- In re Blendheim, No. 13-35354 (9th Cir. Oct. 1, 2015).
- A discharge-ineligible chapter 13 debtor may avoid a lien under section 506(d) after the bankruptcy court has disallowed the creditor’s proof of claim.
- Procedural context:
- Debtors filed their first petition under chapter 7. The day after they received their chapter 7 discharge, they filed a petition under chapter 13. They scheduled a condo subject to two liens, one of which was in favor of HSBC. HSBC filed a proof of claim. Debtors objected to the claim on several grounds, including HSBC’s failure to attach a copy of the promissory note and their allegation that a note copy they had previously received appeared to have been forged. HSBC failed to respond to the claim objection, and the bankruptcy court disallowed the claim. Debtors then filed an adversary proceeding to avoid the lien under section 506(d) because the lien did not secure an allowed claim. HSBC moved to reconsider the claim-disallowance order; the bankruptcy court denied that motion. The bankruptcy court granted judgment for debtors in the adversary proceeding, avoiding HSBC’s lien. The bankruptcy court confirmed debtors’ chapter 13 plan over HSBC’s objection that the plan should provide for reinstatement of the lien upon completion of the plan. On appeal, the district court concluded that it lacked jurisdiction over the claim-disallowance and reconsideration-denial orders because the appeal was untimely with respect to those orders. The district court affirmed the lien-avoidance and confirmation orders. After the docketing of the appeal to the Ninth Circuit, debtors completed their plan payments. The Ninth Circuit affirmed.
- Under section 506(d), if a claim is disallowed, then the claim’s associated lien is void. The Ninth Circuit distinguished cases holding that section 506(d) may not be used to avoid liens securing claims that have been disallowed solely due to the creditor’s filing of an untimely proof of claim (although the Ninth Circuit did not need to and thus declined to hold that it would follow those cases). Here, HSBC’s failure to respond to debtors’ claim objection is more akin to a concession of error than a failure to file a timely claim; HSBC simply forfeited its claim. Under section 1328(f), debtors were ineligible for a chapter 13 discharge because they filed their chapter 13 petition within four years after filing their chapter 7 petition. But section 1328(f) does not prohibit a debtor from filing a chapter 13 petition within that four-year period. A chapter 13 discharge is not necessary to close a chapter 13 case or permanently void a lien. The bankruptcy court properly conditioned permanent lien avoidance upon debtors’ successful completion of their plan payments.
- Richard A. Perez, Jay S. Bybee, and Consuelo M. Callahan, Circuit Judges. Opinion by Judge Bybee.
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