8th Circuit Bankruptcy Appeals Panel OKs Chapter 13 Lien Stripping Move

In St. Paul, Minnesota, the Pioneer Press reports on a story of a homeowner/couple and their successful effort at getting a United States Bankruptcy Appellate Panel (made up of 3 bankruptcy judges) for the 8th Circuit Court of Appeals to allow for a lien stripping of a 2nd and 3rd lien on thier home where the amount owed on the first mortgage exceeded the value of the residence.

In obtaining the favorable ruling, the the couple convinced the appellate panel to overturn an earlier ruling of the bankruptcy judge who initially heard the case and ruled against the homeowners' move.

Reportedly, the appellate panel's decision is being appealed to the full 8th Circuit Court of Appeals, but attorneys say they expect the panel's decision to stand, as it mirrors decisions in other circuits,(1) the story states.(2)

For the story, see Bankruptcy made easier: Appeals court decision allows stripping of second mortgages.

For the court ruling, see Fisette v. Keller (In re Fisette), 455 B.R. 177 (B.A.P. 8th Cir. 2011).

Go here for other posts on lien stripping in bankruptcy cases.

(1) The court made the following observation in connection with this point:

• We agree with courts holding that §1322(b)(2) does not bar a Chapter 13 debtor from stripping off a wholly unsecured lien on his principal residence, a position that has been adopted by all Circuit Courts of Appeal to address this issue. See, e.g., Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220 (9th Cir. 2002); Lane v. W. Interstate Bancorp (In re Lane), 280 F.3d 663 (6th Cir. 2002); Pond, 252 F.3d at 127; Tanner v. FirstPlus Fin., Inc. (In re Tanner), 217 F.3d 1357 (11th Cir. 2000);[2] In re Bartee, 212 F.3d 277 (5th Cir. 2000); McDonald v. Master Fin. Inc. (In re McDonald), 205 F.3d 606 (3d Cir. 2000).[3] Bankruptcy appellate panels of the Tenth and First Circuits have agreed with this conclusion. Griffey, 335 B.R. 166; In re Mann, 249 B.R. 831 (B.A.P. 1st Cir. 2000).[4]

(2) Worth noting is that within one year of the couple filing their Chapter 13 bankruptcy petition in this case, the couple had filed an earlier Chapter 7 bankruptcy case, in which the Debtor received a discharge of his unsecured debts. This maneuver is sometimes informally referred to by some bankruptcy practioners as a 'Chapter 20' bankruptcy (Ch.7 + Ch 13 = Ch.20). Go here for other posts on the so-called 'Chapter 20' bankruptcy.