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Boukatch v. Midfirst Bank (In re Boukatch)

Ninth Circuit Bankruptcy Appellate Panel Case No. AZ-14-1483-KiPaJu (July 9, 2015)
In the issue of first impression before the Ninth Circuit Bankruptcy Appellate Panel ("BAP"), the BAP reversed and remanded the bankruptcy court's order denying the Chapter 13 Debtors motion to avoid a lien on their principal residence. The BAP analyzed the split of authority regarding whether a Chapter 20 debtor can strip off a wholly unsecured junior lien against a debtor's principal residence. The Debtors' plan completion is the appropriate end to Debtors' Chapter 20 case; therefore, 11 U.S.C. Sec. 1328(f) does not prevent Debtors' ability to strip wholly unsecured lien on principal residence.
Procedural context:
The Debtors appealed the order of the bankruptcy court denying their motion to avoid a lien on their principal residence.
In 2011 the Debtors filed a Chapter 13 bankruptcy and scheduled their residence in Phoenix, Arizona ("Property"). The Property was encumbered by two Deeds of Trust. MidFirst Bank ("MidFirst") held the second position Deed of Trust. The Chapter 13 case was converted to Chapter 7, the Chapter 7 trustee abandoned the Property, and the Debtors received their discharge in 2013. In April of 2014, the Debtors filed a new Chapter 13 case. Since the case was filed less than 4 years from the prior discharge, the Debtors were not eligible for a Chapter 13 discharge. The Debtors sought to avoid MidFirst's Deed of Trust. The Debtors filed a motion to avoid MidFirst's Deed of Trust; MidFirst did not contest the motion or Debtors' amended Chapter 13 plan. Despite the lack of opposition, the bankruptcy court denied the Debtors' motion. The bankruptcy court relied on Victorio v. Billingslea, 470 B.R. 545 (S.D. Cal. 2012) holding that in "Chapter 20" cases, absent the entry of a discharge, the Debtors are not permitted to avoid MidFirst's Deed of Trust.
KIRSCHER, PAPPAS and JURY, Bankruptcy Judges.

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