After a Chapter 7 discharge, is there anything left of a mortgage to reorganize in Chapter 13?
That’s the question that the Supreme Court resolved in Johnson v. Home State Bank, the next on our summer reading list for new bankruptcy lawyers. Believe it or not, it was 12 years after adoption of the 1978 Code before we got an answer as to what a “claim” was.
Johnson mortgaged the farm, fell behind, and filed Chapter 7. After his discharge, which eliminated his personal liability on the promissory notes, he filed Chapter 13 just ahead of the foreclosure sale. The district court and the circuit court both held that the bankruptcy court erred in confirming the plan, finding that the Code did not allow a Chapter 13 plan to modify a claim where the debtor had no personal liability.
I won’t tell you how it came out. Read it for yourself and savor Justice Marshall’s clear and straightforward treatment of the issue.
And resign yourself to a decade of waiting for definitive answers to some of the questions raised by BAPCPA.