• Home
  • Bankruptcy in Brief
  • ABC’s of Bankruptcy
  • Considering Bankruptcy
  • True Stories
  • Chapter 13
  • Blog
  • About
  • TOC

Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box
  • How bankruptcy works
  • Mortgage Matters
  • Consumer Rights
  • You & Your Lawyer
  • Small Business
  • Family Law

Lien Strips Live in Chapter 20

By Cathy Moran

Bankruptcy's Chapter 20

Twenty is my favorite number these days.

The Oakland bankruptcy judges have ruled consistent with one another that lien stipping in Chapter 13 is allowed in a case where the debtor isn’t eligible for a discharge. Chapter 20 lives and thrives!!

Bankruptcy Appellate Panel for the 9th Circuit agrees with local judges on availability of lien stripping in Chapter 20

Before you run off to the law library looking for Chapter 20, I confess that “Chapter 20” is bankruptcy lawyer shorthand for a Chapter 13 case following a Chapter 7 case.

7  + 13  =  20

Since BAPCPA, the “reform” act of 2005, the debtor can’t get a discharge in a Chapter 13 case filed sooner than 4 years from the filing of the earlier Chapter 7 case.  But the Chapter 13 case can still be filed, a plan proposed, and the stay invoked in the no discharge 13.  The case just doesn’t conclude with a discharge.

So the courts have been presented with the question of whether the ability to strip off a totally unsecured junior mortgage required a discharge, or just plan completion.  Jay Fleischman cited the two lines of cases in his article on lien stripping in Chapter 20.

The Oakland bankruptcy bench has had the issue of lien strips in Chapter 20 cases under submission for most of 2012.  The judges were clearly trying to come to a common view of the issue.  Otherwise, the result in any given case would ride on the chance draw of a judge.

Judge William Lafferty has joined Judge Efremsky in holding in favor of Chapter 20 lien stripping.  His decision came in the case of Franklin Little, No. 11-73376.  I applaud both the reasoning and the result.

It’s my expectation that stripping off mortgages that are without a shred of economic value today will strengthen the housing recovery.  It will make it possible to envision a sale of homes in the conventional manner.  With an underwater lien in place, a property  can only be sold with the consent and cooperation of the junior lender.  Obtaining those consents has been an iffy and time consuming process.

The elimination of worthless liens also gives homeowners an economic reason to stay in the home and continue paying on the senior lien.  Without the lien strip, most homeowners I see can’t expect to have equity in their homes for decades, if ever.  Homeownership, for those borrowers, is just tax advantaged renting.

Image courtesy of Leo Reynolds.

More from the Soapbox

  • Mortgage Forbearance For Non-government Backed LoansMortgage Forbearance For Non-government Backed Loans
  • What The Wild Things Teach Us About BankruptcyWhat The Wild Things Teach Us About Bankruptcy
  • Ordinary Heroes Deliver Second Chances With BankruptcyOrdinary Heroes Deliver Second Chances With Bankruptcy
  • What Debts Were Discharged In My Bankruptcy?What Debts Were Discharged In My Bankruptcy?
  • Debts You Can’t Wipe Out In BankruptcyDebts You Can’t Wipe Out In Bankruptcy

Filed Under: How bankruptcy works, Real property & mortgages

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.

Comments

  1. James Pixton says

    December 4, 2012 at 2:59 pm

    Cathy: The third Oakland bankruptcy judge, Elaine Hammond, stated at the beginning of a confirmation a few weeks back that she also intended to make rulings consistent with Judge Efremsky’s recent Chapter 20 decision that you reference.

  2. James Pixton says

    December 4, 2012 at 3:21 pm

    Whoops–typo. I meant “confirmation calendar.”

  3. Bankruptcy Lawyer Oakland says

    February 5, 2013 at 3:52 am

    Thanks for putting this article together found best information here for chapter 20, I was thrilled to hear that you were working on it as I was one of the many readers wondering about this

Bankruptcy Basics

About The Soapbox

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.

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

How Bankruptcy Works

Bankruptcy Alphabet: F is for First

In my Bankruptcy Alphabet, F is for First meeting of creditors. Lots of rumors exist about the that meeting; it produces unwarranted anxiety that is avoidable if you understand what's up. Let's check it out. The first meeting of creditors, also called the 341 meeting, is often the only time a debtor has to appear … Read more

More Posts from this Category

643 Bair Island Road
Suite 403
Redwood City, CA 94063
Phone: (650) 694-4700
Phone: (650) 368-4700

Categories

All content copyright © Moran Law Group. All rights reserved.