Recent decisions from the District Court of Connecticut have clarified the following:
In re Rogers, 489 B.R. 327 (D. Conn. 2013)
In Re Curwen, Case No. 3-15-cv-1874 (SRU) (2016) quoted below
“The question in this bankruptcy appeal is whether a debtor in a Chapter 13 case who is ineligible for discharge as a result of receiving a Chapter 7 discharge within the prior four years is for that reason per se barred from obtaining confirmation of a plan that contemplates voiding
(or “stripping off” or “lien-stripping”) a wholly unsecured, junior mortgage lien.”
Editors Note – In a Chapter 20, a debtor first files chapter 7 to eliminate the personal liabilities. A debtor may then file chapter 13 to deal with secured creditors, or priority debt.
“Under section 506(a)(1), “[a]n allowed claim of a creditor secured by a lien on property in which the estate has an interest . . . is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property . . . and is an unsecured claim to the extent that the value of such creditor’s interest . . . is less than the amount of such allowed
claim.” By that language, the holder of a junior mortgage that attaches to no value in the collateral (because the value of the property is less than or equal to the amount outstanding on the primary mortgage or other senior encumbrances) is the holder of an unsecured claim. In that situation, the junior mortgage holder will not be protected by the antimodification exception of section 1322(b)(2) and the wholly unsecured lien may be stripped. In re Pond, 252 F.3d at 126.”
Editor’s Note – the debtor is seeking to strip off a second mortgage which is wholly unsecured, in that the amount due on the first mortgage is greater than the fair market value of the property.
“BAPCPA could have, but does not, categorically prohibit the filing of a
Chapter 13 petition and plan, or the application of section 1322(b)(2) to strip liens, when a debtor received a Chapter 7 discharge in the preceding four years.”
“The Bankruptcy Code, as amended by the BAPCPA, does not create a per se bar to the confirmation of a “Chapter 20” plan that contemplates stripping wholly-unsecured junior liens during the period that a debtor is ineligible for discharge.”
EDITORS NOTES – There are now two District Court decisions which hold that a debtor may file a Chapter 7 bankruptcy followed by a Chapter 13 bankruptcy, in order to strip off a wholly unsecured second mortgage, even if a debtor cannot obtain a Chapter 13 discharge.
If you have any bankruptcy questions, including questions about Chapter 20 bankruptcy, please feel free to contact
Attorney Robert M. Singer
2572 Whitney Avenue
Hamden, CT 06518
Serving New Haven County and all of Connecticut