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Branigan v. Davis (In re Davis)

Branigan v. Davis (In re Davis) Case No. 12-1184 (4th Cir. May 10, 2013)
In two “Chapter 20” cases, the Fourth Circuit affirmed confirmation orders stripping off valueless junior liens against debtors’ property. In a 2-1 ruling, the Court rejected the argument of the Chapter 13 bankruptcy trustee that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") created a per se rule that barred lien-stripping in Chapter 20 cases.
Procedural context:
The debtors filed Chapter 13 bankruptcy cases within four years after filing Chapter 7 bankruptcy cases in which they received discharges. In rulings in the two separate Chapter 13 cases, the bankruptcy court granted the debtors’ motions to avoid or “strip off” junior liens on real property and confirmed the debtors’ Chapter 13 plans. The Chapter 13 trustee appealed both orders. The district court consolidated the cases and affirmed without a written opinion. The Chapter 13 trustee appealed to the Fourth Circuit.
On June 7, 2008, Mr. and Mrs. Davis filed a joint Chapter 7 bankruptcy petition with the United States Bankruptcy Court for the District of Maryland. At that time, they hoped their mortgage lenders would approve pending loan modification applications. On September 17, 2008, they received a Chapter 7 discharge, which relieved them from in personam liability on their debts but left intact the liens against their property. Although Mrs. Davis found a new job, the Davises were unable to bring their mortgage arrears current. On September 4, 2009, they filed a Chapter 13 petition. At the time, their principal home was valued at $270,000, and was encumbered by a first-priority lien with a balance of $275,373.59, a second-priority lien with a balance of $115,138.58, and a third-priority lien with a balance of $117,603.31. Marquita Moore filed a Chapter 7 petition on February 1, 2010, for which she received a discharge on October 20, 2010. One week later, she filed a Chapter 13 petition. Moore sought to pay an Internal Revenue Service priority claim and strip off a second lien, which had no value, on her principal residence. On March 30, 2011, Bankruptcy Judge Wendelin Lipp granted the Davises’ Amended Motion to Avoid Lien, which sought to strip off the third-priority lien on their home upon completion of the Chapter 13 plan. The court found that the debtors filed their petition in good faith and entered orders stripping off the third-priority lien from their home, stripping off second and third liens from rental property, and confirming the Davises’ Chapter 13 plan. Subsequently, the bankruptcy court confirmed Moore’s plan and adopted Judge Lipp’s reasoning in overruling the Chapter 13 trustee’s objection to the lien-stripping component of Moore’s plan.
Before Circuit Judges Paul V. Niemeyer, Barbara Milano Keenan, and Andre M. Diaz. Judge Diaz wrote the majority opinion, in which Judge Niemeyer joined. Judge Keenan wrote a dissenting opinion.

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