In re Cain

Citation:
14 FED App.0005P (6th Cir.) (BAP)
Tag(s):
Ruling:
A Chapter 13 debtor who is ineligible for a discharge due to a prior Chapter 7 discharge, may strip a wholly unsecured junior lien on real property through the Chapter 13 plan.
Procedural context:
Appeal to the Bankruptcy Appellate Panel from the United States Bankruptcy Court for the Northern District of Ohio at Cleveland.
Facts:
Debtor received a Chapter 7 discharge in early 2008. Several months later, she filed a Chapter 13 case. The Chapter 13 plan was confirmed in September 2008 and included a provision to strip three junior liens. Debtor completed her plan payments and the Trustee filed a motion to release the wage order and close the case without a discharge. Within 2 weeks of the Trustee's motion being granted, Debtor filed a Motion to Avoid Mortgage Lien. The motion was unopposed but the Bankruptcy Court denied the motion. Debtor appealed. The issue before the panel is "whether a debtor may strip off a wholly unsecured, inferior mortgage lien on debtor's primary residence in a Chapter 13 case filed less than four years after having received a Chapter 7 discharge." A secondary question was not addressed based on the Panel’s findings as to the first issue. Though the Sixth Circuit has not ruled on this matter, the Bankruptcy Appellate Panel considered the US Supreme Court's decision in Nobelman v Am Sav Bank, 508 US 324, 113 S Ct 2106 (1993) and prior 6th Circuit case law (In re Lane, 280 F3d 663 (2002)) as setting the roadmap to reach the determination that a Chapter 13 debtor, ineligible for a discharge, may strip a wholly unsecured junior lien from real property. The Panel followed one of three approaches to the issue as there is a split of authority across the country. The approach followed by the Panel "allow[s] chapter 20 lien stripping because nothing in the Bankruptcy Code prevents it," citing In re Jennings, 454 BR 257 (citations omitted). The pivotal point is whether the lien was secured or unsecured under 11 USC 506(a) at the time of filing, not whether the debtor is entitled to receive a discharge. It is the unsecured status of the creditor's claim (and completion of the Chapter 13 plan) that determines whether the lien may be stripped; the eligibility for entry of a discharge is not a condition precedent to debtor's ability to do so.
Judge(s):
Judges Harrison, Humphrey, Preston. Opinion by J. Harrison.

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