Fisette v. Keller (In re Fisette)
- Citation:
- Fisette v. Keller, No. 11-3119 (8th Cir. BAP, September 12, 2012)
- Tag(s):
-
- Ruling:
- The BAP dismissed the US Trustee's appeal of the BAP's prior order order because that order was interlocutory in that "further judicial activity" by the bankruptcy court remained to be completed.
- Procedural context:
- The US Trustee (the "Trustee") appealed the BAP's prior order which had reversed the bankruptcy court's order denying confirmation of the debtor's Chapter 13 plan and remanded to the bankruptcy court to consider whether the plan complied with other confirmation requirements.
- Facts:
- The debtor's homestead was subject to three mortgage liens. The debtor's intial plan proposed to "strip off" the second and third mortgage liens because there was no equity in the property over and above the first lien. The bankruptcy court denied confirmation of the plan holding that the Bankruptcy Code does not allow the debtor to strip the second and third mortgage. The debtor involuntarily filed a modified plan that preserved those liens, noting his objection, and appealed the bankruptcy court's confirmation of the modified plan. The BAP reversed, concluding that a Chapter 13 debtor could strip off a wholly unsecured residential mortgage lien, and turned to two issues relevant to the current ruling of the BAP. First, the debtor was ineligible for a Chapter 13 discharge because he filed a Chapter 13 shortly after receiving a Chapter 7 discharge - known as a "Chapter 20" filing. The BAP had held that a Chapter 20 debtor may strip off residential liens that have become unsecured claims in the Chapter 13 case due to a decline in the homestead's value, rejecting the Trustee's argument to the contrary under Section 1325(a)(5)(B)(i)(I) of the Bankruptcy Code. Second, the BAP had instructed the debtor on remand to amend his plan to provide for proper treatment of the junior lienholders' claims as unsecured nonpriority claims. The BAP noted that had the prior BAP order upheld the modified plan confirmed by the bankruptcy court, its order would be final and appealable to the court under 28 U.S.C. 158(d) and the BAP would have jurisdiction to review all issues the Trustee appealed. Because the BAP did not affirm and remanded "for further judicial activity that is likely to affect the merits of the controversy," the BAP held that it lacked jurisdiction under Sec. 158(d). "Further judicial activity" by the bankruptcy court will be needed by the bankruptcy court, the BAP noted, to finally resolve both of the Chatper 20 issues addressed by the BAP. First, although the BAP ruled that the ineligibility for a discharge does not prevent a Chapter 20 debtor from stripping off junior mortgage liens, the BAP did not address the controversial subsidiary issue as to whether the Chapter 20 debtor's proposed use of such a device complies with the requirement that a Chapter 13 plan must be proposed in good faith. Good faith, the court noted, may be a serious issue given that the debtor proposes to strip off the junior mortgagee's liens, but pay them nothing under the plan. Second, there is the unreolved issue of whether the debtor could strip off these liens when his plan payments were completed because of their unsecured status in bankruptcy, but at the same time exclude those claimants from distributions made to the unsecured creditor class? The BAP noted that this may make it more difficult for the debtor to satisfy the best interests of creditors test under Sec. 1325(a)(4) and may trigger the "disposable income" requirements of Sec. 1325(b)(1)(B). All of this cast doubt on whether the debtor's original plan, or any plan, could be confirmed. The BAP concluded that the bankruptcy court's need to work through these difficult issues on remand is clearly "further judicial activity that is likely to affect the merits of the controversey." The BAP's order was, therefore, clearly interlocutory, requiring dismissal for lack of jurisdiction.
- Judge(s):
- Wollman, Beam, and Loken.
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