Chapter 13 debtors can void underwater junior liens even if they aren’t eligible for a bankruptcy discharge in the Chapter 13 case.
So says the 9th Circuit Court of Appeals in a case called Blendheim, decided October 1.
And so, a myriad of Chapter 20 debtors and title insurers round the circuit heave a sigh of relief.
“Chapter 20” is legal slang for a Chapter 13 case that follows a Chapter 7 case so closely that the debtors don’t get a discharge in the new case.
Bankruptcy courts in many districts have been voiding worthless liens in cases where the homeowner isn’t eligible for a discharge generally since the Great Recession began.
Yet some judges and some scholars questioned whether the law allowed elimination of a lien at the end of a Chapter 13 when the cases concludes without a discharge.
I have tried to imagine the chaos that would be created if the appeals court had ruled that all these lien strips in Chapter 20 cases were themselves void. [Read more…]