Minnesota Housing Finance Agency v. Schmidt (In re Schmidt)

Minnesota Housing Finance Agency v. Schmidt (In re Schmidt), No. 13-2447 (8th Cir. 2014)
Eighth Circuit Court of Appeals affirmed U.S. District Court, which affirmed bankruptcy court's confirmation of Chapter 13 plan over objection of creditor. Issue was whether Chapter 13 debtor could lien strip third mortgage on residence where residence value was less than amount of first and second mortgage. Eighth Circuit, citing consistent similar rulings in other jurisdictions, and distinguishing 11 USC 1322, as well as the U.S. Supreme Court's rulings in U.S. v. Ron Pair and Nobelman v. American Savings Bank, concluded that creditor's lien could be stripped, and debtor could reclassify creditor's claim as wholly unsecured.
Procedural context:
Bankruptcy court denied creditor's objection to confirmation of Chapter 13 debtor's plan, and confirmed plan. Creditor appealed, and U.S. District Court affirmed. Creditor appealed to 8th Circuit.
Creditor held third mortgage in debtors' residence. The value of the residence was less than the amount of the first and second mortgages. Debtors filed Chapter 13 plan seeking to reclassify creditor's secured claim as wholly unsecured, effectively "lien stripping" creditor's lien. Creditor objected that debtors could not lien strip under 11 USC 1322, which prohibits modifying the rights of a creditor's claim secured by an interest in debtor's principal residence.
Colloton, Shepherd, Kelly

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