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.
