October 2, 2009
Avoiding Liens in Chapter 7?
I believe I have posted this before but this is such great research you might find useful some day. Its from Dan Press at dpress@CHUNG-PRESS.COM.
As I have pointed out a few times in recent months, you cannot strip off a lien in a 7 in the the 4th Cir or the 6th Cir. But the most recent published decision from the EDNY (Howard v. Nat. West, 184 BR 644 (Bk. EDNY 1995)) says you can, and the MDFL (in a recent unreported order, In re Montero, No. 6:08-bk-10797-KSJ (M.D. Fla. 5/27/09, Docket Entry 37) has allowed it. One of the leading cases to allow such strip-offs was Yi v. Citibank, 219 BR 394 (ED Va. 1998). Unfortunately, in 2001, the 4th Cir. first agreed with Yi in an unpublished case, and then issued a published case later that same year, Ryan v. Homecomings, 253 F.3d 778 (4th Cir 2001), overruling Yi. The 6th Cir. has agreed with Ryan, in Talbert v. City Mortgage, 344 F.3d 355 (6th Cir. 2003). The Third Circuit seems to have expressly left the issue open in McDonald v. Master Fin., 205 F.3d 605 (3rd Cir. 2000). So it seems to me that this ought to be considered still a live issue everywhere but the 4th and 6th circuits. The 9th Cir. BAP has said you can't, In re Laskin, 222 B.R. 872 (9th Cir. BAP 1998), but that's not the Court of Appeals and is not binding precedent.
Just keep in mind that Dewsnup expressly says it is limited to its facts, and its facts were a partially secured 2nd. As we know from Ch 13 practice, that makes a huge difference. So it is easily distinguishable.
Thanks to Larry Szabo in Oakland.
TrackBack URL for this entry:
Listed below are links to weblogs that reference Avoiding Liens in Chapter 7?:
I work in the Sixth Circuit, I'm a consumer bankruptcy attorney, and I'm convinced that it is correct. While Dewsnup seems an odd construction of 506(d) at first, when you go back and look at the legislative history and the reports, the Dewsnup construction was in line with what was intended.
506(d) cannot be used to "strip" liens, and it is not the section that is used in the reorganization chapters to strip liens. For example, in Chapter 13 cases, it is 1327(c) which vests the property in the debtor free and clear of claims and interests. See In re Claar, 368 B.R. 670 (Bankr. S.D. Ohio, 2007); In re Hill, 304 B.R. 800 (Bankr. S.D. Ohio, 2003); for the Chapter 12 analog see In re Harmon, 101 F.3d 574, 581 (8th Cir., 1996).
506(d) goes to the claims allowance process. Is a claim allowed? Is it secured? To the extent that it is not "allowed," then the lien will be void. Thus, in order to avoid a lien under 506(d) one would actually have to object to a claim and get it disallowed. Then it would be void.
Courts that hold that 506(d) can be used to just strip liens, and where the claim has been allowed, unfortunately, got it wrong, IMHO. While Dewsnup seems odd, I have to admit that it agrees with what was originally intended by Congress, and is the correct decision.
Posted by: Brian Rookard | Oct 3, 2009 5:15:30 AM