In re amy

• Decision Date: 19 September 2011
• Docket Number: Nos. 10–48463–JKO,10–43534–JKO.,s. 10–48463–JKO
• Citation: 66 Collier Bankr.Cas.2d 466,23 Fla. L. Weekly Fed. B 125,456 B.R. 140
• Parties: In re Christina QUIROS–AMY, Debtor.In re Sergio Contreras, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Florida

456 B.R. 140

66 Collier Bankr.Cas.2d 466

23 Fla. L. Weekly Fed. B 125

In re Christina QUIROS–AMY, Debtor.In re Sergio Contreras, Debtor.

Nos. 10–48463–JKO

10–43534–JKO.

United States Bankruptcy Court, S.D. Florida,Fort Lauderdale Division.

Sept. 19, 2011.

Richard S. Gendler, Plantation, FL, for Debtor.

Memorandum Opinion & Order

JOHN K. OLSON, Bankruptcy Judge.

These cases present the issue of whether Chapter 13 debtors may strip wholly unsecured junior mortgage liens on principal residences despite being ineligible for discharge.¹ Resolution of this issue rests on the interplay between 11 U.S.C. § 1325(a)(5) and 11 U.S.C. § 506. For the reasons below, the court finds that Debtors who are ineligible for Chapter 13 discharge may not use Chapter 13 to strip liens.

I. Procedural Background

a. Quiros–Amy

Christina Quiros–Amy (“Quiros”) filed a Chapter 7 Voluntary Petition on June 18, 2009 and received a Chapter 7 discharge on September 23, 2009.² She then filed the above-styled Chapter 13 case on December 20, 2010.³

On January 31, 2011, Quiros filed a Motion to Value and Determine Secured Status of Lien on Real Property Held by JP Morgan Chase.⁴ Her motion was granted on March 14, 2011,⁵ and that order:

(1) adjudged the value of Quiros' real property located at 5388 Northwest 126 Drive, Coral Springs, Florida 33076 to be $202,850.00; (2) found that JPMorgan Chase's lien is junior to other liens securing claims totaling $275,000.00;

(3) accordingly found that the equity remaining in the property after satisfaction of all senior liens is $0.00; found JPMorgan Chase to have no secured claim against the bankruptcy estate; and provided that, if Chase were to timely file a proof of claim, the claim would be allowed as a general unsecured claim against the estate.

Decretal paragraph three of the Order Granting Motion to Value further held that Chase's recorded lien against the property “shall be deemed void and shall be extinguished automatically, without further order of the court, upon entry of Debtor's discharge.” ⁶ Decretal paragraph six held that the Order Granting Motion to Value “is not recordable or enforceable until the debtor receives a discharge in this Chapter 13 case.” ⁷

b. Contreras

Sergio Contreras (“Contreras”) filed a Chapter 7 Voluntary Petition on March 30, 2010 and received a Chapter 7 discharge on August 9, 2010.⁸ He then filed the above-styled Chapter 13 case on October 29, 2010.⁹

On January 12, 2011, Contreras filed a Motion to Value and Determine Secured Status of Lien on Real Property Held by Citibank.¹⁰ Contreras' motion was granted on March 4, 2011,¹¹ and that order:

(1) adjudged the value of Contreras' real property located at 960 Southwest 28 Street, Fort Lauderdale, Florida 33315, to be $87,250.00;

(2) found that Citibank's lien is junior to other liens securing claims totaling $127,107.32;

(3) accordingly found that the equity remaining in the property after satisfying all senior liens is $0.00; found Citibank to have no secured claim against the estate; and provided that, if Citibank were to timely file a proof of claim, it would be allowed as a general unsecured claim against the estate.

Decretal paragraph three of the Order Granting Motion to Value further held that Citibank's recorded lien against the property “shall be deemed void and shall be extinguished automatically, without further order of the Court, upon entry of Debtor's discharge.” ¹² Decretal paragraph six held that the Order Granting Motion to Value “is not recordable or enforceable until the debtor receives a discharge.” ¹³

c. The Motions to Amend

On June 10, 2011, both Quiros and Contreras filed identical motions seeking to amend the orders granting their motions to value.¹⁴ Their Motions to Amend ask the court to replace the text of the third decretal paragraphs, supra, with: “upon completion of the Chapter 13 plan and without entry of the debtor's discharge in this chapter 13 case.” ¹⁵ The debtors further seek to replace the text of the sixth decretal paragraphs, supra, with: “this Order is recordable and enforceable upon completion of the Chapter 13 plan and without the debtor receiving a discharge in this chapter 13 case.” ¹⁶

II. “Chapter 20”

Prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), a debtor was eligible to receive a Chapter 13 discharge upon completion of plan payments regardless of whether a prior discharge was received in a previous bankruptcy case. In re Jarvis, 390 B.R. 600, 604 (Bankr.C.D.Ill.2008). BAPCPA added § 1328(f) to the Bankruptcy Code, which provides that “the court shall not grant a discharge ... if the debtor has received a discharge ... in a case filed under chapter 7, 11, or 12 of this title during the 4–year period preceding the date of the order for relief under this chapter.” However, § 1328(f) “does not restrict a debtor's eligibility to file a Chapter 13 case and obtain confirmation of a plan which otherwise complies with the Code.” Jarvis, 390 B.R. at 605 (citing In re Bateman, 515 F.3d 272 (4th Cir.2008); In re Lewis, 339 B.R. 814 (Bankr.S.D.Ga.2006); In re McGhee, 342 B.R. 256 (Bankr.W.D.Ky.2006); In re Sanders, 368 B.R. 634 (Bankr.E.D.Mich.2007)). “Chapter 20” cases (where a debtor's prior Chapter 7 discharge bars Chapter 13 discharge) accordingly raise a number of questions regarding whether a petition and/or plan is filed in good faith under § 1325(a)(3), (a)(7) and whether lien stripping is appropriate.

III. Lien Stripping in Chapter 13 versus “Chapter 20” Cases

The Bankruptcy Code provides a clear framework for determining the extent to which a claim is secured:

An 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.

11 U.S.C. § 506(a)(1). In other words, “a claim's status as a secured claim, and the amount of the secured claim, depends upon the value of the property to which the lien in question attaches, and the amount of any senior liens.” In re Tran, 431 B.R. 230, 234 (Bankr.N.D.Cal.2010). “[T]o the extent that a lien does not attach to any value, it is void.” Id.

Modification of a creditor's lien in bankruptcy is commonly known as “lien stripping.” Two varieties of lien stripping exist. The first, known as a “strip-down,” is where the secured portion of a lienholder's claim is reduced to the value of its interest in the collateral. The second, known as a “strip-off,” involves the complete removal of a creditor's lien. A strip-off occurs when the value of collateral is consumed entirely by senior liens, such that the junior lienholder's claim is wholly unsecured. Because there is no equity left to secure the junior lienholder's claim, that lien is voided or “stripped-off.” See 11 U.S.C. § 506(d) (“To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void”).

While § 506 empowers a debtor to propose a lien stripping plan, there are limitations on a debtor's ability to “strip down” or “strip off.” First, § 506(d) cannot be used in concert with section 506(a) bifurcation to strip a lien in a Chapter 7 liquidation. In re Gerardin, 447 B.R. 342, 345 (Bankr.S.D.Fla.2011) (Cristol, Mark, & Isicoff, JJ.) (citing Dewsnup v. Timm, 502 U.S. 410, 417, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992) (“[T]he creditor's lien stays with the real property until the foreclosure.”)); compare Dewsnup, 502 U.S. at 414, 112 S.Ct. 773 (“Petitioner-debtor takes the position that §§ 506(a) and 506(d) are complementary and to be read together”) with Dewsnup, 502 U.S. at 417, 112 S.Ct. 773 (“We conclude that respondents' alternative position ... generally is the better of the several approaches”). Second, the Supreme Court's lien stripping prohibition extends only to Chapter 7 liquidation and does not block lien stripping in reorganization. Dewsnup, 502 U.S. at 416–417, 112 S.Ct. 773 (confining the Court's holding to Chapter 7); In re Tran, 431 B.R. at 234 (“ Dewsnup, however, is inapplicable to chapter 13.”). Instead, Chapter 13 contains its own limitations on lien stripping which can generally be divided categorically into (1) limitations regarding a debtor's principal residence and (2) limitations giving rise to confirmation issues.

a. A Chapter 13 Debtor May Strip a Wholly Unsecured Junior Mortgage Lien on the Debtor's Principal Residence.

A Chapter 13 debtor may “[m]odify the rights of holders of secured claims,” but may not do so if the creditor's claim is “secured only by a security interest in real property that is the debtor's principal residence.” 11 U.S.C. § 1322. The Supreme Court has held that:

to give effect to § 506(a)'s valuation and bifurcation of secured claims through a Chapter 13 plan ... would require a modification of the rights of the holder of the security interest. Section 1322(b)(2) prohibits such a modification where ... the lender's claim is secured only by a lien on the debtor's principal residence.

Nobelman v. Am. Sav. Bank, 508 U.S. 324, 332, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993); see also id. at 325–26, 113 S.Ct. 2106 (“§ 1322(b)(2) prohibits a Chapter 13 debtor from relying on § 506(a) to reduce an undersecured homestead mortgage to the fair market value of the mortgaged residence”). Following Nobelman, it became well settled that § 1322(b)(2) blocks modification of claims secured by liens on a debtor's principal residence. Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357, 1358 (11th Cir.2000) (“Section 1322(b)(2) permits a Chapter 13 debtor's plan to modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence.”); Gerardin, 447 B.R. at 345 (“a chapter 13 debtor...