CHAPTER 20 or 26 (MULTIPLE BANKRUPTCY CASES)

FILING POC IN 13 AFTER DISCHARGED IN 7 “CHAPTER 20”

In re Washington, BAP NO. CC-18-1206-LKuF (July 30, 2019) Debtor Gwendolyn Washington obtained a chapter 7 discharge, which extinguished her personal liability on the debt secured by a junior lien on her residence. About five years later, she filed a chapter 13 case; she obtained an order valuing at zero the junior lien held by Option One Mortgage Corporation, serviced by Real Time Resolutions, Inc. (“RTR”). RTR filed an unsecured claim in the full amount of the debt it believed it was owed; Ms. Washington objected on the ground that her personal liability had been discharged. The bankruptcy court overruled the objection, concluding that the discharge did not fully eliminate the claim and that the plain language of § 506(a) required the allowance of RTR’s unsecured claim in the amount of $307,049.79. We REVERSE.  BAP finds that a debtor may employ so-called chapter 20 to strip off an underwater subordinate mortgage while simultaneously avoiding personal liability for the debt.

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In re Boukatch, Az-14-1483 (9th Cir BAP, 7/9/15) Chapter 13 debtors, Serge M. Boukatch and Lori J. Boukatch (“Debtors”), appeal an order denying their motion to avoid a lien on their principal residence.   The bankruptcy court determined that, as a matter of law, a “chapter 20” debtor is not entitled to avoid a wholly unsecured junior lien under §§ 506(a) and 1322(b)(2) against the debtor’s principal residence when no discharge will be entered in the pending chapter 13 case. On this issue of first impression, we REVERSE and REMAND.  (Good discussion on Nobelman and anti-modification provisions.)

We conclude that § 1328(f)(1) does not prevent Debtors’ ability to strip off MidFirst’s wholly unsecured junior lien in their chapter 13 plan, because nothing in the Bankruptcy Code prevents chapter 20 debtors from stripping such liens off their principal residence under §§ 506(a)(1) and 1322(b)(2). We further conclude that plan completion is the appropriate end to Debtors’ chapter 20 case. Unlike a typical chapter 13 case, the lien avoidance will become permanent not upon a discharge, but rather upon completion of all payments as required under the plan. In re Davis, 716 F.3d at 338; In re Frazier, 469 B.R. at 900; In re Blendheim, 2011 WL 6779709, at *6; In re Okosisi, 451 B.R. at 99-10 100; In re Frazier, 448 B.R. at 810; In re Tran, 431 B.R. at 235.