Chagolla, et al. v. JP Morgan Chase Bank, N.A. (In re Chagolla)

Summarized by David Hercher , U.S. Bankruptcy Court, District of Oregon
10 years 6 days ago

Citation:

In re Chagolla, No. 15-1142-JuKuW (9th Cir. B.A.P. Feb. 9, 2016).

Tag(s):

Ruling:

A debtor may avoid an unsecured junior lien even after plan confirmation, discharge, and case closure, absent unfair prejudice to the secured creditor. Published.

Procedural context:

Under debtors' chapter 13 plan, nothing would be paid to unsecured creditors, and debtors would file an adversary proceeding to avoid a junior lien on their residence within 90 days after the petition was filed. The bankruptcy court confirmed the plan without objection. No adversary proceeding was commenced by debtors. Over five years later, after completing all plan payments, debtors received their discharge, and the case was closed. Nearly a year later, debtors moved to reopen the case to file a motion to avoid the junior lien. The court reopened the case, and debtors filed the avoidance motion. Although the lienor did not oppose the motion, the court denied the motion, holding that the court lacked jurisdiction to grant it and that it was untimely. On appeal, the BAP reversed and remanded.

Facts:

A bankruptcy court’s “related-to” jurisdiction after confirmation of a plan, including one under chapter 13, is limited to closely related matters, including those affecting the interpretation, implementation, consummation, execution, or administration of the plan. Here, the plan stated that the junior lien would be avoided and the lienor’s claim treated as unsecured, so the bankruptcy court’s post-confirmation jurisdiction to implement or enforce the confirmation order allowed the bankruptcy court to consider the avoidance motion. Neither section 506(a) nor FRBP 3012 imposes a time limit for filing a valuation motion. A motion under section 506(a) may be brought after discharge or case closure if, at a minimum (1)the confirmed plan calls for avoiding the lien and treating the claim as unsecured, (2) the trustee treats the claim as unsecured under the plan, and (3) the creditor is not be sufficiently prejudiced so that it would be inequitable to allow avoidance after discharge or case closure. Here, those conditions were satisfied. The language of section 506(a) does not require that valuation of property be made in conjunction with plan confirmation. Rather, the statute operates in the conjunctive to permit valuation in conjunction with the debtors’ continued use of the property. And because the plan called for avoiding the junior lien and treating it as unsecured, a valuation hearing at any time could be deemed to be in conjunction with the plan.

Judge(s):

Meredith A. Jury and Frank L. Kurtz, Bankruptcy Appellate Panel Judges, and Madeleine C. Wanslee, Bankruptcy Judge for the District of Arizona, sitting by designation.

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