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“Chapter 20” Lives in Northern California Bankruptcy Courts

By Cathy Moran

Debtors with a Chapter 7 discharge too recently to get a discharge in a subsequent Chapter 13 can strip off underwater mortgage liens under a decision issued by Judge Edward Jellen in the Oakland division.

This has been a simmering issue, since the guidelines issued by the judges in the Northern District of California include a form order allowing the voiding of an underwater mortgage “on entry of the discharge” in the Chapter 13.  A debtor can’t get a discharge in a 13 filed within four years of the prior Chapter 7.

Since those guidelines were promulgated, several courts in other districts have allowed lien stripping in no discharge 13’s.  Some courts have gone the other way.

Judge Jellen’s decision held that a discharge was not required in order to value and strip a lien for which there is not supporting value in the collateral.  However, he dismissed one of the pair of cases on which he wrote sua sponte for bad faith.  So, there remain issues, but not, apparently, whether lien stripping is available in Chapter 20.

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Filed Under: Chapter 13, Developing law

About Cathy Moran

I'm a veteran bankruptcy lawyer and consumer advocate in California's Silicon Valley. I write, teach, and speak in the hopes of expanding understanding of how bankruptcy can make life better in a family's future.

Bankruptcy Basics

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You’ve arrived at the Bankruptcy Soapbox, a resource of bankruptcy information and consumer law.

Soapbox is a companion site to Bankruptcy in Brief, where I try to be largely explanatory and even handed (Note I said “try”).

Here, I allow myself to tell stories and express strong opinions. We dig deeper into how to consider bankruptcy and navigate a bankruptcy case.

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Bankruptcy specialists for individuals and small businesses in the San Francisco Bay Area

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Just because debtors can keep their upscale trappings and their toys bought on credit doesn't mean they should. Still, I share my colleagues excitement over the 9th Circuit's recent decision in Welsh.   The appeals court held that a debtor wasn't guilty of bad faith in proposing a Chapter 13 plan that kept and … Read more

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