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LOAN MODIFICATIONS AND LIEN STRIP – PERSONAL PROPERTY

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO.  WARNING – SOME OF THESE REFERENCES ARE PRE-BAPCPA.

Under 11 USC Sec. 524(a)(1) the judgment is voided at discharge. Also, under 11 USC Sec. 524(a)(2), an injunction kicks in after discharge that would prohibit the lien from having any force against any property. Even if the judgment remains in the county records, it is essentially dormant because it cannot attach to anything post-petition. Local Loan Co. v. Hunt, 292 U.S. 234 (1934). If the creditor attempts to enforce the recorded judgment (even renew it) one can move for sanctions under Zilog, Inc. v. Corning (In re Zilog, Inc.), 450 F.3d 996, 1007 (9th Cir. 2006). After 5 years it should drop off either way as it was not, nor can it, be renewed.

(See also Vehicles)

In re Brown, 346 B.R. 868 (Bkrtcy.N.D.Fla. 2006) Lewis M. Killian JR., Bankruptcy Judge creditor holding PMSI not entitled to deficiency claim in chapter 13 where the debtor surrenders vehicle in full satisfaction of the debt. § 1325(a)5) (hanging paragraph), § 506, 502

Debtor proposed to surrender a motor vehicle subject to a PMSI and purchased for personal use within 910 days of filing the petition, in full satisfaction of the undersecured debt. Creditor objected.

The court first held that despite language in § 1325(a) (hanging paragraph) that Code § 506 does not apply to a PMSI debt, the debt is still a secured debt. The court ruled that “just because § 506 does not apply does not mean that there is no secured claim. Section 506(a) simply provides for the bifurcation of claims into secured and unsecured portions in accordance with the value of the collateral; it does not form the basis for a secured debt.” The court essentially held that § 502 is the section that determines the secured status of a claim.

The court then observed that “Secured creditors, like every other party to a bankruptcy case, have to take both the good and the bad,” held that . . . the Hanging Paragraph following § 1325(a)(9) allows the Debtor to surrender his vehicle, which is the subject of a 910 claim, in full satisfaction of the debt owed to Wells Fargo.”

In re Sparks, 346 B.R. 767 (Bkrtcy.S.D.Ohio 2006) J. Vincent Aug, JR. Bankruptcy Judge. Creditor holding PMSI not entitled to deficiency claim in chapter 13 where debtor surrenders vehicle in full satisfaction of debt § 1325(a)(5)

The court held that where a vehicle is subject to a PMSI and was purchased for the debtor’s personal use within 910 days of filing the petition the Code prohibits a “cram-down” but does not prohibit the debtor from surrendering the vehicle in full satisfaction of the debt, with no unsecured portion remaining to be treated in the plan. In other words, the anti-cramdown provision acts restricts both the creditor and the debtor from treating the claim as a cram-down or strip-down for a partially secured claim.