In re Berkebile

• Decision Date: 17 February 2011
• Docket Number: Adversary No. 09–02230 (JKF).,Bankruptcy No. 08–21759 (JKF).
• Citation: 444 B.R. 326
• Parties: In re Donald J. BERKEBILE, Debtor.Donald J. Berkebile, Plaintiff,v.Ocwen Loan Servicing, LLC; Beneficial Consumer Discount Company; Internal Revenue Service, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

444 B.R. 326

107 A.F.T.R.2d 2011-1157

2011-1 USTC P 50,267

In re Donald J. BERKEBILE, Debtor.Donald J. Berkebile, Plaintiff,

v.Ocwen Loan Servicing, LLC; Beneficial Consumer Discount Company; Internal Revenue Service, Defendants.

Bankruptcy No. 08–21759 (JKF).

Adversary No. 09–02230 (JKF).

United States Bankruptcy Court, W.D. Pennsylvania.

Feb. 17, 2011.

Donald R. Calaiaro, Calaiaro & Corbett, P.C., Pittsburgh, PA, for Debtor.Norma Hildenbrand, on Behalf of the United States Trustee by Office of the United States Trustee, Pittsburgh, PA, for U.S. Trustee.

MEMORANDUM OPINION¹

JUDITH K. FITZGERALD, Bankruptcy Judge.

Before the court is Plaintiff Donald J. Berkebile's (hereinafter, the “Debtor”) Motion for Summary Judgment and Brief (hereinafter, the “Motion for Summary Judgment”). Adv. Doc. No. 18. The Debtor requests the court to issue an order that “removes the [tax] liens of the Internal Revenue Service [ (hereinafter, the ‘IRS') ] from [the real property located at] 3001 Bethel Church Road, Bethel Park, PA 15102 [ (hereinafter, the ‘Bethel Park Property’) ] to the extent there is no value to secure those liens.” ² Id. at 3. The IRS opposes the Motion for Summary Judgment, as will be addressed below. The issue before the court is whether the unsecured portion of the IRS tax lien can be bifurcated under 11 U.S.C. § 506(a) and, once bifurcated, becomes void under 11 U.S.C. § 506(d). With respect to the legal issue of whether § 506 applies to an IRS tax lien, there are no material facts in dispute. However, if it is determined that § 506 does apply, the parties dispute material facts including the amount of the IRS's claim that would exceed the value of Debtor's collateral.

For the following reasons, Debtor's Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART as follows:

Summary Judgment Standard

Rule 56(c) of the Federal Rules of Civil Procedure provides that a moving party is entitled to summary judgment “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c)(2). A motion for summary judgment can be defeated by the non-moving party if evidence is produced to create a genuine issue of material fact. El v. SEPTA, 479 F.3d 232, 238 (3d Cir.2007) (citing Josey v. John R. Hollingsworth Corp., 996 F.2d 632, 637 (3d Cir.1993)). However, if the movant has satisfied its burden under Rule 56(c), the non-moving party “may not rely merely on allegations or denials in its own pleading; rather, its response must ... set out specific facts showing a genuine issue for trial.” Fed.R.Civ.P. 56(e)(2). The non-moving party “must do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citations omitted). “Summary judgment may not be granted ... if there be an issue presented as to existence of any material fact; and all doubts as to existence of a genuine issue as to a material fact must be resolved against the party moving for summary judgment.” First Pennsylvania Banking & Trust Co. v. United States Life Ins. Co., 421 F.2d 959, 962 (3d Cir.1969) (citing Sarnoff v. Ciaglia, 165 F.2d 167, 168 (3d Cir.1947)).

Discussion

In the case at bench, the following material facts are undisputed. The parties agree, for purposes of this litigation, that the value of the Bethel Park Property is $220,000. Motion for Summary Judgment, Adv. Doc. No. 18, at 2, ¶ 5; Brief in Opposition to Plaintiff's Motion for Summary Judgment (hereinafter, “Brief in Opposition”), Adv. Doc. No. 20, at 2, ¶ 5. They agree that the total of all secured claims against the property exceeds that value. They agree that the IRS is in fourth priority position, behind real estate taxes and two mortgages. Debtor alleges the liens to be as follows: Defendant Ocwen Loan Servicing, LLC holds a first mortgage against the Bethel Park Property in the amount of $166,409.85, recorded on December 9, 2003. Motion for Summary Judgment, Adv. Doc. No. 18, at 2, ¶ 2. Beneficial Consumer Discount Company holds a second mortgage against real estate owned by the Debtor with a payoff of $24,033.01, recorded on November 18, 2004.³ Motion for Summary Judgment, Adv. Doc. No. 18, at 2, ¶ 3. The United States of America holds a lien against real estate owned by the Debtor with an approximate payoff of $820,227.00, recorded on December 10, 2004. Motion for Summary Judgment, Adv. Doc. No. 18, at 2, ¶ 4. Allegheny County (Pennsylvania) has a first lien position for real estate taxes against the property at issue in the amount of $1,109.00. Motion for Summary Judgment, Adv. Doc. No. 18, at 2, ¶ 6.

Debtor's assertion that the debt of Beneficial Consumer Discount Company exceeds the value of the collateral, as well as the allowed amount of the secured portion of each secured claim, is in dispute.⁴ Motion for Summary Judgment, Adv. Doc. No. 18, at 2–3, ¶ 7; Brief in Opposition, Adv. Doc. No. 20, at 3, ¶ 7. However, for purposes of the legal issue, the disputed facts are not material. They are material, however, to any determination of the IRS's secured claims. The schedules filed with the Debtor's chapter 11 bankruptcy petition indicate that the assets of the Debtor include $250,000.00 in two parcels of real property ⁵ and $6,700.00 in personal property. Bankr. No. 08–21759, Doc. No. 14, at Summary of Schedules.

The Legal Issue

To determine whether the court may grant the Debtor's motion and issue an order bifurcating the alleged secured claim of the IRS, with the effect that any unsecured portion would be void against the Bethel Park Property to the extent there is no value therein to secure the tax lien, we must first consider whether the Debtor may use 11 U.S.C. § 506 to bifurcate the IRS's claim.

The determination of the secured status of a lien on the property of a bankruptcy estate is governed by § 506 of the Bankruptcy Code. In pertinent part, § 506 states that:

(a)(1) 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. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor's interest.

...

(d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless—

(1) such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or

(2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title.

11 U.S.C. § 506 (emphasis added). Together, subsections (a) and (d) of § 506 provide the statutory basis for lien stripping ⁶ under the Bankruptcy Code. In re Johnson, 386 B.R. 171, 173 (Bankr.W.D.Pa.2008), aff'd 415 B.R. 159 (W.D.Pa.2009).

Courts have determined that lien stripping is permitted in Chapter 11 bankruptcy proceedings. Section 1123(b)(5) of the Bankruptcy Code states that, “[s]ubject to subsection (a) of this section, a plan may ... 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, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims.” ⁷ 11 U.S.C. § 1123(b)(5). “Therefore, to strip a lien in a Chapter 11 proceeding, a court must bifurcate the lien into secured and unsecured claims under § 506(a) and then, if a debtor's plan of reorganization meets the requirements of [ 11 U.S.C.] § 1123(a), a secured claim may be modified pursuant to § 1123(b)(5).” I.R.S. Dept. of Treasury of U.S. v. Johnson, 415 B.R. 159, 169 (W.D.Pa.2009).

The United States District Court for the Western District of Pennsylvania, in affirming the decision of the Bankruptcy Court in Johnson, has held that a debtor may “modify the rights of [an IRS] secured claim under [a] reorganization plan and the Bankruptcy Court [may] approve the same.” 415 B.R. at 169. The court found that “the modification of the IRS' federal tax lien was properly authorized under §§ 506(a) and 1123(b)(5) of the Bankruptcy Code,” id., and that “the Bankruptcy Court did not err in ordering that the federal tax lien be removed from [the debtor's] real property under those statutory provisions.” Id. at 170. In its opinion, the Bankruptcy Court explained that a federal tax lien arises from 26 U.S.C. § 6321 and that “[t]here is nothing apparent from [§ 6321's] statutory language which would protect an IRS lien from lien stripping treatment.” In re Johnson, 386 B.R. at 178. See also In re Russell, 2009 Bankr.LEXIS 4353, *4 (Bankr.W.D.Pa.2009) (“[A] debtor may strip off the liens of the IRS to the extent that the value of the liens exceeds the value of the collateral subject to the liens”). In concluding that the federal tax lien could be stripped from the debtor's property, the Bankruptcy Court in Johnson determined that “[u]nless the Court remove[d] the IRS lien from [the debtor's] residence, that lien will remain an anchor dragging him down from achieving the fresh start envisioned by the [Bankruptcy] Code.” 386 B.R. at 181.

We agree with the rationale in Johnson and find that the Debtor may avoid the federal tax lien under the bifurcation and modification processes established by §§ 506 and 1123 of the Bankruptcy Code.

The IRS urges the court to apply the Anti–Injunction Act and/or the Declaratory Judgment Act to determine that the...