Ryan v. U.S. (In re Ryan)

Summarized by ,
12 years 7 months ago

Citation:

12-3398

Tag(s):

Ruling:

Seventh Circuit Court of Appeals AFFIRMED the decision of the the Bankruptcy Court holding that the Bankruptcy Court's interpretation of section 506(d) as stated in Dewsnup v. Timm (502 U.S. 410 (1992)) applies in Chapter 13 cases as well as Chapter 7 cases.

Procedural context:

On direct appeal to the 7th Circuit Court of Appeals.

Facts:

On August 23, 2011, Patrick J. Ryan, filed a voluntary petition under Chapter 13 of the Bankruptcy Code. At the time of filing, Ryan had minimal personal possessions and significant tax liabilities for the years of 2006-2010. Ryan claimed that because his personal possessions only value an amount of $1,625.00, that his tax lien from 2009 be reduced to the amount of $1,625.00. Therefore, the remainder of the tax liens should be treated as unsecured pursuant to 11 USC 506(a). Which allows bifurcation of loans into secured and unsecured portions. As part of the argument to allow the bifurcation of the IRS liens, Ryan claimed that pursuant to 11 USC 506(d) Ryan should be allowed to void the lien on the unsecured portion of the IRS claim. The United States (IRS) conceded that pursuant to 506(a), their secured lien was limited to the $1,625.00 for purposes of plan confirmation, but argued that 506(d) did not grant the Bankruptcy Court authority to void the remainder of the federal tax lien. The Bankruptcy Court agreed with the United States (IRS). The United States Supreme Court held that" 506(a) and 506(d) did not have to be read together, and that the term “allowed secured claim” in § 506(d) was not defined by reference to § 506(a). Instead, the Court determined that, consistent with pre-Code rules that liens pass through bankruptcy unaffected, the term “allowed secured claim” in § 506(d) means a claim that is, first, allowed under § 502 and, second, secured by a lien enforceable under state law, without regard to whether that claim would have been deemed secured or unsecured under § 506(a)." Dewsnup v. Timm (502 U.S. 410 (1992). Under Dewsnup, Ryan would not be entitled to void the liens of the United States(IRS). Ryan argued Dewsnup does not apply to this case because Dewsnup was a Chapter 7 case and Ryan's case was a Chapter 13. citing Thompson v. General Motors Acceptance Corp. LLC, 566 F.3d 699, 705 (7th Cir. 2009). However, 11 USC 103(a) states that “Except as provided in section 1161 of this title, chapters 1, 3, and 5 of this title apply in a case under chapter 7, 11, 12, or 13 of this title . . . .” Since 1161 is not applicable to Chapter 13 cases, and 506 is part of Chapter 5 of the code, 506(d) applies equally to Chapter 7 and Chapter 13 cases. The next argument that Ryan made was that the Court in Dewsnup indicated an anti-modification clause. The Appellate Court states that there is no basis in law or fact for this argument. The final argument by Ryan was that 506(d) should be interpreted differently in a Chapter 13, in order to fulfill the purpose of the Chapter 13. There are three problems with this argument: 1) Chapter 13 provides alternative means for voiding liens, 2) 506(d) does not distinguish claims under Chapter 7 from those under Chapter 13, and 3) the rule against multiple interpretations of the same statute is well "entrenched". Bankruptcy Court's Ruling Affirmed

Judge(s):

Ripple. Rovner and Williams

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