A debtor’s right to strip off a wholly unsecured lien is not dependent on the debtor’s eligibility for a discharge, says the 8th Circuit BAP.
Hurray for Chapter 20.
Before 2005, a debtor was entitled to file Chapter 13 immediately following a Chapter 7 and address whatever debts had survived the 7. The 7 + 13 approach was nicknamed Chapter 20.
With BAPCPA came the requirement of a four year interval between a Chapter 7 discharge and a Chapter 13 filing that leads to a discharge. Falling home prices leave more formerly secured junior liens unsecured, and bingo, the debtor exceeded the debt limits in Chapter 13.
I have resisted the pull of individual Chapter 11’s in favor of the Chapter 20 approach. Judges in the Northern District have, up until quite recently, followed Judge Jellen’s approach in Tran, finding that a mortgage lien could be stripped in a case in which the debtor was not eligible for a discharge.
Yet I’ve been uneasy making plans for debtors in the absence of appellate authority for lien stripping in a no-discharge 13.
So I’m delighted that the 8th Circuit BAP decided August 29, 2011 in Fisette that the discharge played no part in the scheme for voiding utterly unsecured mortgage liens. My Bankruptcy Law Network colleague Minnesota bankruptcy lawyer Craig Andresen represented the debtor in Fisette.
It’s not a settled issue yet, but this is trending in a debtor friendly direction.
Image courtesy of Flickr.