposed treatment of the second deed of trust lien so as to satisfy the requirement of due process.”); In re Bourque, No. 06-11266, 2007 WL 274971 (Bankr. E.D. La. Jan. 26, 2007) (unpublished) (Magner) (Citing Bartee v. Tara Colony Homeowner’s Ass’n (In re Bartee), 212 F.3d 277 (5th Cir. May 15, 2000) (Higginbotham, Parker, Atlas), wholly underwater second mortgage may be treated as an unsecured claim in Chapter 13 plan.); In re Morton, No. 05-53872, 2006 WL 4458706 (Bankr. M.D.N.C. June 27, 2006) (unpublished) (Waldrep) (Upon contested valuation of mobile home affixed to land, when plan proposed no value for second lienholder, court found value to be more than balance due on first lien.); Foster v. Onyx Inv., L.L.C. (In re Foster), No. 05-7020, 2006 WL 3518161 (Bankr. D. Kan. Mar. 15, 2006) (unpublished) (Karlin) (Lien of successor to Onyx Investment had been properly stripped to completely unsecured in Chapter 13 plan; court granted permanent injunction against Onyx’s foreclosure and ordered release of its lien. Prior to debtors’ filing, second mortgage holder (but apparently third lienholder, behind seller’s contract for deed) Empire Funding Corporation had filed Chapter 11, but debtors never received notice of filing. Onyx acquired Empire’s mortgage and used Empire’s proof of claim form to file late claim in debtor’s Chapter 13. The trustee objected to untimely claim, but Onyx did not appear, and objection was sustained. The plan clearly stated that Empire was unsecured. Onyx waited until after debtors’ discharge to initiate foreclosure, triggering reopening of case and debtor’s adversary proceeding. Court found there was violation of automatic stay in Empire’s Chapter 11 by debtors’ lien stripping, but equitable considerations, including that debtors had no notice of Empire’s filing and that Onyx had ample opportunity to participate in Chapter 13 case, prevented stripping from being void, citing Job v. Calder (In re Calder), 907 F.2d 953 (10th Cir. June 29, 1990) (Tacha, Seth, Brown). Lien stripping could occur in plan rather than in adversary proceeding, citing Centex Home Equity Co., L.L.C. v. Woodling (In re Woodling), Nos. 03-40183, 03-7102, 2004 Bankr. LEXIS 1751 (Bankr. D. Kan. Oct. 14, 2004).), aff’d sub nom. Onyx Invs., L.L.C. v. Foster, No. 06-4053-SAC, 2007 WL 1347696 (D. Kan. May 8, 2007) (unpublished) (Crow).).

 

49  See, e.g., In re Meyer, No. 09 B 20268, 2010 WL 370297, at *1, *3 (Bankr. N.D. Ill. Jan. 29, 2010) (unpublished) (Schmetterer) (Stripdown of junior mortgage did not require adversary proceeding because junior mortgage creditor yielded voluntarily to jurisdiction by filing objection to plan; junior mortgage lien was wholly unsecured and avoidable, “contingent on confirmation thereof, completion of the plan by Debtors and entry of their discharge.”). See also In re Wegscheid, 361 B.R. 144 (Bankr. D. Ariz. Jan. 29, 2007) (Haines) (Applying Lam v. Investors Thrift (In re Lam), 211 B.R. 36 (B.A.P. 9th Cir. July 3, 1997) (Hagan, Ryan, Ollason), wholly unsecured mortgage could be modified. Plan provided no value, and objection to creditor’s claim went unanswered. Debtor’s post-discharge motion to avoid lien was granted.).

 

50  American Gen. Fin. Servs., Inc. v. Bryan (In re Bryan), 357 B.R. 12 (Bankr. N.D.N.Y. Dec. 12, 2006) (Gerling) (Following majority view that wholly unsecured mortgage liens can be avoided either through plan process or by motion, and citing In re Yekel, No. 305-47107, 2006 WL 2662849 (Bankr. D. Or. Sept. 14, 2006) (unpublished) (Brown), avoidance through plan was approved, since plan clearly identified wholly unsecured creditor under “lien avoidance” heading.).

 

51  302 B.R. 90 (Bankr. D. Idaho Oct. 24, 2003) (Myers).

 

52  302 B.R. at 98–102.

 

53  No. A10-64124-PWB, 2010 WL 2600723, at *1 (Bankr. N.D. Ga. June 1, 2010) (unpublished) (Bonapfel).

 

54  217 F.3d 1357 (11th Cir. July 13, 2000) (Black, Carnes, Kravitch).

 

55  2010 WL 2600723, at *1.

 

56  See above in this section, and see §§ 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

57  See discussion of valuation beginning at § 76.1  Valuation, Claim Splitting and Dewsnup.

 

58  See 11 U.S.C. § 506(a)(2), discussed in § 450.1 [ New Valuation Standards ] § 76.7  Valuation after BAPCPA.

 

59  11 U.S.C. § 506(a)(1), discussed in § 107.1 [ As of What Date Is Value Determined? ] § 76.3  As of What Date Is Value Determined?.

 

60  See § 107.1 [ As of What Date Is Value Determined? ] § 76.3  As of What Date Is Value Determined?. See, e.g., In re Vallejo, No. 08-56732-MM, 2010 WL 520698 (Bankr. N.D. Cal. Feb. 9, 2010) (unpublished) (Morgan) (Determining value on petition date, junior mortgage was not supported by any equity, and lien would be avoided on entry of discharge. If case were dismissed or converted before discharge, order would cease to be effective and lien would be retained under nonbankruptcy law.); In re Farthing, No. 04-52243, 2005 WL 3481508, at *2 (Bankr. E.D. Ky. Jan. 18, 2005) (unpublished) (Scott) (Under Lane v. Western Interstate Bancorp (In re Lane), 280 F.3d 663 (6th Cir. Feb. 7, 2002) (Nelson, Daughtrey, Moore), Equity One was wholly unsecured, even though between petition and confirmation first mortgage lien was forgiven, which created small equity for Equity One’s mortgage. “Thus, while it may be appropriate to determine the value of collateral—and, therefore, the extent to which a creditor’s claim is secured—as of confirmation or the date of the valuation hearing, see 11 U.S.C. § 506(a) (last sentence), it is appropriate to determine if the creditor holds a secured claim at all as of the date the petition was filed.”); Dean v. LaPlaya Inv., Inc. (In re Dean), 319 B.R. 474, 479 (Bankr. E.D. Va. Dec. 28, 2004) (Tice) (The filing date is the appropriate date to value a debtor’s principal residence for purposes of determining whether property supporting a junior mortgage has any value sufficient to protect the mortgage from modification. The debtors’ property had a value of $197,000 at the date of filing. By the time they commenced an adversary proceeding, the property had a value of $237,000. At the time of the petition, the junior mortgage was unsupported by any equity. “The court concludes . . . that the petition date is the appropriate date to value debtors’ principal residence . . . . Real property generally appreciates during the course of a bankruptcy case, and permitting a valuation date removed from the petition date would allow creditor’s status to change from that of an unsecured creditor to a secured creditor through no affirmative action of debtors to put their property to more productive use, correct a defect, etc.”).

 

61  See § 107.1 [ As of What Date Is Value Determined? ] § 76.3  As of What Date Is Value Determined?. See, e.g., In re Bowles, No. 10-31259DM, 2010 WL 4286219 (Bankr. N.D. Cal. Oct. 25, 2010) (Montali) (Debtor can strip off junior lien on property acquired postpetition from a revocable trust when value at petition would not support the lien; timing of valuation remains an open question, and lienholder can request further hearing with respect to value at time debtor acquired title if lienholder thinks value changed. Property was in name of revocable trust at petition. Neither § 506(a) nor Bankruptcy Rule 3012 fixes time limit on when estate may acquire interest in property, and property acquired postpetition becomes property of estate under § 1306(a).).

 

62  See § 107.1 [ As of What Date Is Value Determined? ] § 76.3  As of What Date Is Value Determined?. See, e.g., Roach v. Bank of Mo. (In re Roach), No. 09-2051, 2010 WL 234959, at *3 (Bankr. W.D. Mo. Jan. 15, 2010) (unpublished) (Dow) (Evidentiary hearing is necessary to determine whether mortgage is wholly unsecured; appropriate date for valuation is effective date of plan. As between date of confirmation hearing and date of petition, § 1325(a)(5) does not provide specific guidance, but § 506(a)(1) provides that valuation is to be determined in light of purpose of valuation and proposed use of property. “Accordingly, the Court is to determine valuation based upon the context in which the valuation is occurring. Here, the valuation is occurring in the context of determining the allowed amount of the creditor’s secured claim for purposes of plan confirmation. That fact, and the fact that the value to be given to the secured creditor is to be determined ‘as of the effective date of the plan’ suggests [sic] that the appropriate date of valuation is the date of the confirmation hearing. Many courts have adopted this approach, which this Court considers to be the better rule.”).

 

63  See § 107.1 [ As of What Date Is Value Determined? ] § 76.3  As of What Date Is Value Determined?. See, e.g., In re Whitaker, No. 08-11218, 2008 WL 5749928, at *1 (Bankr. N.D. Cal. Dec. 16, 2008) (unpublished) (Jaroslovsky) (Motion to strip off second mortgage lien is denied because of evidence that second mortgage had some value; without deciding appropriate valuation date, “good argument” is made for confirmation date, and denial of stripoff is “without prejudice to consideration of an amended plan if real estate values continue to fall.”).

 

64  See discussion of valuation beginning at § 76.6  Valuation after Rash. See, e.g., Gray v. Bank of Am., N.A. (In re Gray), Nos. 09-1224, 09-1325-RGM, 2010 WL 276179, at *4 (Bankr. E.D. Va. Jan. 15, 2010) (unpublished) (Mayer) (Court refuses to enter default judgment on debtor’s motion to strip off junior deeds of trust because real estate tax assessments and Internet valuations were not sufficient evidence of value. “Valuation is not, like the color of a car, directly observable. Valuation is derived from other facts. Fed.R.Evid. 701 and 702 are instructive. Valuation is an opinion.”).

 

65  See, e.g., Thomas v. Litton Loan Servicing, LP (In re Thomas), No. AW-10-373, 2010 WL 4788563 (D. Md. Nov. 17, 2010) (Williams) (When debt owed to first mortgage holder exceeded value of property, junior lien should be treated as unsecured and lien avoided.).

 

66  Mortgage lenders and servicers are notoriously unable to produce accurate payoff statements in Chapter 13 cases. See § 308.2 [ Mortgage Claim Issues ] § 138.8  Mortgage Claim Issues.

 

67  See § 110.1 [ Valuation after Rash ] § 76.6  Valuation after Rash. See, e.g., In re Valls, No. 09-35347-BKC-LMI, 2010 WL 2745951 (Bankr. S.D. Fla. July 6, 2010) (unpublished) (Isicoff) (After consideration of conflicting appraisals, second mortgage was wholly unsecured and would be void upon entry of discharge.); In re Weichey, 405 B.R. 158 (Bankr. W.D. Pa. May 18, 2009) (Agresti) (After weighing competing appraisal testimony, comparable sales approach was appropriate method to determine value of residence, and second mortgage was wholly unsecured.); In re Sullivan, 386 B.R. 355 (Bankr. N.D. Ala. Feb. 28, 2008) (Stilson) (Appraisal testimony established that mortgage has value and may not be modified under § 1322(b)(2).).

 

68  See § 110.1 [ Valuation after Rash ] § 76.6  Valuation after Rash. See, e.g., In re Rossiter, No. 10-14030, 2011 WL 479011, at *1 (Bankr. N.D. Cal. Feb. 3, 2011) (Jaroslovsky) (Junior mortgage was unsupported by value and avoidable under § 506(a)(1). Debtor’s expert on value was more credible than bank’s expert, who “has an ongoing relationship with the Bank and has done very many appraisals for it.”); Brenneke v. Fifth Third Bank (In re Brenneke), 441 B.R. 625 (Bankr. E.D. Mo. Oct. 12, 2010) (Surratt-States) (Accepting creditor’s appraisal, property value provided security for second mortgage, which was not subject to modification.); In re Alizotis, No. 09-33061DM, 2010 WL 318400 (Bankr. N.D. Cal. Jan. 20, 2010) (unpublished) (Montali) (Rejecting downward adjustment in value by debtor’s witness, mortgage lien may not be modified under § 1322(b)(2) when value was sufficient to satisfy lien.); In re Duncan, No. 08-8808AJM3, 2008 WL 5333561 (Bankr. S.D. Ind. Dec. 17, 2008) (unpublished) (Metz) (Finding mortgage creditor’s evidence of value more persuasive, residence has equity and second mortgage is not subject to stripping.); In re Bennett, No. 07-05514, 2008 WL 4489139, at *3 (Bankr. M.D. Tenn. Apr. 8, 2008) (unpublished) (Paine) (To determine whether second mortgage was wholly unsecured, debtor’s expert was “better supported” by reliable comparables; second mortgage is wholly unsecured and may be modified.).

 

69  See Cathcart v. Wachovia Mortgage, No. 1:04-CV-1236-JDT-TAB, 2005 WL 756208 (S.D. Ind. Feb. 22, 2005) (unpublished) (Tinder) (Proper valuation standard to determine whether second mortgage can be stripped off principal residence is fair market value under Associates Commercial Corp. v. Rash, 520 U.S. 953, 117 S. Ct. 1879, 138 L. Ed. 2d 148 (June 16, 1997), not net liquidation value; because landlocked portion of mortgaged property has some value in excess of first mortgage, second mortgage cannot be stripped off in a Chapter 13 case. Debtor’s appraiser valued property at $111,000, subject to a first mortgage of $112,000. Appraiser assigned no value to a portion of the property that was landlocked and not accessible. Bankruptcy court concluded that some value—at least $1,000—should be assigned to the inaccessible portion of the property, bringing the value above $112,000, the amount of the first mortgage, and thus there was value to which Wachovia’s second mortgage could attach.); Profitt v. Mendoza, No. 1:04-CV-742-LJM-WTL, 2004 WL 3223059 (S.D. Ind. Nov. 23, 2004) (unpublished) (McKinney) (Fair market value, not net liquidation value, is proper standard for determining whether a mortgage is wholly unsecured by value; when fair market value is $17,000 and first mortgage is $103,248.73, there is value to partially secure a second mortgage and the second mortgage cannot be stripped off the property because of § 1322(b)(2).); In re Serda, 395 B.R. 450 (Bankr. E.D. Cal. Oct. 17, 2008) (Lee) (To determine whether junior mortgage is subject to modification, when debtor intends to retain property, proper standard is fair market value rather than liquidation value. Court accepts value by appraiser for lender, who used private sales of comparable properties, rather than appraiser for debtor, who based value on bank-owned properties sold or listed for sale.). See also discussion of valuation beginning at § 76.1  Valuation, Claim Splitting and Dewsnup.

 

70  252 F.3d 122 (2d Cir. May 31, 2001) (Newman, Cabranes, Thompson).

 

71  See discussion of valuation beginning at § 76.1  Valuation, Claim Splitting and Dewsnup.

 

72  295 B.R. 184 (Bankr. W.D.N.Y. June 18, 2003) (Ninfo).

 

73  295 B.R. at 188.

 

74  295 B.R. at 188.

 

75  289 B.R. 544 (Bankr. W.D.N.Y. Jan. 29, 2003) (Ninfo). See also In re Clardy, No. 06-71703-CMS-13, 2007 WL 1697007, at *2 (Bankr. N.D. Ala. June 12, 2007) (unpublished) (Stilson) (Quoting Tanner v. FirstPlus Financial, Inc. (In re Tanner), 217 F.3d 1357, 1360 (11th Cir. July 13, 2000) (Black, Carnes, Kravitch), “‘[t]he better reading of sections 506(a) and 1322(b)(2), therefore, protects only mortgages that are secured by some existing equity in the debtor’s principal residence.’” $1,200 value above first mortgage prevents modification of second mortgage.).

 

76  289 B.R. at 547.

 

77  288 B.R. 675 (Bankr. W.D.N.Y. Jan. 31, 2003) (Bucki).

 

78  301 B.R. 627 (Bankr. W.D.N.Y. Oct. 30, 2003) (Kaplan).

 

79  See also Therriault v. Schaefer (In re Therriault), Nos. 00-11001, 00-1063, 2002 WL 31767813 (Bankr. D. Vt. Jan. 31, 2002) (unpublished) (Brown) (Applying Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122 (2d Cir. May 31, 2001) (Newman, Cabranes, Thompson), after recapture of government subsidies under 42 U.S.C. § 1490a(a)(1)(D)(i), the first lien of FMHA exceeds the value of the debtor’s residence; second mortgage is wholly unsecured under § 506(a), is subject to avoidance under § 506(d) and can be modified under § 1322(b)(2).).

 

80  See Peterson v. United Bankshares, Inc. (In re Peterson), No. 10-1304, 2011 WL 111154, at *3 (Bankr. E.D. Va. Jan. 13, 2011) (Mitchell) (After contested valuation hearing, junior mortgage cannot be avoided because of $15,605 equity above first deed of trust. “[E]ven $1.00 of equity is sufficient to bar a strip-off of a security interest in the debtor’s primary residence.”).

 

81  No. 09-14453-JM13, 2010 WL 3186767 (Bankr. S.D. Cal. Aug. 9, 2010) (unpublished) (Bowie).

 

82  No. 08-11146, 2010 WL 1610123 (Bankr. N.D. Cal. Apr. 20, 2010) (unpublished) (Jaroslovsky). See below in this section.

 

83  See App. M.

 

84  11 U.S.C. § 506(a), discussed beginning at § 76.1  Valuation, Claim Splitting and Dewsnup.

 

85  11 U.S.C. § 506(d).

 

86  See, e.g., 11 U.S.C. §§ 522(f), 547(b), 548(b) and 549(a).

 

87  2010 WL 1610123, at *1.

 

88  See above in this section, and see § 105.1 [ Valuation, Claim Splitting and Dewsnup ] § 76.1  Valuation, Claim Splitting and Dewsnup.

 

89  No. 10-02259, 2010 WL 3895537 (Bankr. D. Utah Oct. 1, 2010) (unpublished) (Mosier).

 

90  2010 WL 3895537, at * 3. The Carroll court did not “opine on the availability of other Bankruptcy Code sections to effect a modification of a wholly unsecured creditor’s lien.” 2010 WL 3895537, at *3 n.15. See also Korbe v. Housing & Urban Dev. (In re Korbe), 386 B.R. 585 (Bankr. W.D. Pa. Apr. 22, 2008) (Deller) (HUD’s third mortgage is stripped off as wholly unsecured, notwithstanding that court has discretion to refuse modification; HUD’s loan is nonrecourse, but “the fact that HUD’s claim is in rem in nature actually favors the application of 11 U.S.C. § 506 because this statute ensures that claimants who have a cognizable lien against valuable assets actually receive the benefit of the value of their collateral and no more. Section 506 of the Bankruptcy Code is not intended to be a sword used by wholly unsecured creditors to block Chapter 13 relief to the honest, but unfortunate, debtor.”).

 

91  In re Ginther, 427 B.R. 450, 453 (Bankr. N.D. Ill. Apr. 22, 2010) (Barbosa) (citations omitted).

 

92  501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (June 10, 1991).

 

93  11 U.S.C. § 1327(b) and (c), discussed in §§ 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.

 

94  See also In re Okosisi, 451 B.R. 90, 100 (Bankr. D. Nev. May 16, 2011) (Markell) (“[C]onfirmation of a chapter 13 plan ‘vests all of the property of the estate in the debtor,’ and this property vests in the debtor ‘free and clear of any claim or interest of any creditor provided for by the plan.” . . . This language refers to both claims and interests. . . . In the context of chapter 13, which is concerned primarily with addressing and reorganizing a creditor’s rights to repayment and security interests in a debtor’s property, interest encompasses liens on real property.”).

 

95  __ U.S. __, 130 S. Ct. 1367, 176 L. Ed. 2d 158 (Mar.  23, 2010). See §§ 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 and 346.1 [ Student Loans ] § 158.2  Student Loans.

 

96  See 11 U.S.C. § 1330, discussed in § 224.1 [ Revocation of Confirmation ] § 117.3  Revocation of Confirmation.

 

97  See § 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases.

 

98  11 U.S.C. § 1325(a)(5)(B)(i)(I)(aa) and (bb), discussed in §§ 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA and 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases.

 

99  11 U.S.C. § 1325(a)(5)(B)(i)(II), discussed in §§ 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA and 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases.

 

100  See § 533.1 [ Lienholders’ Rights at Conversion under § 348(f) ] § 145.3  Lienholders’ Rights at Conversion under § 348(f) after BAPCPA.

 

101  11 U.S.C. § 348(f).

 

102  See § 320.1 [ In Cases Filed after October 22, 1994 ] § 145.2  In Cases Filed after October 22, 1994. But see In re Marante, No. 02-13969-BKC-AJC, 2003 WL 21361675, at *1 (Bankr. S.D. Fla. Apr. 16, 2003) (unpublished) (Cristol) (After conversion to Chapter 7, bankruptcy court refuses to enforce the lien-stripping provision of confirmed plan. “The Debtors cannot claim the particular benefits of lien stripping in a Chapter 13 case when they have not themselves complied with the provisions of their own plan. Allowing the Debtors in this case to proceed in a Chapter 13 for only a year and then convert the case to Chapter 7 and demand to retain the benefits of Chapter 13 (specifically the ability to lien strip) in the converted case is unjust and contrary to the Bankruptcy Code.”).

 

103  See § 320.1 [ In Cases Filed after October 22, 1994 ] § 145.2  In Cases Filed after October 22, 1994.

 

104  See § 533.1 [ Lienholders’ Rights at Conversion under § 348(f) ] § 145.3  Lienholders’ Rights at Conversion under § 348(f) after BAPCPA.

 

105  See § 533.1 [ Lienholders’ Rights at Conversion under § 348(f) ] § 145.3  Lienholders’ Rights at Conversion under § 348(f) after BAPCPA.

 

106  See § 553.1 [ Student Loans: § 523(a)(8) ] § 159.6  Student Loans: § 523(a)(8) for further discussion of § 348(f).

 

107  11 U.S.C. § 1328(f), discussed in §§ 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

108  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.

 

109  See also §§ 104.2 [ Lien Retention ] § 74.12  Lien Retention before BAPCPA and 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases.

 

110  See § 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases.

 

111  No. 8-11-8935-reg, 2011 WL 4368414 (Bankr. E.D.N.Y. Sept. 19, 2011) (Grossman).

 

112  2011 WL 4368414, at *6.

 

113  451 B.R. 90 (Bankr. D. Nev. May 16, 2011) (Markell).

 

114  451 B.R. at 97–98.

 

115  See § 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

116  See, e.g., In re Gomez, No. 6:08-bk-00040-ABB, 2011 WL 3807808, at *1–*3 (Bankr. M.D. Fla. Feb. 8, 2011) (Briskman) (Under §§ 727(d) and 727(e)(1), debtor cannot vacate Chapter 7 discharge entered two years earlier to overcome effect of § 1328(f) on lien stripping in current Chapter 13 case. Debtor was not eligible for discharge in current Chapter 13 case under § 1328(f)(1) because of Chapter 7 discharge two years earlier. Debtor moved to reopen prior Chapter 7 case and to revoke or vacate discharge. In current Chapter 13 case, debtor sought to cram down liens on investment property and to strip off wholly unsecured liens. “Chapter 13 allows for the modification [of] secured claims, with certain exceptions, but a Chapter 13 discharge is required to be able to permanently modify such claims. . . . Where a debtor is ineligible to receive a discharge in a Chapter 13, any modifications to the creditor’s rights are not permanent and have no binding effect once the plan ends. . . . A debtor does not have standing to seek revocation of her discharge pursuant to the plain and unambiguous language of Section 727(d). . . . Aurora seeks to reopen her Chapter 7 case and vacate her Chapter 7 discharge because it prevents her from receiving a discharge in her Chapter 13 case pursuant to 11 U.S.C. Section 1328(f). Aurora requires a Chapter 13 discharge to carry out her intended cramdown and strip off of the mortgage liens encumbering her real property. The relief Aurora seeks is not authorized by the Bankruptcy Code and is contrary to the fundamentals of bankruptcy.”).

 

117  See 11 U.S.C. § 1328(f), discussed in § 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges. There is also the possibility that a Chapter 13 case will be closed without entry of discharge for failure to obtain a personal financial management certificate. See § 546.1 [ Instructional Course Requirement ] § 156.5  Instructional Course Requirement. See also Orkwis v. MERS (In re Orkwis), No. 8-11-8935-reg, 2011 WL 4368414, at *6 (Bankr. E.D.N.Y. Sept. 19, 2011) (Grossman).

 

118  See App. M. See also §§ 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

119  454 B.R. 252 (Bankr. N.D. Ga. July 11, 2011) (Mullins).

 

120  454 B.R. at 256–60. See §§ 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

121  See §§ 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

122  See §§ 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges. See, e.g., Orkwis v. MERS (In re Orkwis), No. 8-11-8935-reg, 2011 WL 4368414, at *5 (Bankr. E.D.N.Y. Sept. 19, 2011) (Grossman) (“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, 447 B.R. 342 (Bankr. S.D. Fla. 2011); In re Erdmann, 446 B.R. 861 (Bankr. N.D. Ill. 2011); In re Victorio, 454 B.R. 759 (Bankr. S.D. Cal. 2011); In re Fenn, 428 B.R. 494 (Bankr. N.D. Ill. 2010); In re Lindskog, 451 B.R. 863 (Bankr. E.D. Wis. 2011); In re Mendoza, No. 09–22395 HRT, 2010 WL 736834 (Bankr. D. Col. Jan. 21, 2010); In re Blosser, No. 07–28223–svk, 2009 WL 1064455 (Bankr. E.D. Wis. Apr. 15, 2009)[;] and In re Jarvis, 390 B.R. 600, 604–06 (Bankr. C.D. Ill. 2008). A growing number of courts have taken the opposite position, finding that the lien is removed upon completion of the plan payments in the Chapter 13 case, regardless of whether the debtor is entitled to a discharge. See In re Fisette, 455 B.R. 177 (8th Cir. BAP [Aug. 29,] 2011); In re Davis, No. 09–26768–WIL, 2011 WL 1237638 (Bankr. D. Md. Mar. 30, 2011); In re Jennings, 454 B.R. 252 (Bankr. N.D. Ga. [July 11,] 2011); In re Okosisi, 451 B.R. 90 (Bankr. D. Nev. 2011); In re Fair, 450 B.R. 853 (E.D. Wis. 2011); In re Waterman, 447 B.R. 324 (Bankr. D. Colo. 2011); In re Tran, 431 B.R. 230 (Bankr. N.D. Cal. 2010); and In re Hill, 440 B.R. 176 (Bankr. S.D. Cal. 2010).”).

 

123  See App. M, and see §§ 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

124  See § 533.1 [ Lienholders’ Rights at Conversion under § 348(f) ] § 145.3  Lienholders’ Rights at Conversion under § 348(f) after BAPCPA.

 

125  See §§ 338.1 [ In General ] § 153.1  In General and 541.1 [ Consequences of Dismissal ] § 153.2  Consequences of Dismissal Added or Changed by BAPCPA.

 

126  See Orkwis, 2011 WL 4368414, at *5.

 

127  451 B.R. 90 (Bankr. D. Nev. May 16, 2011) (Markell).

 

128  454 B.R. 759 (Bankr. S.D. Cal. July 8, 2011) (Bowie).

 

129  451 B.R. at 100–101 (footnotes and citations omitted).

 

130  454 B.R. at 774–81. See §§ 447.1 [ Lien Retention, Including in No-Discharge Cases ] § 74.13  Lien Retention after BAPCPA, Including in No-Discharge Cases and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges.

 

131  See below in this section, and see §§ 496.1 [ Good-Faith Filing Requirement ] § 110.1  Good-Faith Filing Requirement after BAPCPA and 496.2 [ Good-Faith Plans after BAPCPA ] § 110.2  Good-Faith Plans after BAPCPA.

 

132  See Fisette v. Keller (In re Fisette), 455 B.R. 177, 182–87 (B.A.P. 8th Cir. Aug. 29, 2011) (Schermer, Venters, Nail) (Chapter 13 debtor ineligible for discharge because of § 1328(f) can strip off wholly unsecured junior liens on residence at completion of payments under plan; § 1325(a)(5)(B)(i)(I)(bb) does not apply because wholly unsecured liens are not allowable secured claims. “[Section] 1322(b)(2) does not bar a Chapter 13 debtor from stripping off a wholly unsecured lien on his principal residence, a position that has been adopted by all Circuit Courts of Appeal to address this issue. . . . In accordance with the language of § 1322(b)(2), only if the creditor is the holder of a secured claim, meaning that its claim is at least partially secured after application of § 506(a), will it be eligible for the protection of § 1322(b)(2)’s antimodification provision. . . . [N]othing in the Bankruptcy Code conditions a Chapter 13 debtor’s ability to modify a wholly unsecured creditor’s lien under § 1322(b)(2) on his eligibility for a discharge. . . . [Section] 1325(a)(5)(B)(i)(I)(bb)[ ] does not apply in the case of a wholly unsecured lien on a debtor’s principal residence. . . . [N]othing in § 1328(f)(1) . . . limits the debtor’s rights under § 1322(b)(2).”); In re Fair, 450 B.R. 853, 856–58 (E.D. Wis. Apr. 19, 2011) (Randa) (Chapter 13 debtor not eligible for discharge because of § 1328(f)(1) can strip off wholly unsecured junior mortgage. “In light of [Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992)], Section 506(d) is not the proper authority for lien stripping in chapter 13. . . . ‘[A] wholly unsecured claim, as defined under Section 506(a), is not protected under the antimodification exception of Section 1322(b)(2).’ . . . The Court must presume that Congress understood the distinction between discharging in personam liability and modifying the terms of an in rem lien when it enacted § 1328(f)(1). . . . [D]enying certain chapter 13 debtors the right to a discharge did nothing to change the fact that lien stripping is generally allowed under chapter 13. . . . Congress did not intend to prevent lien stripping through § 1328(f)(1), and it is inaccurate to characterize lien stripping as a de facto discharge under the bankruptcy code. . . . [Section] 1325(a)(5) . . . does not apply to unsecured claims. . . . GMAC’s junior mortgage lien is unsecured, and there is nothing in the bankruptcy code which ties the modification of an unsecured lien to obtaining a discharge under chapter 13. . . . This is not to say that debtors enjoy an absolute right to strip off unsecured liens in a no-discharge chapter 13 case. Courts have an independent duty to determine whether chapter 13 proceedings are conducted in good faith. §§ 1325(a)(3), (7).”). See also App. M.

 

133  See discussion of best-interests-of-creditors test beginning at § 90.2  Exemption Issues.

 

134  See discussion of projected disposable income test beginning at § 91.2  Projected (Disposable) Income.

 

135  See discussion of good-faith test for confirmation beginning at § 103.1  In General.

 

136  See 11 U.S.C. § 1325(a)(7), discussed in § 110.1  Good-Faith Filing Requirement after BAPCPA.

 

137  See 11 U.S.C. § 1325(a)(3), discussed in § 496.2 [ Good-Faith Plans after BAPCPA ] § 110.2  Good-Faith Plans after BAPCPA.

 

138  See §§ 496.1 [ Good-Faith Filing Requirement ] § 110.1  Good-Faith Filing Requirement after BAPCPA, 496.2 [ Good-Faith Plans after BAPCPA ] § 110.2  Good-Faith Plans after BAPCPA and 543.1 [ New Limitations on Successive Discharges ] § 156.2  Limitations on Successive Discharges. See, e.g., In re Tran, No. 10-03035, 2011 WL 3862010, at *5 (N.D. Cal. Aug. 31, 2011) (Wilken) (Chapter 13 case filed six months after Chapter 7 discharge with purpose to avoid surviving wholly unsecured lien that offers no payment to unsecured creditors is unfair manipulation of Bankruptcy Code and was not filed in good faith. “[T]he main reason she filed her Chapter 13 petition was to strip the second deed of trust. The good faith factors she relies upon pale in light of the fact that she had an improper reason for filing a Chapter 13 case, and no proper reason. . . . Appellant filed a Chapter 7 case to discharge her general unsecured debts. Six months after the discharge, she filed this Chapter 13 case to avoid a lien that could not, under [Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992),] be avoided in her Chapter 7 case. In her Chapter 13 plan, she offered no payments to unsecured creditors . . . . Appellant wishes to partake of the benefits provided under both Chapters 7 and 13 by first discharging all debts in Chapter 7 and then discharging the one remaining unsecured debt in Chapter 13, without providing any benefit to any unsecured creditors. . . . Appellant’s Chapter 13 case is an attempt unfairly to manipulate the Bankruptcy Code to evade the holding in Dewsnup and, thus, was not filed in good faith.”); In re Jennings, 454 B.R. 252 (Bankr. N.D. Ga. July 11, 2011) (Mullins) (Subject to review for good faith, debtors ineligible for discharge because of § 1328(f) can strip off wholly unsecured junior lien without violating antimodification protection in § 1322(b)(2).); In re Okosisi, 451 B.R. 90 (Bankr. D. Nev. May 16, 2011) (Markell) (After concluding that debtors ineligible for discharge because of § 1328(f) can strip off wholly unsecured junior lien, court analyzes good faith and concludes that plan was proposed in good faith and case was filed in good faith based on factors in Fidelity & Casualty Co. of New York v. Warren (In re Warren), 89 B.R. 87 (B.A.P. 9th Cir. Aug. 16, 1988) (Volinn, Meyers, Jones).).

 

139  11 U.S.C. § 1111(b)(1)(A) provides: “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 . . . .”

 

140  See also §§ 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.

 

141  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. See, e.g., In re Jennings, 454 B.R. 252, 260 (Bankr. N.D. Ga. July 11, 2011) (Mullins) (“Although Debtors may strip the liens securing the claims of the second mortgagees, the plans must treat the allowed claims as unsecured claims.”); In re Gounder, 266 B.R. 879, 881 (Bankr. E.D. Cal. Sept. 24, 2001) (McManus) (Reaching same result as In re Akram, 259 B.R. 371 (Bankr. C.D. Cal. Mar. 6, 2001) (March), but for different reasons, wholly unsecured mortgage lien that survived discharge in prior Chapter 7 case can be stripped off under Lam v. Investors Thrift (In re Lam), 211 B.R. 36 (B.A.P. 9th Cir. July 3, 1997) (Hagan, Ryan, Ollason), appeal dismissed, 192 F.3d 1309 (9th Cir. Oct. 4, 1999) (Wiggins, Fernandez, Thomas), but then becomes an allowed unsecured claim for the full amount of the debt. “[T]he respondent has no right to enforce its claim against the debtor because [of] the prior chapter 7 discharge. But, as of the petition date, it had retained the right to satisfy its claim against some of the debtor’s property. That property has become property of the bankruptcy estate. . . . Therefore, even though the debtor received a chapter 7 discharge, the respondent had an allowable claim in the debtor’s subsequent chapter 13 case. The use of 11 U.S.C. § 506(a) pursuant to Lam in the chapter 13 case resulted in the completely undersecured claim being converted into an unsecured claim against the chapter 13 estate (as opposed to the debtor). . . . The debtor cannot object to the unsecured claim on the ground that the debt was a nonrecourse debt. While the creditor may have had no recourse against the debtor, section 506(a) gives the creditor recourse against the estate. This is the price of separating the claim from its security.”); In re Akram, 259 B.R. 371, 373–78 (Bankr. C.D. Cal. Mar. 6, 2001) (March) (Wholly unsecured mortgage lien that survived prior Chapter 7 discharge can be stripped off under Lam v. Investors Thrift (In re Lam), 211 B.R. 36 (B.A.P. 9th Cir. July 3, 1997) (Hagan, Ryan, Ollason), appeal dismissed, 192 F.3d 1309 (9th Cir. Oct. 4, 1999) (Wiggins, Fernandez, Thomas), subject to limitation from In re 1441 Veteran Street Co., 144 F.3d 1288 (9th Cir. July 15, 1998) (Schroeder, Kozinski, Whyte), that res judicata would not apply unless debtor completed payments under a confirmed Chapter 13 plan; after Lam-stripping, lienholder has allowed unsecured claim for full amount of debt. “Translating what In re 1441 Veteran Street Co. states regarding res judicata effect to the chapter 13 context would mean that a lien strip for chapter 13 plan purposes should have no res judicata effect unless the chapter 13 debtor confirms a chapter 13 plan, and receives a discharge in his/her bankruptcy case. . . . [T]his Court grants Lam motions, but with restrictions on res judicata effect required by the reasoning of the Ninth Circuit in In re 1441 Veteran Street. . . . However, because the amount of these secured claims remained unaffected by the chapter 7 discharge, the ‘Lam-stripping’ of these secured claims in the chapter 13 case . . . turned the full amount owed to each creditor . . . into a general unsecured claim, for chapter 13 purposes.”).

 

142  See §§ 105.1 [ Valuation, Claim Splitting and Dewsnup ] § 76.1  Valuation, Claim Splitting and Dewsnup and 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.

 

143  See, e.g., In re Barrios, 257 B.R. 626, 628 (Bankr. S.D. Fla. Nov. 30, 2000) (Friedman) (Unsecured creditor has standing to object to confirmation on the ground that the lien of a wholly unsecured second mortgage holder can be stripped off under Tanner v. FirstPlus Financial, Inc. (In re Tanner), 217 F.3d 1357 (11th Cir. July 13, 2000) (Black, Carnes, Kravitch). Plan proposed to make direct payments to second mortgage. First mortgage exceeded the value of the homestead. Unsecured creditor objected to confirmation. Debtors admitted that second mortgage lien could be stripped but challenged standing of unsecured creditor to force the debtors to do so. “[A] general unsecured creditor[ ] has standing to seek modification of the claim of [the second mortgage holder], another creditor, pursuant to § 506(a).” Bankruptcy court denied confirmation and ordered the debtors to modify the plan to treat the second mortgage holder as a general unsecured creditor or face dismissal of the case.).

 

144  See § 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994.

 

145  Suntrust Bank v. Millard (In re Millard), 414 B.R. 73 (D. Md. Sept. 28, 2009) (Garbis) (Wholly unsecured junior lien is avoidable because § 1322(b)(2) protects only liens that are at least partially secured under § 506(a); 1994 addition of § 1322(c)(2) bolsters view that wholly unsecured liens are avoidable.).

 

146  See § 143.1 [ Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994 ] § 85.2  Demand, Matured and Balloon Loans; “Short-Term” Mortgages after October 22, 1994.

 

147  See discussion of modification after confirmation beginning at § 126.1  Standing, Timing and Procedure.

 

148  See § 264.1 [ To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim ] § 127.7  To Surrender Collateral, Account for Repossession or Change the Treatment of a Secured Claim. See, e.g., In re Cruz, 253 B.R. 638, 643–44 (Bankr. D.N.J. Oct. 13, 2000) (Burns) (McDonald v. Master Financial, Inc. (In re McDonald), 205 F.3d 606 (3d Cir. Mar. 9, 2000) ( Sloviter, Roth, Cowen), cert. denied, 531 U.S. 822, 121 S. Ct. 66, 148 L. Ed. 2d 31 (Oct. 2, 2000), does not apply retroactively; Chapter 13 debtors cannot modify plan after confirmation under § 1329 to change the treatment of a wholly unsecured second mortgage to reflect the holding in McDonald. Confirmed plan treated second mortgage as protected from modification based on value stated in schedules. Eighteen months after confirmation, debtors moved to modify the plan to treat the second mortgage as wholly unsecured and to strip off the mortgage consistent with McDonald. Bankruptcy court held that debtors were bound by confirmed plan to treat second mortgage as secured and could not use § 1329 to change that treatment. With respect to the retroactive application of McDonald: “Even if the debtors could modify the rights of [the second mortgage holder] under § 1329 as they propose, there is no basis to do so because the Third Circuit’s decision in McDonald is not subject to retroactive application. . . . [N]othing in that decision held that it was to be applied retroactively. . . . [R]etroactivity is limited by finality and ‘“once suit is barred by res judicata or by statutes of limitation or repose, a new rule cannot reopen the door already closed.”’”).

 

149  284 B.R. 806 (Bankr. E.D. Va. Sept. 30, 2002) (Mayer).

 

150  284 B.R. at 813–14. See also In re Williams, 277 B.R. 78 (Bankr. D. Md. Mar. 20, 2002) (Keir) (Nonfiling spouse who is tenant by the entireties is a necessary party to debtor’s motion to avoid bank’s wholly unsecured lien under § 506; trustee under deed of trust is not an indispensable party.).

 

151  Strausbough v. Co-Op Servs. Credit Union (In re Strausbough), 421 B.R. 423 (Bankr. E.D. Mich. Dec. 18, 2009) (Rhodes) (Motion to join nondebtor spouse in complaint to strip wholly unsecured second mortgage lien is denied because nondebtor spouse has no standing to take advantage of §§ 506(a) and 1322(b).).

 

152  426 B.R. 243 (Bankr. E.D. Mich. Mar. 25, 2010) (Rhodes).

 

153  426 B.R. at 248.

 

154  280 F.3d 663, 664 (6th Cir. Feb. 7, 2002) (Nelson, Daughtrey, Moore).

 

155  426 B.R. at 249–50.

 

156  In re Baker, No. 10-67569-PWB, 2010 WL 2836785, at *1 n.1 (Bankr. N.D. Ga. June 28, 2010) (unpublished) (Bonapfel) (Wholly unsecured junior mortgage was subject to avoidance as to debtor’s interest only, and in event of dismissal or conversion, lien would not be affected by lien stripping. Schedule A reflected that debtor owned property jointly with nondebtor spouse. “[O]nly the Debtor’s (presumptively) one-half interest is property of the estate. Because Ms. Baker’s one-half interest is not property of the estate, the lien continues to exist on her interest in the property.”). See also Mathews v. US Bank, NA (In re Mathews), No. 10-1243-RGM, 2011 WL 2133325, at *4 (Bankr. E.D. Va. Mar. 31, 2011) (Mayer) (Debtor cannot strip off wholly unsecured tax lien when debtor was not personally obligated and result would be to allow former joint tenant to accomplish lien stripping without exposure to bankruptcy. Debtor and joint tenant had owned property with common law right of survivorship, but nondebtor transferred interest to debtor after incurring taxes for failed restaurant. If former co-tenant had filed bankruptcy, “she would be on the horns of a dilemma. If she strips-off the IRS tax lien in a chapter 13 case, the resulting claim is an unsecured priority claim that must be paid in full in the chapter 13 plan. Bankruptcy Code § 1322(a)(2). If she does not strip-off the IRS lien, the lien (to the extent not paid in the plan) would survive the bankruptcy. Chapter 7 is not helpful. She cannot strip-off the lien in chapter 7. The result of this bankruptcy case is that the debtor and Ms. Fagan working together seek to achieve a result that Ms. Fagan, the obligor of the tax debt, could not achieve directly.”); Barra v. Onewest Bank (In re Barra), No. 09-1251, 2010 WL 2991028, at *1 (Bankr. E.D. Va. July 26, 2010) (unpublished) (Mitchell) (Property owned solely by one joint debtor had no value to secure junior lien, and lien was not protected from stripoff by § 1322(b)(2). Without deciding whether a debtor co-owning property can always avoid wholly unsecured junior lien in Chapter 13, court indicates it would likely follow Hunter v. Citifinancial, Inc. (In re Hunter), 284 B.R. 806 (Bankr. E.D. Va. [Sept. 30,] 2002) [(Mayer)],” and disagree with Strausbough v. Co-op Services Credit Union (In re Strausbough), 426 B.R. 243 (Bankr. E.D. Mich. Mar. 25, 2010) (Rhodes).).

 

157  See § 14.1 [ Are Claims Split under 11 U.S.C. § 506(a)? ] § 14.4  Are Claims Split under 11 U.S.C. § 506(a)? for discussion of claim splitting for eligibility purposes.

 

158  No. CC-10-1057-KiLPa, 2010 WL 6259984 (B.A.P. 9th Cir. Dec. 7, 2010) (unpublished) (Kirscher, Lynch, Pappas).

 

159  249 F.3d 975, 982 (9th Cir. May 11, 2001) (Nelson, Brunetti, Kozinski).

 

160  313 F.3d 1220 (9th Cir. Dec. 24, 2002) (D.W. Nelson, T.G. Nelson, Schwarzer).

 

161  435 B.R. 637 (B.A.P. 9th Cir. July 8, 2010) (Dunn, Markell, Jaroslovsky).

 

162  2010 WL 6259984, at *3–*5.