Tuesday, April 19, 2011

Lien Stripping

Bankruptcy -- Liens -- Avoidance -- Liens securing allowed claims -- A Chapter 13 debtor who is ineligible to receive a Chapter 13 discharge may not strip down or strip off the lien of wholly unsecured mortgage in a Chapter 13 plan -- Chapter 13 debtors were ineligible to receive Chapter 13 discharge, because debtors had obtained Chapter 7 discharges within four years of filing their Chapter 13 petitions -- On petition date, junior creditors had allowed secured claims against debtors' bankruptcy estates in form of mortgage liens encumbering debtors' property, even though debtors' personal obligations to creditors were discharged in prior Chapter 7 cases, because creditors' mortgage liens survived debtors' Chapter 7 discharges -- Junior liens could not be modified using 11 U.S.C. Section 506(d) of Bankruptcy Code, which provides that to extent that lien secures a claim against debtor that is not an allowed secured claim, such lien is void, because statute is not self-executing, and may not be used to strip down or strip off liens except in conjunction with another section of Code -- In Chapter 13 case at issue, Section 1325 provides the mechanism for lien stripping, but juniors liens may not be stripped off under that section because debtors are not eligible to receive a discharge

Reported at 22 Fla. L. Weekly Fed. B650a