Underwater Homeowner's Bankruptcy Maneuver Leaves Another 'Stripped-Off" Mortgage-Holding Bankster Holding 'Unsecured' Bag; Federal Appeals Court: "We Find Nothing In The Act To Suggest That Congress Intended To Bar Lien-Stripping Of Worthless Liens In Chapter 20 Proceedings!"

From a Justia.com Opinion Summary:

• Debtors filed a Chapter 7 bankruptcy petition and sought to discharge their unsecured debt, strip down liens on their primary residence and a rental property, and obtain a loan modification to address mortgage arrears on the properties.
  
  The Trustee subsequently challenged confirmation orders entered by the bankruptcy court and affirmed by the district court, stripping off junior liens against debtors' residences.
  
  The Trustee argued that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 created a per se rule barring lien-stripping in so-called "Chapter 20" cases.(1) The Act, however, did not bar the orders entered by the bankruptcy court, and the stripping off of valueless liens - liens secured by collateral without a single penny of value to support it - was otherwise consistent with the Bankruptcy Code.(2) Accordingly, the court affirmed the judgment.

Source: Justia.com Opinion Summary: Branigan v. Davis.

For the ruling, see Branigan v. Davis, No. 12-1184 (4th Cir. May 10, 2013).

(1) In actuality, there is no such thing as a "Chapter 20" bankruptcy (the U.S. Bankruptcy Code, as currently constituted, only has 15 chapters).The appeals court addresses "Chapter 20" in footnote one of its majority opinion:

• "Chapter 20" is a colloquial reference to a Chapter 13 bankruptcy filed within four years of a Chapter 7 bankruptcy that concluded with a discharge.

(2) The majority ruling sums up its analysis of the relevant law and its application with the following comments:

• In sum, although BAPCPA clearly tipped the bankruptcy scales back in the direction of creditors, we find nothing in the Act to suggest that Congress intended to bar lien-stripping of worthless liens in Chapter 20 proceedings.
  
  This, we conclude, is the most sensible reading of a complex statutory scheme that admittedly "abounds with arbitrary distinctions." Lane, 280 F.3d at 669. We therefore affirm the judgment of the district court.