§ 14.4 — Are Claims Split under 11 U.S.C. § 506(a)?

Revised: April 27, 2016

[1]

The debt limits for eligibility for Chapter 13 are defined in 11 U.S.C. § 109(e)1 in terms of noncontingent,2 liquidated,3 secured and unsecured debts. To determine whether an individual is eligible, debts must be scheduled4 and the sum of secured and unsecured debts must be compared separately to the secured and unsecured limitations in § 109(e).

[2]

Whether a debt is properly characterized as secured or unsecured may mean the difference between eligibility and ineligibility for Chapter 13. For purposes of allowance of claims, a claim is secured only to the extent of the value of the collateral for the underlying debt.5 For example, a $100,000 debt secured by a $75,000 parcel of real estate is really two claims—a $25,000 unsecured claim and a $75,000 secured claim. The tough questions are whether courts should engage in “claim splitting” at the eligibility stage of a Chapter 13 case and, if so, how to do that.

[3]

The courts are divided whether to split claims into secured and unsecured portions under § 506(a) at the eligibility stage of a Chapter 13 case.6 Most courts do, but the issue divides the circuits. The split festers when the debt could not be split at confirmation because the claim is secured by a security interest in real property that is the debtor’s principal residence and is protected from modification by 11 U.S.C. § 1322(b)(2)7 or when § 506(a) is not applicable because of the “hanging paragraph” appended to § 1325(a) by BAPCPA.8 This split deepens when the debt is scheduled as secured but there is no value in the collateral to support a secured claim.9 The split fractures altogether when the debtor’s personal liability was discharged in a prior Chapter 7 case and the in rem claim that came into the Chapter 13 case is not supported by any value—there is then disagreement whether any secured or unsecured debt is present for eligibility purposes.10

[4]

The implications for eligibility analysis are significant. If claim splitting for eligibility purposes is appropriate, then any large undersecured claim generates a large unsecured component that must be counted toward the unsecured debt ceiling. If splitting is required, then courts must undertake to value collateral and determine the extent of allowable secured claims under § 506(a) at a very early stage of every Chapter 13 case. If claim splitting is not appropriate, then a secured debt is only counted against the secured debt ceiling, even if later valuation of the collateral would reveal an allowable secured claim less than the full amount of the debt or no secured claim at all. Sometimes claim splitting helps the debtor; sometimes it renders the debtor ineligible.

[5]

The United States Court of Appeals for the Sixth Circuit is perhaps the leading proponent that claims should not be split for purposes of eligibility.11 In a case in which the debtor scheduled a disputed12 debt as partially secured and partially unsecured, without specifying the precise division, the Sixth Circuit found it was “relatively immaterial” that claims litigation might later establish the amounts of secured and unsecured claims different from those listed in the debtor’s Chapter 13 Statement so long as the debtor prepared the documents in good faith. One other court reached the same conclusion by a different route. Focusing on the language of 11 U.S.C. § 109(e) that measures Chapter 13 eligibility in terms of secured and unsecured “debts” and observing that § 506(a) is concerned with the allowance of “claims,” the court concluded it should not split claims for eligibility purposes but should accept the debtor’s characterization of debts.13

[6]

Other courts have applied § 506(a) at the threshold to split debts into secured and unsecured claims based on the value of the collateral. The leading proponent of this view is the United States Court of Appeals for the Seventh Circuit.14 On compelling facts, the Seventh Circuit concluded that if the security for a debt is worthless, the debt should be split into secured and unsecured claims and the eligibility calculation should then be based on the split claims. A strong majority of courts approve of the Seventh Circuit’s view and hold that § 506(a) applies in an eligibility dispute in a Chapter 13 case to split undersecured claims into secured and unsecured portions.15 Even in the Sixth Circuit, courts bound by Pearson have defiantly split claims for eligibility purposes on the theory that Pearson is an “overly technical reading of § 506(a).”16 There is a strong trend away from the Sixth Circuit’s approach and in favor of determining the extent of secured and unsecured claims at the eligibility stage.

[7]

The Supreme Court’s decision in Nobelman v. American Savings Bank17 has had some impact on the disagreement whether to split claims for eligibility purposes in a Chapter 13 case. In Nobelman, a unanimous Supreme Court held that § 1322(b)(2) prohibits a Chapter 13 plan from splitting an undersecured claim into its secured and unsecured components for confirmation purposes if the claim is secured only by a security interest in real property that is the debtor’s principal residence.18 If a Chapter 13 debtor cannot, after Nobelman, split an undersecured mortgage holder’s claim into its secured and unsecured components for purposes of confirmation, then Nobelman at least raises the issue whether it is appropriate to split that same claim into its secured and unsecured components for eligibility purposes.19 Several courts have cited § 1322(b)(2) and Nobelman as reasons not to split undersecured claims for eligibility purposes—at least when there is some value to trigger the protection from modification in § 1322(b)(2).20

[8]

When a junior lien on the debtor’s principal residence is wholly unsecured because not supported by any value in the collateral, many courts hold that the Chapter 13 debtor can “strip off” the wholly unsecured lien without transgressing the protection from modification in § 1322(b)(2).21 These courts hold that § 1322(b)(2) is not applicable when there is no allowable secured claim after valuation under § 506(a) and thus Nobelman is not implicated. For eligibility purposes, many courts have concluded that a wholly unsecured junior lien is not counted as a secured debt.22

[9]

Nobelman focuses on § 1322(b)(2)—the Code section that permits Chapter 13 debtors to modify the rights of secured claim holders other than those holding a claim secured only by a security interest in real property that is the debtor’s personal residence. Eligibility for Chapter 13 relief is controlled by 11 U.S.C. § 109(e). Section 109(e) speaks generically in terms of unsecured debts and secured debts. Justice Thomas’s analysis of § 1322(b)(2) in Nobelman has no obvious application to § 109(e). However, it is at least a little curious that a Chapter 13 debtor’s eligibility might be determined based on the splitting of a home mortgage debt into its secured and unsecured components; and yet that same debtor could not confirm a plan that modifies the rights of the holder of the mortgage by splitting its claim into its secured and unsecured components.

[10]

Decisions from the Bankruptcy Court for the District of Connecticut illustrate the inconsistent guidance with respect to whether the ultimate treatment of a claim under the plan affects whether the claim is split for eligibility purposes. In In re Toronto,23 debtors listed a lienholder as a secured claim holder but indicated elsewhere in the schedules that the creditor’s judgment lien could be avoided as a preference. For eligibility purposes, the debtors treated the creditor as a secured claim holder; for purposes of distribution under the plan, the debtors proposed to avoid the lien and treated the creditor as an unsecured claim holder. The bankruptcy court held this inconsistency was “not cognizable under the Code” and treated the claim as unsecured for both purposes.24 Applying this logic, it would not be appropriate to split a claim for eligibility purposes if that claim would have to be treated as fully secured at confirmation.

[11]

Within a few months, the same bankruptcy court faced directly the question whether Nobelman prohibited claim splitting for eligibility purposes when a mortgage holder would be protected from that modification at confirmation by § 1322(b)(2). In People’s Bank v. Winder (In re Winder),25 the bankruptcy court concluded that § 506(a) functions normally at eligibility to require the splitting of an undersecured mortgage holder’s claim, notwithstanding that the mortgage holder would have to be treated as fully secured at confirmation because of Nobelman.26

[12]

Nothing in Justice Thomas’s discussion in Nobelman of a mortgage holder’s rights at confirmation suggests that the Supreme Court intended its § 1322(b)(2) analysis to affect eligibility for Chapter 13 relief. Lien avoidance litigation during a Chapter 13 case should not affect the extent of secured or unsecured “debts” for eligibility purposes under § 109(e). Eligibility for Chapter 13 relief is not controlled by the confirmation process, by the litigation of claims disputes, or by the outcome of avoidance or recovery actions. Reasoning to eligibility backward from treatment under a plan leads to confusion, delay, and trouble for everybody.27

[13]

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)28 presents a variation on this Nobelman issue when the debtor retains property subject to the so-called “hanging paragraph” at the end of § 1325(a). Detailed elsewhere,29 BAPCPA dangled an unnumbered sentence at the end of § 1325(a) which renders § 506 inapplicable to certain kinds of secured debts—in particular, to motor vehicles acquired for personal use of the debtor within 910 days of the petition that secure purchase money security interests.30 Substantially oversimplified, when the hanging sentence applies, the debt must be treated as fully secured for confirmation purposes without regard to the value of the collateral.31 In other words, at confirmation the hanging sentence interrupts the ordinary operation of § 506(a) and prohibits the bifurcation or claim splitting of some undersecured debts.

[14]

There is nothing in the hanging sentence itself to suggest that the eligibility calculation in § 109(e) is changed by the confirmation effect of the hanging sentence. The hanging sentence recites that § 506 is disengaged only “for purposes of paragraph (5)”—a reference to § 1325(a)(5).32 But the hanging sentence raises the reverse of the pre-BAPCPA issue: whether eligibility for Chapter 13 is based on bifurcating claims under § 506(a) when those same claims might be mandatorily treated as fully secured for purposes of confirmation of a plan. There is nothing in BAPCPA or its legislative history to suggest that the hanging sentence was intended to also change the eligibility calculation in § 109(e).

[15]

The process of splitting claims can be simple or quite complex. Suppose the debtor lists a secured debt of $500,000 and elsewhere lists the collateral securing that debt with a value of $100,000. Courts that split claims would look at the face of the schedules and conclude there is a $100,000 secured claim and a $400,000 unsecured claim and the debtor is not eligible for Chapter 13.33 More time-consuming and expensive issues arise when the creditor disputes the value listed for collateral. A full-scale valuation hearing may be necessary to determine eligibility.34 When the security for a debt is an unperfected security interest, one court has observed that, for eligibility purposes, the debt must be considered unsecured.35 Another court concluded that a claim scheduled as secured was wholly unsecured for eligibility purposes because the claim holder’s lien was avoidable as a preference under 11 U.S.C. § 547.36

[16]

The Seventh Circuit approach to splitting claims invites creditors to litigate the extent of security for claims at the threshold of any Chapter 13 case in which the debtor is pushed up against the debt limitations in § 109(e). Strategically, the risk for the creditor is that after a valuation hearing, the court will find the debtor to be eligible for Chapter 13, and the valuation will result in unfavorable treatment of the creditor’s claim at confirmation.

[17]

The strategies become quite complicated. At a combined hearing on eligibility and the value of security, the creditor may want to prove a high value for collateral for § 506(a) purposes to maximize the amount that the debtor will have to pay the secured claim holder at confirmation under § 1325(a)(5), but in the process the creditor may prove that secured claims are larger and unsecured claims smaller for eligibility purposes. Except, perhaps, in California, Chapter 13 debtors typically have more trouble meeting the unsecured debt limit than they do the secured debt limit. The creditor who successfully proves a higher value for collateral may end up with a stronger position at confirmation and a weaker position on eligibility.

[18]

If the debtor undervalues collateral in the schedules, the debtor will increase the amount of unsecured debt in a jurisdiction that splits claims at the eligibility stage. Admitting to a higher value in the schedules may improve the eligibility picture but will require the debtor to pay more to the secured claim holder to accomplish confirmation.

[19]

Strange results are possible. The debtor’s schedules may be accepted for eligibility purposes, and then, after a Bankruptcy Rule 3012 valuation hearing, completely different secured and unsecured claims may be determined for confirmation or claims allowance purposes. A debtor who schedules a debt as secured when the collateral is worthless or nearly so may be eligible in a jurisdiction that accepts the statements, and that debtor may be able to confirm a plan with relative ease because at confirmation it would be proved that there is no secured claim entitled to treatment under 11 U.S.C. § 1325(a)(5).

[20]

In the rarer situation when the debtor is pushed up against the secured debt limitation, the debtor who understates the extent of secured debts to accomplish eligibility may be unable to propose a confirmable plan because, after valuation, the secured claims exceed the debtor’s ability to pay during the life of the plan. After Nobelman, a mortgage holder may find its claim counted, in whole or in part, as an unsecured claim for purposes of eligibility (because its collateral is worthless or worth less than the amount of its debt), and then that same creditor can insist on payment in full at confirmation consistent with its contract terms because its claim cannot be modified under § 1322(b)(2).37 The same could be true for a debt to which § 506 does not apply because of the hanging sentence at the end of § 1325(a)—the holder of a 910-day PMSI car claim38 would be bifurcated into secured and unsecured component claims for purposes of eligibility but entitled to treatment as a fully secured creditor at confirmation.39

[21]

The question whether to split undersecured debts for eligibility purposes takes another twist if the debtor was discharged in a prior bankruptcy case and files Chapter 13 to manage a surviving undersecured or wholly unsecured lien.40 Discussed in detail elsewhere,41 in Johnson v. Home State Bank,42 the Supreme Court held that a mortgage lien on a debtor’s residence is a claim in a Chapter 13 case notwithstanding that the debtor’s personal liability was discharged in a prior Chapter 7 case. After Johnson, it is not uncommon for recent Chapter 7 graduates to file a Chapter 13 case, scheduling debts that are only liens against the debtor’s property. The issue then presents whether the surviving lien—disconnected from any personal liability of the debtor—is subject to claim splitting under § 506(a) for purposes of eligibility in the Chapter 13 case and, if so, is the resulting unsecured component counted as an unsecured debt? The courts do not agree.

[22]

For example, in In re Cavaliere,43 the debtors were discharged in a Chapter 7 case in 1993 and filed a Chapter 13 case in 1995. The debtors scheduled 17 mortgages and judgment liens aggregating nearly $1.2 million “secured” by a residence valued at $350,000. The Chapter 13 trustee moved to dismiss under § 109(e). The debtors responded with a motion under § 506(a), arguing that after claim splitting, the secured debt eligibility limitation was satisfied and the unsecured portions of the liens and mortgages were not claims because of the discharge. The bankruptcy court agreed with the debtors to split undersecured claims for eligibility purposes; however, the court found the debtors ineligible based on the unsecured portions of the split claims:

A chapter 7 discharge “extinguishes only ‘the personal liability of the debtor’. . . . [T]he Code provides that a creditor’s right to foreclose on the mortgage survives or passes through the bankruptcy.” Johnson v. Home State Bank, 501 U.S. 78[, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (June 10, 1991)]. . . . It follows then that the [unsecured portions of the liens and mortgages] survived the discharge and are enforceable obligations in this chapter 13 case. . . . The chapter 7 discharge did indeed protect the debtors from personal liability on claims scheduled in that case. . . . So, when a debtor files a chapter 13 petition after a chapter 7 discharge, as permitted by Johnson, that protection is still effective. That result would not follow, however, if an allowed secured claim is redefined under § 506(a) and the resulting unsecured claim is not disallowed under § 502(b)(1). . . . [T]he unsecured debt arising out of the § 506(a) Order must be allowed under § 502(b)(1) because of the operation of applicable bankruptcy law, i.e. §§ 506(a) and 109(e) which would preempt §§ 524 and 727. The unsecured debt arising out of the § 506(a) Order would exceed the debt limitation imposed by § 109(e) which is a specific statement of federal policy that restricts bankruptcy protection to a limited class of eligible debtors. . . . Since at the commencement of this case, the amount of secured debt exceeded the permissible limits decreed by § 109(e), it is apparent that the purpose of the § 506(a) valuation was to reduce the amount of that debt for eligibility purposes. Accordingly, I conclude that the debts . . . which resulted from the valuation were owed unsecured debt as of the date of the commencement of this case.44
[23]

On appeal, the district court reversed.45 Citing Chapter 11 authority from the Second Circuit, the district court likened the lien in Cavaliere to a nonrecourse debt “deemed unsecured under § 506(a),” which is “unenforceable within the meaning of § 502(b)(1).”46 The court found no reason to distinguish between “debts without recourse by virtue of an agreement and debts without recourse by virtue of a Chapter 7 discharge”47—all such debts are unenforceable and are not “transformed” into enforceable unsecured claims by § 506(a). The court rejected the trustee’s policy arguments: “[C]ongressional intent seems little advanced by denying the benefits of Chapter 13 protection merely on the basis of a large quantity of unenforceable debt.”48

[24]

Creditors with surviving liens in “Chapter 20” cases can trot out the bankruptcy court opinion in Cavaliere in hopes that other courts will buy the argument that the unsecured portion of a Johnson-lien counts in the Chapter 13 eligibility calculus. With a little luck, nobody will ask whether the (discharged!) unsecured claim is also entitled to distributions in the Chapter 13 case.


 

1  See § 14.1  Dollar Amounts.

 

2  See § 15.1  What Is Noncontingent Debt?, § 15.2  Is Partnership Debt Contingent?, § 15.3  Are Guaranties Contingent?, § 15.4  Are Contract Debts Contingent?, § 15.5  Is Tort Liability Contingent?, § 15.6  Are Claims through and against Debtor’s Corporation Contingent? and § 15.7  Are Prebankruptcy Judgments Contingent?.

 

3  See § 16.1  What Is a Liquidated Debt? and § 16.2  Effect of Defenses and Counterclaims.

 

4  See § 14.3  Use of Statements and Schedules in Eligibility Calculations.

 

5  11 U.S.C. § 506(a). A right of setoff will also entitle the creditor to a secured claim but is much less common. The well-understood application of § 506(a) to bifurcate undersecured debts into secured and unsecured claims was rudely upended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. No. 109-8, 119 Stat. 23 (2005). Mentioned below and detailed in § 75.1  In General: Modification Without § 506, § 75.2  Motor Vehicles and Any Other Thing of Value, § 75.3  Only PMSIs Need Apply, § 75.4  Acquired for Personal Use of Debtor, § 75.5  Surrender in Full Satisfaction? and § 75.6  Procedure and Miscellaneous Hanging-Sentence Issues, BAPCPA rendered § 506 inapplicable to some secured debts—in particular, purchase money security interests in motor vehicles acquired for personal use of the debtor within 910 days of the petition. When the so-called “hanging paragraph” at the end of § 1325(a) (it is really a sentence) is in play, an undersecured debt is not bifurcated for purposes of confirmation of a plan. See below in this section.

 

6  Claim splitting at confirmation is discussed in § 105.1  Prepetition Conduct and Misconduct—In General, § 118.1  Summary of Part 6 and § 128.1  Death or Incompetency of Debtor. See also § 75.1  In General: Modification Without § 506.

 

7  See below in this section. See also § 118.1  Summary of Part 6.

 

8  See above and below in this section. See also § 75.1  In General: Modification Without § 506, § 75.2  Motor Vehicles and Any Other Thing of Value, § 75.3  Only PMSIs Need Apply, § 75.4  Acquired for Personal Use of Debtor, § 75.5  Surrender in Full Satisfaction? and § 75.6  Procedure and Miscellaneous Hanging-Sentence Issues.

 

9  See below in this section. See also § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA.

 

10  See below in this section. See also § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA and § 85.5  Debts Discharged in Prior Bankruptcy and Nonrecourse Debts.

 

11  Comprehensive Accounting Corp. v. Pearson (In re Pearson), 773 F.2d 751 (6th Cir. Oct. 9, 1985) (Engel, Keith, Jones). Accord In re Holland, 293 B.R. 425, 429 (Bankr. N.D. Ohio Dec. 23, 2002) (Speer) (Applying Comprehensive Accounting Corp. v. Pearson (In re Pearson), 773 F.2d 751 (6th Cir. Oct. 9, 1985) (Engel, Keith, Jones), “if directly confronted with the issue, the Sixth Circuit would not, in determining a debtor’s Chapter 13 eligibility under § 109(e), divide an undersecured debt into its respective secured and unsecured parts.”). But see In re Martz, 293 B.R. 409, 413 (Bankr. N.D. Ohio Oct. 17, 2002) (Speer) (Debt scheduled as secured with property valued at zero dollars “should, for purposes of § 109(e), be reclassified as completely unsecured.”).

 

12  See § 17.1  Disputed Debts.

 

13  In re Morton, 43 B.R. 215 (Bankr. E.D.N.Y. Sept. 18, 1984) (Hall).

 

14  In re Day, 747 F.2d 405 (7th Cir. Oct. 26, 1984) (Cummings, Coffey, Flaum).

 

15  Scovis v. Henrichsen (In re Scovis), 249 F.3d 975, 983–84 (9th Cir. May 11, 2001) (Nelson, Brunetti, Kozinski) (Claims are split under § 506(a) for eligibility purposes, and a lien avoidable by exemption is an unsecured debt. “Through the inclusion of a § 506(a) analysis to define ‘secured’ and ‘unsecured’ in the § 109(e) context, a vast majority of courts, and all circuit courts that have considered the issue, have held that the unsecured portion of undersecured debt is counted as unsecured for § 109(e) eligibility purposes. . . . The listed value of Debtors’ residence is $325,000. After considering the $249,026.91 first deed [of] trust, only $75,973.09 remains as possible equity to which liens could attach. Since Henrichsen’s judgment lien is for $208,000, at least $132,026.91 of the judgment lien is undersecured. There is no question that this undersecured debt is to be counted as unsecured for eligibility purposes. Likewise, a claim secured only by a lien which is avoidable by a declared exemption is unsecured for § 109(e) eligibility purposes. Debtors argue that the $100,000 homestead exemption listed in Schedule C does not render the remaining $75,973.09 of Henrichsen’s judgment lien unsecured for eligibility purposes since eligibility must be determined as of the petition date and Henrichsen’s judgment lien was not avoided, under 11 U.S.C. § 522(f) as impairing the homestead, until later. We do not agree. . . . [T]he homestead exemption’s effect on the status of Debtors’ debt as secured or unsecured is readily ascertainable. Debtors declared the $100,000 homestead exemption on their originally filed schedules and at the same time listed Henrichsen’s lien as secured by the exempted residence. Even though the lien was not judicially avoided until after the Chapter 13 petition was filed, the fact that Debtors listed both the homestead exemption and the lien on the schedules provides the bankruptcy court with a sufficient degree of certainty to regard the judgment lien as unsecured for eligibility purposes. Thus, the Henrichsen debt should be treated as wholly unsecured on the petition date.”); Ficken v. United States (In re Ficken), 2 F.3d 299 (8th Cir. Aug. 20, 1993) (Fagg, Bowman, Loken) (Citing Miller v. United States, 907 F.2d 80 (8th Cir. July 3, 1990) (Lay, Wollman, Stuart), the unsecured portion of an undersecured debt is counted toward the $100,000 debt limitation in § 109(e).); Brown & Co. Sec. Corp. v. Balbus (In re Balbus), 933 F.2d 246 (4th Cir. June 4, 1991) (Ervin, Murnaghan, Mullen) (To determine whether debtor meets $100,000 maximum unsecured debt limitation in § 109(e), “the court must add the amount of unsecured debt and the amount by which secured creditors are undersecured.”); Miller v. United States, 907 F.2d 80 (8th Cir. July 3, 1990) (Lay, Wollman, Stuart); Ho v. Dowell (In re Ho), 274 B.R. 867, 871 (B.A.P. 9th Cir. Mar. 13, 2002) (Perris, Brandt, Klein) (“[T]he unsecured portion of undersecured debt is counted as unsecured for § 109(e) eligibility purposes.”); Soderlund v. Cohen (In re Soderlund), 236 B.R. 271, 274 (B.A.P. 9th Cir. June 28, 1999) (Radcliffe, Brandt, Klein) (“We now expressly join the three circuits, and the overwhelming majority of bankruptcy courts, that have considered the question and hold that the undersecured portion of a secured creditor’s claim is counted as unsecured debt for § 109(e) eligibility purposes.”); United States v. Dallas, 157 B.R. 912 (S.D. Ala. Apr. 14, 1993) (Butler) (Debtors are ineligible where the United States filed a secured claim for $449,510.21 that is undersecured by more than $100,000 because the debtors list assets of only $49,180.); United States v. Edmonston (In re Edmonston), 99 B.R. 995 (E.D. Cal. Apr. 14, 1989) (Dorian) (In dicta, bankruptcy court erred in applying the In re Morton, 43 B.R. 215 (Bankr. E.D.N.Y. Sept. 18, 1984) (Hall) test for eligibility because “§ 506 clearly indicates that the unsecured portion of a secured debt should be treated as an unsecured claim.”); In re Jones, No. 12-04833-HB, 2013 WL 2352569 (Bankr. D.S.C. May 29, 2013) (Burris) (Claim on guaranteed debt must be bifurcated based on value of creditor’s interest in property.); In re Thane, No. 11-60940, 2012 WL 5199735 (Bankr. N.D. Ohio Oct. 22, 2012) (unpublished) (Kendig) (Undersecured claim was bifurcated for purposes of eligibility; unsecured portion exceeded eligibility limit.); In re Moore, No. 10-11491, 2012 WL 1192776, at *5 (Bankr. N.D.N.Y. Apr. 10, 2012) (Littlefield) (Although schedules are “‘jumping off’ place for determining eligibility,” under § 506(a) undersecured claim must be bifurcated for eligibility.); In re Munive, No. 11-30586PM, 2012 WL 129975 (Bankr. D. Md. Jan. 17, 2012) (Mannes) (Undersecured portion of mortgage liens must be included in unsecured debt for eligibility purposes.); In re Silva, No. 10-60077 CN, 2011 WL 5593040 (Bankr. N.D. Cal. Nov. 16, 2011) (Novack) (Under Scovis v. Henrichsen (In re Scovis), 249 F.3d 975 (9th Cir. May 11, 2001) (Nelson, Brunetti, Kozinski), undersecured portion of mortgage debt is counted as unsecured debt for purposes of § 109(e). Mortgage debt was recourse, and property securing debt was rental property. Section 1322(b)(2) did not protect debt from modification. Although California Code Civil Procedure § 580b provides that deed of trust securing purchase money loan to obtain personal residence was nonrecourse, and nonrecourse debt is not included in § 109(e) unsecured debt calculation, this loan was not for purchase of personal residence. Undersecured portion of debt was not contingent and was liquidated, since schedules provided exact amount of value and debt, allowing easy calculation of unsecured portion. Debtors were ineligible.); In re Thompson, No. 11-20138-13, 2011 WL 5520963 (Bankr. D. Kan. Nov. 14, 2011) (unpublished) (Somers) (Undersecured portion of mortgage debt was counted as unsecured for eligibility. Splitting debt for purposes of § 109(e) did not permanently limit creditor’s lien. Even if protection from modification in § 1322(b)(2) precluded claim splitting for eligibility purposes—an issue not decided—undersecured portion of separate business debt caused debtors to exceed debt limit.); In re De La Hoz, 451 B.R. 192 (Bankr. M.D. Fla. May 5, 2011) (Adams) (Undersecured debt would be bifurcated for eligibility purposes. Unsecured portion was noncontingent and liquidated, and debtors exceeded debt limits.); In re Claro-Lopez, No. 10-13260-BKC-AJC, 2010 WL 2787621, at *3 (Bankr. S.D. Fla. July 14, 2010) (unpublished) (Cristol) (Citing Soderlund v. Cohen (In re Soderlund), 236 B.R. 271 (B.A.P. 9th Cir. June 28, 1999) (Radcliffe, Brandt, Klein), for § 109(e) eligibility purposes, real estate loan secured by rental property was subject to bifurcation. “[T]he unsecured portion of an undersecured debt is required to be included in the computation of the unsecured debt ceiling imposed by 11 U.S.C. § 109(e).”); In re Daniels, No. 09-08798-8-JRL, 2010 WL 1416803 (Bankr. E.D.N.C. Apr. 1, 2010) (unpublished) (Leonard) (Both debtors exceeded unsecured debt limit after splitting major claim into secured and unsecured portions.); In re Brammer, 431 B.R. 522, 524, 525 (Bankr. D.D.C. Dec. 16, 2009) (Teel) (Undersecured mortgage is bifurcated for eligibility purposes notwithstanding protection from modification in § 1322(b)(2). “Extending the reach of § 1322(b)(2) to prevent the application of § 506(a) to eligibility determinations under § 109(e), as the trustee urges, would limit the protections that § 109(e) is meant to provide to unsecured claims, including both the undersecured portion of a claim secured by a debtor’s principal residence and other unsecured claims. This is an extension of § 1322(b)(2) that neither the language of that provision nor the policy underlying § 109(e) will allow.” Disagreeing with In re Smith, 419 B.R. 826 (Bankr. C.D. Cal. Oct. 9, 2009) (Tighe), Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), “mandates applying § 506(a) to determine the extent to which a claim is secured, regardless of whether § 1322(b)(2) bars modification of the rights of a holder of a claim that is only partially secured by the primary residence.”); In re Werts, 410 B.R. 677, 686 (Bankr. D. Kan. Aug. 19, 2009) (Karlin) (Adopting majority view, undersecured portion of secured debt must be treated as unsecured in § 109(e) eligibility calculation even though mortgage claim would not be modifiable under § 1322(b)(2). Section 1322(b)(2) does not create exception to § 109(e) bifurcation rule. “The Court, therefore, holds that the undersecured portion of a debt must be included within the unsecured portion of the debt limits in § 109(e) even when the debt in question is a mortgage on the debtors’ primary residence.”); In re Weiser, 391 B.R. 902, 908 (Bankr. S.D. Fla. July 31, 2008) (Cristol) (“Bankruptcy courts must consider the unsecured portion of a secured claim when determining the Chapter 13 eligibility requirement.”); In re Grenchik, 386 B.R. 915, 917–18 (Bankr. S.D. Ga. Dec. 6, 2007) (Davis) (“[U]ndersecured portion of debts must be included in the unsecured debt limitation of § 109(e).”); Singer Asset Fin. Co., LLC v. Mullins (In re Mullins), 360 B.R. 493, 501 (Bankr. W.D. Va. Feb. 12, 2007) (Krumm) (“In determining whether the Debtor owed less than $307,675 in unsecured debt, the court must add the amount of unsecured debt to the amount by which secured creditors are undersecured.”); In re Smith, 325 B.R. 498, 502–03 (Bankr. D.N.H. Apr. 15, 2005) (Deasy) (“This Court adopts the reasoning of the courts which utilize a section 506(a) analysis in determining the amount of secured and unsecured debt for purposes of eligibility under section 109(e).”); In re Arcella-Coffman, 318 B.R. 463, 474 (Bankr. N.D. Ind. Dec. 8, 2004) (Klingeberger) (Applying In re Day, 747 F.2d 405 (7th Cir. Oct. 26, 1984) (Cummings, Coffey, Flaum), “the eligibility criteria of § 109(e) require the bifurcation of secured/unsecured claims under 11 U.S.C. § 506(a), a process which the facts of the case make clear involved consideration of evidence apart from the debtor’s schedules.”); In re Del Cristo, No. 04-10044-BKC-RAM, 2004 WL 2735240 (Bankr. S.D. Fla. Oct. 19, 2004) (unpublished) (Mark) (Court may look beyond scheduled debt and must split claims into secured and unsecured under § 506.); In re Arriaga, Nos. 02-41989, 02-41686, 2003 WL 25273842 (Bankr. D. Idaho Feb. 6, 2003) (unpublished) (Pappas) (Section 506(a) applies at eligibility to determine whether a claim is secured or unsecured; debt secured by partnership property is wholly unsecured in partner’s Chapter 13 case because there is no property of the estate to secure the debt for § 506(a) purposes.); In re Hanson, 282 B.R. 240, 245 (Bankr. D. Colo. July 25, 2002) (Brown) (The “vast majority of the judgment lien debt is unsecured due to the Debtor’s lack of equity in the real property. . . . ‘[A] vast majority of courts, and all circuit courts that have considered the issue, have held that the undersecured portion of unsecured debt is counted as unsecured for § 109(e) eligibility purposes.’”); In re Nepple, No. 99-03572-D J, 2000 WL 35798576 (Bankr. S.D. Iowa Apr. 19, 2000) (unpublished) (Jackwig) (Citing Miller v. United States, 907 F.2d 80 (8th Cir. July 3, 1990) (Lay, Wollman, Stuart), undersecured claim must be bifurcated for eligibility purposes, rendering debtor ineligible.); In re Knize, 210 B.R. 773 (Bankr. N.D. Ill. June 17, 1997) (Schmetterer) (Debtor is ineligible even after claim splitting based on proof of claim by IRS for $1,148,967.96.); In re Cavaliere, 194 B.R. 7 (Bankr. D. Conn. Apr. 1, 1996) (Shiff) (Applies § 506(a) to split undersecured liens that survived prior Chapter 7 discharge and holds that the resulting unsecured debts exceed § 109(e) eligibility limits notwithstanding that debtors’ personal liability was discharged.), rev’d, 208 B.R. 784 (D. Conn. May 30, 1997) (Arterton); In re Prosper, 168 B.R. 274, 278 (Bankr. D. Conn. June 29, 1994) (Shiff) (The unsecured portion of partially secured claims is properly added to the other unsecured debts to determine eligibility for Chapter 13 relief. “[U]nder [Bellamy v. Federal Home Loan Mortgage Corp. (In re Bellamy), 962 F.2d 176 (2d Cir. Apr. 21, 1992) (Kaufman, Cardamone, Miner),] and [Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993),] the term ‘unsecured claim’ in § 506(a) includes the unsecured portion of an undersecured claim. Although § 109(e) uses the term ‘debts’ and § 506(a) uses the term ‘claim’, the code defines ‘debt’ simply as ‘liability on a claim.’ § 101(12). The terms ‘debt’ and ‘claim’ are ‘flip sides to the same coin.’ . . . Reading § 109(e) in a manner consistent with § 506(a) leads to the conclusion that a debt, which is supported by a security interest, is nevertheless an unsecured debt to the extent that there is no value in the security to support it.” Court reserves question whether to split claims for eligibility purposes if the claim involved is protected from modification by § 1322(b)(2).); In re Toronto, 165 B.R. 746, 755 (Bankr. D. Conn. Mar. 31, 1994) (Shiff) (“[T]he debtors’ schedules demonstrate on their face that they are not eligible for chapter 13 relief. Most courts have held that § 506(a) should be applied for the purpose of determining the amount of secured and unsecured debts that were owed on the petition date.” Debtors scheduled judgment lienholder as a secured claim holder but indicated in the schedules that the creditor’s lien would be avoided as a preference. Lien was ultimately avoided. Court holds that eligibility is appropriately determined from the statements and schedules as if the preferential lien were avoided as of the date of the petition.); In re Magras, 129 B.R. 429 (Bankr. D.V.I. July 30, 1991) (Gindin) (Rejecting “minority view” of In re Morton, 43 B.R. 215 (Bankr. E.D.N.Y. Sept. 18, 1984) (Hall), the court explained that § 506(a) “does split a secured creditor’s claim into secured and unsecured components for the purposes of making a determination under § 109(e).”); In re Rifkin, 124 B.R. 626 (Bankr. E.D.N.Y. Mar. 15, 1991) (Duberstein) (“The view adopted by a majority of the jurisdictions is correct . . . the unsecured portion of an undersecured debt should be included in the § 109(e) determination.” Debtors’ schedules revealed that debtors were ineligible after unsecured portion of liens on debtors’ real property was added to other unsecured claims.); In re Jerome, 112 B.R. 563 (Bankr. S.D.N.Y. Mar. 29, 1990) (Schwartzberg) (“It is now settled law that pursuant to 11 U.S.C. § 506(a), the secured debt above the value of the security should be included as an unsecured debt in calculation of the $100,000 unsecured debt limitation under 11 U.S.C. § 109(e).”); In re Clark, 91 B.R. 570 (Bankr. D. Colo. Oct. 14, 1988) (Brooks) (“Calculation of bona fide deficiency claims of undersecured creditors is appropriate in determining total unsecured debt of a Chapter 13 debtor.”). Accord In re Nittler, 67 B.R. 217 (D. Kan. Sept. 23, 1986) (Saffels); In re Bos, 108 B.R. 740 (Bankr. D. Mont. Dec. 27, 1989) (Peterson); First Bank, N.A. v. Martin (In re Martin), 78 B.R. 928 (Bankr. S.D. Iowa Sept. 29, 1987) (Jackwig); In re Michaelsen, 74 B.R. 245 (Bankr. D. Nev. May 13, 1987) (Thompson); In re Wulf, 62 B.R. 155 (Bankr. D. Neb. Apr. 28, 1986) (Mahoney); In re Koehler, 62 B.R. 70 (Bankr. D. Neb. Jan. 6, 1986) (Mahoney); In re Krull, 54 B.R. 375 (Bankr. D. Colo. Oct. 17, 1985) (Clark); In re Heyer, 13 B.R. 610 (Bankr. E.D. Va. Aug. 4, 1981) (Shelley); In re Ballard, 4 B.R. 271 (Bankr. E.D. Va. May 14, 1980) (Shelley).

 

16  In re Martz, 293 B.R. 409, 413 (Bankr. N.D. Ohio Oct. 17, 2002) (Speer) (Debt scheduled as secured with property valued at zero dollars “should, for purposes of § 109(e), be reclassified as completely unsecured.”); In re McClaskie, 92 B.R. 285 (Bankr. S.D. Ohio Oct. 7, 1988) (Sellers). See also Liggett v. Schwartz (In re Schwartz), No. 11-13160, 2012 WL 1020011 (E.D. Mich. Mar. 26, 2012) (unpublished) (Cleland) (Rejecting distinction between “claim” in § 506(a)(1) and “debt” used in § 109(e), unsecured portion of undersecured debt must be counted as unsecured debt for eligibility purposes. Confirmation order was vacated, with remand to dismiss case for ineligibility.); In re Perkins, No. 08-33352, 2009 WL 2983034 (Bankr. N.D. Ohio Sept. 14, 2009) (unpublished) (Whipple) (Unsecured portion of bifurcated debt must be counted as unsecured debt in eligibility determination when debtor did not prove that debts were contingent or unliquidated.); In re Bowes, No. 08-36417, 2009 WL 2983036 (Bankr. N.D. Ohio Sept. 14, 2009) (Whipple); In re Fuson, 404 B.R. 872 (Bankr. S.D. Ohio Oct. 24, 2008) (Walter) (When value of collateral is scheduled as zero, secured debt must be reclassified as unsecured debt for eligibility purposes.); In re Mason, 133 B.R. 877 (Bankr. N.D. Ohio Oct. 8, 1991) (Krasniewski) (Citing Comprehensive Accounting Corp. v. Pearson (In re Pearson), 773 F.2d 751 (6th Cir. Oct. 9, 1985) (Engel, Keith, Jones), Chapter 13 debtor is not eligible where petition lists FmHA as a secured creditor with a claim of approximately $270,000 secured by real property valued at $77,000. “[D]ebtors’ ineligibility for Chapter 13 relief is facially evident upon review of their petition. . . . [F]ollowing § 506, and using debtor’s figures, FmHA has an unsecured claim exceeding $100,000. . . . Additionally, the court may look beyond debtors’ petition in determining their eligibility for Chapter 13 relief.”).

 

17  508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993).

 

18  For discussion of claim splitting and Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), see § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

19  See Soderlund v. Cohen (In re Soderlund), 236 B.R. 271, 274–75 n.5 (B.A.P. 9th Cir. June 28, 1999) (Radcliffe, Brandt, Klein) (Approving the splitting of claims for § 109(e) purposes, in a footnote,“[w]e note that a different question might be presented if the debts in question were entitled to the protection afforded by § 1322(b)(2), i.e., claims secured only by a security interest in real property that is the debtor’s principal residence. See [Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993),] . . . and Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (Jan. 15, 1992)] . . . . Here, the debts are not entitled to such protection, accordingly, we do not attempt to resolve this issue.”); In re Prosper, 168 B.R. 274 (Bankr. D. Conn. June 29, 1994) (Shiff) (Court reserves the question whether to split a claim for eligibility purposes when the claim is protected from modification by § 1322(b)(2).); People’s Bank v. Winder (In re Winder), 171 B.R. 728 (Bankr. D. Conn. Sept. 14, 1994) (Dabrowski) (Reaching the question reserved in In re Prosper, 168 B.R. 274 (Bankr. D. Conn. June 29, 1994) (Shiff), an undersecured mortgage protected from modification by Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), and § 1322(b)(2) is properly split into its secured and unsecured components under § 506(a) for the eligibility calculation in § 109(e).).

 

20  See, e.g., In re Blackwell, 514 B.R. 19, 27 (Bankr. N.D. Cal. June 30, 2014) (Weissbrodt) (Citing Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), and § 1322(b)(2), because undersecured home mortgage lien cannot be bifurcated, entire debt is treated as secured for eligibility purposes notwithstanding discharge of personal liability in prior Chapter 7 case. “[I]t is readily determinable from the schedules and the promissory note that Debtors jointly owe $1,984,000. It is also readily determinable that the obligation is partially secured by Debtors’ principal residence and thus Debtors cannot modify the claim. . . . [T]he entire amount of the debt must be counted as secured for purposes of eligibility.”); In re Tolentino, No. 10-10511, 2010 WL 1462772 (Bankr. N.D. Cal. Apr. 12, 2010) (unpublished) (Jaroslovsky) (Section 1322(b)(2) prevents bifurcating home mortgage debt into secured and unsecured claims for eligibility purposes.); In re Munoz, 428 B.R. 516, 518–19 (Bankr. S.D. Cal. Jan. 12, 2010) (Meyers) (Undersecured first mortgage may not be bifurcated for eligibility purposes. “Since the Debtors may not modify the terms of the partially secured senior lien through their Chapter 13 plan, this case is distinguishable from cases such as [Scovis v. Henrichsen (In re Scovis), 249 F.3d 975, 983–84 (9th Cir. May 11, 2001) (Nelson, Brunetti, Kozinski),] and [Soderlund v. Cohen (In re Soderlund), 236 B.R. 271 (B.A.P. 9th Cir. June 28, 1999) (Radcliffe, Brandt, Klein)]. The Chapter 13 debtors in Soderlund and Scovis could bifurcate the claims at issue[ ] between a secured claim and an unsecured claim, and reduce the amount of the lien against their property to the amount of the secured claim. Given the holding of [Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993),] bifurcation of the debt secured by the first lien on the Debtors’ residence into partially secured and partially unsecured claims is a legal impossibility. . . . ‘In re Scovis . . . makes very clear that events like obvious lien avoidance should be considered in determining a debtor’s eligibility. There is no reason why the same rational [sic] would not apply to a lien strip-off under 11 U.S.C. § 506(a) and § 1322(b) as it did to a lien avoidance under § 522.’ This analysis squarely supports a decision that the junior lien should be counted as unsecured debt for eligibility purposes. The difference between the wholly unsecured second lien and the partially unsecured first lien is that the latter is not subject to ‘obvious lien avoidance’ because it may not be modified under § 1322(b) and Nobelman.”).

 

21  See § 80.13  Modification of Unsecured Home Mortgage: Before and After BAPCPA.

 

22  See, e.g., Santos v. Dockery (In re Santos), No. 12-55145, 2013 WL 5187713 (9th Cir. Sept. 17, 2013) (unpublished) (O’Scannlain, Christen, Cogan) (Applying Scovis v. Henrichsen (In re Scovis), 249 F.3d 975 (9th Cir. May 11, 2001) (Nelson, Brunetti, Kozinski), debtors are not eligible because three junior liens on real property are counted as unsecured debts under § 506(a).), aff’g No. 2:11-cv-03260-SVW, 2012 WL 137565 (C.D. Cal. Jan. 12, 2012) (unpublished) (Wilson) (Unsecured debt exceeding statutory limit was easily ascertainable when junior lienholders were wholly unsecured at time of filing.); Lantzy v. Rojas (In re Lantzy), No. CC-10-1057-KiLPa, 2010 WL 6259984, at *3–*7 (B.A.P. 9th Cir. Dec. 7, 2010) (unpublished) (Kirscher, Lynch, Pappas) (Citing Scovis v. Henrichsen (In re Scovis), 249 F.3d 975, 982 (9th Cir. May 11, 2001) (Nelson, Brunetti, Kozinski), and Smith v. Rojas (In re Smith), 435 B.R. 637 (B.A.P. 9th Cir. July 8, 2010) (Dunn, Markell, Jaroslovsky), wholly unsecured junior lien is counted as unsecured debt and renders debtors ineligible. “The unsecured portion of undersecured debt is counted as ‘unsecured’ for section 109(e) eligibility purposes. . . . While recognizing that JP Morgan’s interest is contingent until the Lantzys complete their chapter 13 plan and receive a discharge, the bankruptcy court reasoned that the Lantzys were receiving the benefit of treating JP Morgan’s claim as unsecured during the pendency of their case; they could not treat it as unsecured for plan purposes and secured for determining eligibility. . . . In Smith, the bankruptcy court reasoned that even though a chapter 13 debtor cannot avoid a consensual lien until a court issues discharge, unlike a judgment lien that can be stripped under section 522(f)(1)(A), debtors’ comparison to the two situations did not explain why the court should treat consensual liens differently for eligibility purposes under section 109(e) . . . . The schedules and other evidence provided the bankruptcy court with a sufficient ‘degree of certainty’ to regard the Second Lien as unsecured as of the petition date for eligibility purposes. . . . The bankruptcy court correctly applied Scovis and counted the wholly unsecured debt as ‘unsecured’ for purposes of eligibility determination under section 109(e).”); Smith v. Rojas (In re Smith), 435 B.R. 637, 646–49 (B.A.P. 9th Cir. July 8, 2010) (Dunn, Markell, Jaroslovsky) (Applying Scovis v. Henrichsen (In re Scovis), 249 F.3d 975 (9th Cir. May 11, 2001) (Nelson, Brunetti, Kozinski), and Miller v. United States (In re Miller), 907 F.2d 80 (8th Cir. July 3, 1990) (Lay, Wollman, Stuart), and distinguishing Slack v. Wilshire Insurance Co. (In re Slack), 187 F.3d 1070 (9th Cir. Sept. 9, 1999) (Reavley, Alarcon, McKeown), wholly unsecured consensual mortgage is counted as unsecured debt for eligibility purposes and renders debtors ineligible under § 109(e). “[T]he Smiths . . . listed in Schedule D the value of their residence and the amount owing on the first trust deed. Because the first trust deed . . . exceeded the value of the residence, the bankruptcy court had a ‘sufficient degree of certainty’ to determine that the second liens were wholly unsecured under § 506(a). . . . [T]he ‘principle of certainty’ applies where the effect of the value of the property on the status of Appellants’ debts as secured or unsecured is readily ascertainable. . . . Appellants . . . argue that it is § 1322(b)(2) that prohibits a change in the status of the second lienholders’ claims because it precludes modification of the rights of claims secured only by a debtor’s principal residence to render those claims unsecured. However, that is in actuality what Appellants sought and accomplished through their motions to determine the secured status . . . . It is disingenuous for Appellants now to assert that all § 1322(b)(2) allows is the cessation of payments during the pendency of the case. Appellants have in fact modified the rights of the second lienholders within the bankruptcy context; by operation of § 506(a), the second lienholders no longer hold secured claims for purposes of their bankruptcy cases. . . . Nor are we persuaded that the Scovis analysis is in any way altered because the second liens may not have been avoided. Scovis itself involved a judgment lien that had not yet been avoided. . . . [W]e disagree that merely holding a security interest on the petition date means that the creditor is a secured creditor for purposes of the Bankruptcy Code generally, or § 109(e) specifically. . . . By application of § 506(a), that portion of the claim of a secured creditor that is undersecured is an unsecured claim. Having asked the bankruptcy court to determine that the . . . claims were wholly unsecured, and having scheduled them as such, the debtors cannot now complain because the Bankruptcy Code requires classification of those claims as unsecured claims in their full amounts . . . . To the extent the existing chapter 13 debt limits are too low to provide chapter 13 relief to homeowners impacted by the current economic climate, that is a matter within the purview of Congress.”), aff’g in part 419 B.R. 826, 832 (Bankr. C.D. Cal. Oct. 9, 2009) (Tighe) (In opinion joined by other judges in district, Scovis v. Henrichsen (In re Scovis), 249 F.3d 975 (9th Cir. May 11, 2001) (Nelson, Brunetti, Kozinski), requires that wholly unsecured junior mortgage debt be counted as unsecured for § 109(e) eligibility purposes, but partially secured first trust deeds that are not modifiable under § 1322(b)(2) and Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993), are counted as secured debt. “Where debtors’ schedules show the senior deeds of trust exceeding the home’s value, the junior trust deeds must be counted as unsecured debt. Where a trust deed is partially secured on a debtor’s primary residence, that debt will be counted as secured debt for § 109(e) purposes.” “The Bankruptcy Appellate Panel for the Ninth Circuit recognized this issue in the case In re Soderlund, 236 B.R. 271, 273 (9th Cir. BAP 1999). The Soderlund court classified fully undersecured debt as unsecured for § 109(e) purposes but, in footnote 5, it opined that it might come to a different conclusion if confronted with a loan partially secured by a debtor’s principal residence. Soderlund, at n.5.” Recognizing that its holding may inequitably deny access to Chapter 13 for many middle-class debtors with single-family homes, court permitted debtors to move for stay of order pending appeal, and upon any appeal, court would consider entering order certifying case for direct appeal to circuit court.); In re Morford, No. 11-2586 (JAP), 2012 WL 175021 (D.N.J. Jan. 20, 2012) (unpublished) (Pisano) (Wife’s case was properly dismissed for ineligibility when plan proposed to strip wholly unsecured mortgages and resulting unsecured debts exceeded limits. Citing Johnson v. Home State Bank, 501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (June 10, 1991), wife was not personally obligated on one mortgage, but bank still held in rem claim that counted as unsecured debt.); In re Rubens, No. 10-10142-BKC-RBR, 2010 WL 4791879, at *3 (Bankr. S.D. Fla. Nov. 17, 2010) (Ray) (Following valuation hearing requested by debtor, mortgage was wholly unsecured, rendering debtor ineligible for Chapter 13 relief. “The Court is not constrained by the Debtors’ classification of secured and unsecured debt on their schedules. Although the Debtors listed zero (0) as the unsecured portion of BankAtlantic’s debt in their schedules, the Court will not blindly take as true that zero value. The Court is free to compare the value of the property with the value of the liens on the property, just as the Debtors asked this Court to do in their Motion to Value.”); In re Bernick, 440 B.R. 449, 451 (Bankr. E.D. Va. Sept. 7, 2010) (Mayer) (Wholly unsecured second deed of trust is counted as unsecured debt for § 109(e) eligibility. “Even if a lien has not been judicially avoided, the amount is added to the unsecured debt for eligibility purposes. Scovis v. Henrichsen (In re Scovis), 249 F.3d 975, 984 (9th Cir. [May 11, 2001) (Nelson, Brunetti, Kozinski)].”); In re Munoz, 428 B.R. 516 (Bankr. S.D. Cal. Jan. 12, 2010) (Meyers) (Although undersecured first mortgage cannot be bifurcated because of § 1322(b)(2) and Nobelman, wholly unsecured junior lien is treated as an unsecured debt for eligibility purposes.); In re Groh, 405 B.R. 674 (Bankr. S.D. Cal. May 27, 2009) (Bowie) (Applying Scovis v. Henrichsen (In re Scovis), 249 F.3d 975 (9th Cir. 2001), when debtors propose to strip off lien under §§ 506(a) and 1322(b), obvious lien avoidance must be considered in determining eligibility.).

 

23  165 B.R. 746 (Bankr. D. Conn. Mar. 31, 1994) (Shiff).

 

24  Accord Henrichsen v. Scovis (In re Scovis), 231 B.R. 336, 342–43 (B.A.P. 9th Cir. Mar. 5, 1999) (Brandt, Klein, Jones) (Approving analysis in In re Toronto, 165 B.R. 746 (Bankr. D. Conn. Mar. 31, 1994) (Shiff), § 502(h) renders judgment lien wholly unsecured for eligibility purposes because lien is trumped by exemption claim and was avoided on the debtor’s motion after the petition. “We agree with Toronto that § 502(h) must be considered in the § 109(e) analysis. . . . [I]t follows that a claim ‘secured’ by exempt property is unsecured to the extent of the exemption.”), rev’d on other grounds, 249 F.3d 975 (9th Cir. May 11, 2001) (Nelson, Brunetti, Kozinski).

 

25  171 B.R. 728 (Bankr. D. Conn. Sept. 14, 1994) (Dabrowski).

 

26  171 B.R. at 730–31 (“Under Section 506(a) it is axiomatic that the total amount of secured claims asserted against a bankruptcy debtor’s estate cannot exceed the aggregate value of that estate’s interest in the property securing such claims. . . . A good faith argument might be made that [Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993),] . . . compels the treatment of [an undersecured home mortgage] as a fully secured claim for the purposes of Chapter 13 eligibility. Treating the Westport claim in this manner arguably brings the Debtors’ aggregate secured debt over the $350,000 ceiling of Section 109(e). However, this Court does not read Nobelman to assail the unambiguous claim bifurcation mechanics of Section 506(a) in the context of . . . a Section 109(e) eligibility determination. In fact, Nobelman enforces the use of Section 506(a) to value the secured and unsecured components of an undersecured claim. Rather, Nobelman focuses upon the permissible modification of an undersecured creditor’s ‘rights’ attributable to its interest in a subject property, not upon the valuation of the various components of its claim. . . . [T]he implications of Nobelman do not alter the analysis of this decision.”).

 

27  See In re Knize, 210 B.R. 773, 777 (Bankr. N.D. Ill. June 17, 1997) (Schmetterer) (Court rejects debtor’s argument that only the 10% to be paid through the plan is counted for § 109(e) purposes: “Debtors clearly misread the Bankruptcy Code when arguing that an unsecured debt over $250,000 should be discounted to what their Plan offers in determining eligibility. . . . [F]or purposes of qualifying under § 109(e), it is only relevant how much the debtor owes, not how much the debtor actually intends to pay or can pay or will pay through the Plan.”). See § 14.2  Time for Determining Debt.

 

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

 

29  See § 75.1  In General: Modification Without § 506, § 75.2  Motor Vehicles and Any Other Thing of Value, § 75.3  Only PMSIs Need Apply, § 75.4  Acquired for Personal Use of Debtor, § 75.5  Surrender in Full Satisfaction? and § 75.6  Procedure and Miscellaneous Hanging-Sentence Issues.

 

30  See the hanging sentence at the end of 11 U.S.C. § 1325(a), discussed in § 75.1  In General: Modification Without § 506, § 75.2  Motor Vehicles and Any Other Thing of Value, § 75.3  Only PMSIs Need Apply and § 75.4  Acquired for Personal Use of Debtor.

 

31  See § 75.1  In General: Modification Without § 506.

 

32  See § 75.1  In General: Modification Without § 506.

 

33  See, e.g., In re Knize, 210 B.R. 773 (Bankr. N.D. Ill. June 17, 1997) (Schmetterer) (Debtor is ineligible even after claim splitting based on proof of claim by IRS for $1,148,967.96.); In re Koehler, 62 B.R. 70 (Bankr. D. Neb. Jan. 6, 1986) (Mahoney) (Debtor not eligible because secured debt was listed as $173,000 and value of collateral as $57,000 when unsecured debt limitation was $100,000.). See § 14.1  Dollar Amounts.

 

34  See, e.g., In re Karagiannis, 453 B.R. 548, 570 (Bankr. D.N.J. May 5, 2011) (Stern) (Eligibility determination was deferred until hearing on fair market value of property purchased by secured creditor at foreclosure for $100 nominal bid; to determine amount of unsecured debt, debtor was “entitled to a credit of far more than the nominal bid amounts.”).

 

35  In re Bobroff, 32 B.R. 933 (Bankr. E.D. Pa. Oct. 3, 1983) (Goldhaber).

 

36  In re Toronto, 165 B.R. 746 (Bankr. D. Conn. Mar. 31, 1994) (Shiff) (Judgment lienholder scheduled as a secured claim holder was properly treated as unsecured for eligibility purposes where the schedules also indicated that the creditor’s lien could be avoided as a preference. Lien was avoided postpetition. Because § 502(h) would treat the resulting unsecured claim as if it arose prepetition, claim should be counted as an unsecured debt for eligibility purposes.). Compare People’s Bank v. Winder (In re Winder), 171 B.R. 728 (Bankr. D. Conn. Sept. 14, 1994) (Dabrowski) (Claim of undersecured mortgage holder was split into its secured and unsecured components under § 506(a) for eligibility purposes, notwithstanding that the claim could not be split at confirmation because of § 1322(b)(2) and Nobelman v. American Savings Bank, 508 U.S. 324, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (June 1, 1993).).

 

37  See § 79.1  Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.

 

38  See § 75.1  In General: Modification Without § 506, § 75.2  Motor Vehicles and Any Other Thing of Value and § 75.3  Only PMSIs Need Apply.

 

39  See § 75.1  In General: Modification Without § 506.

 

40  See § 23.1  Eligibility of a Serial Filer: “Chapter 20” and Beyond for eligibility of a debtor recently emerged from another bankruptcy case, including the “Chapter 20” phenomenon.

 

41  See § 85.5  Debts Discharged in Prior Bankruptcy and Nonrecourse Debts and § 138.4  Nonrecourse Claims and Claims Discharged in Prior Bankruptcy Case.

 

42  501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (June 10, 1991).

 

43  194 B.R. 7 (Bankr. D. Conn. Apr. 1, 1996) (Shiff), rev’d, 208 B.R. 784 (D. Conn. May 30, 1997) (Arterton).

 

44  In re Cavaliere, 194 B.R. at 11–13. Accord In re DiClemente, No. 12-1226 (FLW), 2012 WL 5211942 (D.N.J. Oct. 22, 2012) (unpublished) (Wolfson) (Debtor failed to demonstrate likelihood of success on appeal of ineligibility; substantially undersecured in rem claim that was discharged in prior Chapter 7 case is counted as unsecured debt.); In re DiClemente, No. 12-1266 (FLW), 2012 WL 3314840 (D.N.J. Aug. 13, 2012) (unpublished) (Wolfson) (In rem claims of second and third mortgages survived Chapter 7 discharge and must be included in unsecured debt for eligibility; debtor was ineligible.), aff’g 463 B.R. 308 (Bankr. D.N.J. Jan. 25, 2012) (Kaplan) (Citing Johnson v. Home State Bank, 501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (June 10, 1991), wholly unsecured in rem claim remaining after Chapter 7 discharge must be treated in subsequent Chapter 13 and is counted for eligibility purposes.), denying reconsideration of 459 B.R. 558, 570 (Bankr. D.N.J. Nov. 18, 2011) (Kaplan) (Notwithstanding discharge of personal liability in prior Chapter 7 case, junior mortgage liens remained in rem claims that must be accounted for in § 109(e) calculation. “Section 109(e) offers only two alternative classifications for debt: secured debt or unsecured debt (assuming such debt is noncontingent and liquidated). Neither alternative lends the Debtor much comfort towards confirmation of a plan. As discussed, if the in rem claims were regarded as secured, the ‘lien retention’ provisions of § 1325(a)(5) bar the proposed ‘strip-off’ of Amboy’s liens. On the other hand, if the in rem claims are treated as unsecured, the Debtor must overcome § 109(e) restraints.” Including unsecured in rem debt rendered debtor ineligible.); In re Wimmer, 512 B.R. 498, 509–12 (Bankr. S.D.N.Y. June 30, 2014) (Morris) (Citing Johnson v. Home State Bank, 501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (June 10, 1991), Chapter 20 debtor is ineligible under § 109(e) because unsecured deficiency is counted toward debt limit notwithstanding Chapter 7 discharge. Under Johnson “‘a mortgage lien for which the debtor no longer has personal liability as the result of a chapter 7 discharge is a claim . . . .’ [T]he in rem rights of the Creditor against the property create a secured claim in the bankruptcy case notwithstanding the discharge of personal liability. . . . Secured claims are also valued pursuant to § 506(a), which only leaves only two possible results: a secured portion to the extent of the value of the collateral and an unsecured portion to the extent of the deficiency. There is no provision in § 506(a) to eliminate a portion of the claim altogether. . . . The issue is whether the chapter 7 discharge affects the analysis under § 109(e) by rendering the now-unenforceable unsecured portions irrelevant. . . . Section 109(e) applies to ‘debts’ that the individual ‘owes.’ ‘Debt’ is defined in § 101(12) to mean ‘liability on a claim.’ At first glance, this definition would seem to indicate that the debtor must have ‘liability on’ the claim for there to be a ‘debt,’ liability that would have been extinguished by the chapter 7 discharge. There are two problems with this interpretation. First, nothing in § 101(12) indicates that ‘liability’ is the same as the ‘personal liability’ of the debtor. As illustrated in Johnson, collateral may be liable in rem for a claim even if the debtor is not. . . . Section 524(a), governing the effect of discharge, confirms this suspicion. Under § 524(a)(1), a discharge ‘voids any judgment . . . to the extent that such judgment is a determination of the personal liability of the debtor. . . .’ Section 524(a)(2) similarly provides that the discharge ‘operates as an injunction against the commencement or continuation of an action . . . to collect . . . any such debt as a personal liability of the debtor. . . .’ Both provisions provide that the discharge affects the ‘personal liability’ of the debtor, whereas § 101(12) only references the broader term ‘liability.’ The result is that some form of liability, presumably in rem liability, can remain after ‘personal liability’ is discharged. Similarly, § 524(f) provides that the discharge does not prevent the debtor from voluntarily repaying any ‘debt.’ The implication is that a ‘debt’ can survive discharge and be voluntarily repaid. . . . [There is a] difference between discharging a debt and its elimination. . . . The debt is still ‘owed’ notwithstanding the discharge; it is merely unrecoverable from the debtor personally. . . . This does not mean that every debt discharged in chapter 7 will count towards the debt limit in a subsequent chapter 20 case. To be a ‘debt’ for purposes of § 109(e), there must be a ‘claim.’ . . . Here, the secured debts constitute ‘claims’ by virtue of the Johnson decision, as they are enforceable against property of the estate. . . . If the debts were originally unsecured and discharged in the chapter 7, there would be neither [in rem] enforceability nor enforceability against the Debtors. This would render the claims disallowable under § 502(b)(1). . . . ‘[T]he undischarged in rem claim remaining after a Chapter 7 discharge[, however,] is subject to the treatment in a subsequent Chapter 13 case. As a result, the Court must also include the unsecured in rem claim when determining a debtor’s eligibility for relief under § 109(e).’”).

 

45  In re Cavaliere, 208 B.R. 784 (D. Conn. May 30, 1997) (Arterton). Accord In re Cushman, 217 B.R. 470 (Bankr. E.D. Va. Jan. 20, 1998) (Mitchell) (In the context of a good-faith objection to confirmation, after discharge in a prior Chapter 7 case, an undersecured car lender has a secured claim that is limited by § 506(a) and (d) to the replacement value of the car.).

 

46  In re Cavaliere, 208 B.R. at 786.

 

47  In re Cavaliere, 208 B.R. at 786.

 

48  In re Cavaliere, 208 B.R. at 787. Accord In re Shenas, No. 11-41332 EDJ, 2011 WL 3236182 (Bankr. N.D. Cal. July 28, 2011) (Jellen) (Applying Scovis v. Hendrichsen (In re Scovis), 249 F.3d 979 (9th Cir. May 11, 2001) (Nelson, Brunetti, Kozinski), unsecured portion of undersecured debt is ordinarily counted as unsecured debt for eligibility purposes, but prior Chapter 7 discharge removed in personam obligation, so unenforceable debt was not counted.); In re Collins, No. 10-32098-tmb13, 2010 WL 5173840, at *3 (Bankr. D. Or. Dec. 15, 2010) (Brown) (Ordinarily, unsecured portion of undersecured mortgage would be counted as unsecured debt for eligibility purposes and debtor would be ineligible; however, debtor discharged personal liability in prior Chapter 7 case and there is no unsecured debt with respect to the surviving in rem claim. “Debtor received a Chapter 7 discharge in 2009. While that discharge did not affect the liens against his real property, it did relieve him of any personal liability for the undersecured portion of the debt secured by those liens. . . . Accordingly, as of the date of the Chapter 13 filing the only unsecured debt ‘owed’ by the Debtor was the $50,000 judgment entered against him in the Chapter 7 case. Debtor is, therefore, eligible for Chapter 13 relief.”); In re Tolentino, No. 10-10511, 2010 WL 1462772, at *2 (Bankr. N.D. Cal. Apr. 12, 2010) (unpublished) (Jaroslovsky) (Under Johnson v. Home State Bank, 501 U.S. 78, 111 S. Ct. 2150, 115 L. Ed. 2d 66 (June 10, 1991), in rem claims have no allowable deficiency claim. “Any attempt to enforce the HomeEq obligation as an unsecured debt would be barred by § 502(b)(1) of the Bankruptcy Code. There is accordingly no basis for declaring a Chapter 13 debtor ineligible due to excessive unsecured debt by adding the undersecured portion of nonrecourse debt to the total.”).