## United States Bankrup tcy Appellate P anel

FOR THE EI GHT H CIRCUI T

No. 1 1- 60 12

In re: *

*

Mi ch ael James Fi se tt e, *

*

Deb to r. *

*

Mi ch ael James Fi se tt e, * App eal fro m th e

* Uni te d S ta te s Deb to r - App el la nt

, * Ban kr up tc y Co ur t fo r th e

* Dis tri ct of M in ne so ta

v. *

*

Ja sm in e Z. Kell er, *

*

Trus te e - Ap pe ll ee. *

Su bm it te d: Ju ly 27, 2 01 1

Fi le d: Aug us t 2 9, 2 01 1 (Rev is ed Nov em

be r 14 , 20 11 )

Befo re SC HERMER, VENTERS, and NAIL, Bank ru pt cy Ju dg es

SCHERM ER, Ban kr up tc y Ju dg e

Deb to r, Mi ch ael Ja m es Fi se t t e ( t h e “ Deb to r”), ap pe al s fro m th e ba nk ru pt cy

co ur t’s Feb r u a r y 1 0

, 20 11 or de r co nf irming hi s m od ifi ed Ch ap te r 13 pl an , o ve r hi s

ob jecti on

. W e ha ve juri sd ic ti on o v e r t h i s ap pe al fro m th e fin al or de r of th eba nk ru pt cy co ur t. Se e 28 U.S.C. § 15 8( b)

. Fo r th e reas on s se t fo rth be lo w, we

rev ers e an d rem an d th is m at te r to th e ba nk ru pt cy co ur t fo r fu rth er pr oc eed in g s

co ns is te nt wit h t hi s o pi ni on

.

IS SUES
The is su e on ap pe al is whe th er th e ba nk ru pt cy co ur t m ay co nf irm th e de bt or ’s
pl an whi ch pro vi de s fo r th e av oi da nc e o f two jun io r li en s o n t he Debt or ’s pri nc ip al

res id en ce. In pa rti cu la r, we co n s i d e r whe th er: (1 ) 11 U.S.C. § 13 22 (b )(2 ) pr ev en ts

a de bt or fro m m od ifyin g th e rig ht s of jun io r li en ho ld ers of li en s on h is pr in ci pa l

r e s i d e nc e if th e va lu e of th e res id en ce is le ss th an th e am ou nt owe d to th e s e n i o r

li en ho ld er; an d (2 ) if no t, whe th er su ch m od ifi cat io n is co nt in ge nt up on th e de bt or ’s

rece ip t o f a Ch ap te r 13 di sc ha rg e.

BACKGRO UND
Wi t h in on e y ear be fo re th e fil in g of hi s Ch ap te r 13 pe ti ti on , th e Deb to r h a d

fil ed a Ch ap te r 7 ba nk ru pt cy cas e, an d th e Deb to r rece iv ed a di sc ha rg e in hi s Ch ap te r

7 cas e. Due to th e pr ox im it y in th e ti m e of th e fil in g of hi s Ch ap te r 7 an d Ch ap te r 13

cas es , t he Deb to r w a s no t el ig ib le fo r a Ch ap te r 13 di sc ha rg e pu rs ua nt to § 13 28 (f)

of Tit le 11 of t he Uni te d S ta te s C od e (t he “ Ban kr up tc y Co de ”).

On hi s Sch ed ul e A, t he Deb to r li st ed hi s ho m es te ad

. He va lu ed th e pr op ert y

at $1 45 ,00 0

, i n di cat in g th at th e pr op ert y was “ ap pr ai se d at ” $1 45 ,00 0. On hi s

Sch ed ul e D, th e Deb to r li st ed th e cl ai m of th e se ni or se cu red cred it or ho ld in g a li en

on th e Deb to r’s ho m es te ad in an am ou nt th at ex ceed ed t h e a p p r a i s e d va lu e of th e

pr op ert y

. The Deb to r al so li st ed on hi s Sch ed ul e D two cred it or s ho ld in g se co nd an d

th ird li en s o n t he ho m es te ad

.

The Deb to r’s or ig in al ly fil ed Ch ap te r 13 pl an tre at ed th e cl ai m o f th e se ni or

li en ho ld er as se cu red

, bu t av oi de d th e li en s of th e se co nd an d th ird li en ho ld ers

-

tre at in g th ei r cl ai m s as who ll y un se cu red

. It in cl ud ed ne arl y id en ti cal pr ov is io ns fo r

-2-th e “ st rip of f” of t h e se co nd an d th ird li en s he ld by th e two jun io r li en ho ld ers

. In 1

pa rag rap hs 14 an d 1 5 (c om bi ne d b el ow) , it pro vi de d, i n p ert in en t p art , th at :

Co nf irmatio n of th is pl an wit ho ut ob jecti on fro m [th e se co nd li en ho ld er

or th e th ird li en ho ld er], or it s as si gn ee, or ov er th e ob jecti on o f [th e

se co nd li en ho ld er or th e th ird li en ho ld er], or it s assig nee, sh al l co ns ti tu te

an ack no wled gm en t an d acce pt an ce th at th ere i s no eq ui ty in th e de bt or ’s res id en ti al real pr op ert y

. . ., ov er an d ab ov e th e fir st m or tg ag e

. . . to whi ch th e li en of th e [s eco nd or th ird ] m or tg ag e can at ta ch

. The

or de r co nf

irming th e pl an sh al l co ns ti tu t e a fin di ng by th e ba nk ru pt cy

co ur t th at th e fai r m ark et va lu e of th e real es ta te is $ 1 4 5 ,00 0; an d th at
th e b al an ce o wed to [th e fir st li en ho ld er] i s $ 17 6,3 12 .00 ; t he refo re t he

cl ai m of [th e se co nd li en ho ld er or t h e t hi rd li en ho ld er] o r it s as si gn ee is who ll y un se cu red

. The real es ta te

. . . sh al l ve st in th e de bt or free an d

cl ear of th e [th e se co nd or th ird ] m or tg ag e up on co m pl et io n of al l

pa y m en ts du e to th e tru s t e e un de r th e pl an

. [The se co nd li en ho ld er or th e th ird li en ho ld er], o r i ts as si gn ee, sh al l can cel th e [s eco nd or th ird ]

m or tg a g e w i t h in 20 da y s aft er th e tru st ee’s fin al rep or t to th e co ur t
sh owi ng co m

pl et io n of th e p l a n

. If [th e se co nd li en ho ld er or th e th ird

li en ho ld er], or it s as si gn ee, fai ls to can cel th e [s eco nd or t hi rd ]

m or tg ag e, de bt or m ay ob ta in an or de r an d jud gm en t vo id in g th e [s eco nd

o r t h i r d ] m or tg ag e, it s cl ai m , if an y , sh al l be pa id as an un se cu red

,

no np rio rit y

cla im

.

The Deb to r’s pl an pr op os ed to pa y $4 ,92 2.0 0, th e ex act am ou nt li st ed on hi s Sch ed ul e

F as owe d to un se cu red cred it or s ot he r th an th e se co nd an d th ird li en ho ld ers , to

un se cu red cred it or s. The Deb to r’s co un se l ex pl ai ne d th at th e pl an pr op os ed to st rip

of f th e jun io r li en ho ld ers ’ li en s. The ir cl ai m s were in cl ud ed in th e pl an as cl ai m s th at

are un se cu red

, bu t th ey wou ld no t rece i v e an y pa rt of th e di st rib ut io n to un se cu red

cred it or s.

“The term ‘strip off ’ is colloquially

used whe n, there being no collater al value f or 1

a mortg ag e, the e ntire lien is proposed to be a voided. The te rm ‘strip down’ is used w hen, ther e being insufficient c ollatera l value for a mortg ag e, the lien is propose d to be re duced to the va lue

of the c ollatera l. In re M

ann , 249 B.R. 831, 832 n.1 (B .A.P. 1st Ci r. 2000) ( citations omitt ed).

-3-No writ te n ob jecti o n s t o th e co nf

irmatio n of th e Deb to r’s or ig in al pl an were

fil ed a n d th e Deb to r’s va lu at io n of th e pr op ert y , whi ch was ba se d on an ap pr ai sa l,

was no t co nt es te d du rin g th e pl an co nf irmatio n pr oc es s. The Deb to r su bm it te d a br ie f

in su pp or t of co nf

i r mat io n of hi s pl an

. Afte r a he ari ng du rin g whi ch th e Deb to r’s

co un se l arg ue d in fav or of co nf irmatio n o f t he pl an th at al lo wed fo r th e st rip of f of

th e jun io r li en s an d th e ba nk ru pt cy co ur t co m m en te d th at “ th e la w in th is juri sd ic ti on

cl earl y do es no t al lo w th e d eb to r to st rip th e se co nd or t hi rd m or tg ag e se cu red on ly
by a li en on th e de bt or ’s ho m es te ad ,” th e co ur t d en ie d c on fir m at io n of the Deb to r’s
pl an

. The Deb to r so ug ht le av e to ap pe al fro m th e ba nk r u p t c y c ou rt’s in te rlo cu to ry

or de r de nyin g co nf

irmatio n of hi s pl an , bu t th e req ue st was de ni ed an d th e ap pe al was

di sm is se d. The De bt or th en fil ed an am en de d pl an th at pr ov id ed th at th e jun io r

li en ho ld ers wou ld ret ai n th ei r li en s a n d t h a t t r eat ed th ei r cl ai m s as se cu red

. The

ba n k r u p t c y co ur t co nf

irmed th e am en de d pl an ov er th e Deb to r’s ob jecti on an d th is

ap pe al en su ed

.

In th is ap pe al

, th e Deb to r as ks us to de ci de th at a Ch ap te r 13 de bt or m ay st rip

of f a wh ol ly uns ecu red jun io r m or tg ag e li en on hi s pri nc ip al res id en ce, and th at th e

st rip of f of su ch li en sh ou ld be al lo wed in a cas e whe re a de bt or is in el ig ib le fo r a

di sc ha rg e. The Ch ap te r 13 tru st ee di sa gr ees wit h th e Deb to r on bo th is s ue s, an d

am ic us cu ria e TFC Nati on al Ban k fil ed it s br ie f in su pp or t of th e Ch ap te r 13 tru st ee’s

po si ti on

.

STANDARD OF REVIEW

We r e v ie w th e ba nk ru pt cy co ur t's co nc lu si on s of la w de no vo

. Gre en T r e e

Se rv ic in g v. Co le man (I n r e C o l e man

)

, 39 2 B.R. 76 7, 76 9 (B.A.P. 8t h Ci r.

20 08 )(“ St at ut or y in te rp ret at io n is a qu es ti on of la w th at [ap pe ll at e co ur ts ] rev ie w de

n ov o.” ) (q uo ti ng Min n. Su pp ly Co

. v. Ray mon d Co rp

. , 47 2 F.3 d 52 4, 53 7 ( 8 t h

Ci r.20 06 )). The fact s ar e n ot in di sp ut e.

-4-DISCUSS IO N

As an in it ia l m at te r, we no te th at th e Deb to r’s ap pe al of th e or de r co nf irming

hi s pl an was pr op er. Za hn v. Fin k (In re Za hn )

, 52 6 F.3 d 1 1 4 0

, 1 1 4 1 (8 th Ci r.

20 08 )(d eb to r was an “ ag gr ie ve d p art y ” wit h s ta nd in g t o ap pe al co nf irmatio n of he r

own pl an ).

I. Stri p Off

of W ho ll y Uns ecur ed Li ens

A de te rm in at io n of whe th er th e Ban kr up tc y Co de al lo ws th e “ st rip of f” of th e jun io r li en s on th e Deb t o r ’s pr in ci pa l res id en ce if th ey are who ll y un se cu red

“ in vo lv es th e in te ract io n of two pr ov is io ns of th e Ban kr up tc y Co de

- [§ ] 50 6( a) an d

[§ ] 13 22 (b )(2 ).” Pon d v. Far m Sp eci al is t Rea lt y (In re Pon d)

, 25 2 F.3 d 12 2, 12 4 (3 d

Ci r. 20 01 ).

Ba n k r u p t c y C od e § 50 6( a) go ve rn s cl as si fic at io n of a cl ai m

. It pr ov id es , in

pe rti ne nt pa rt, t ha t:

An al l o w e d c l a im of a cred it or se cu red by a li en on pr op ert y in whi ch

th e es ta te ha s an in te res t,

. . . , is a se cu red cl ai m to th e ex t en t of th e

va lu e of su ch cred it or ’s in te res t in th e es ta te ’s in te res t in su ch pr op ert y ,

. . . , a n d i s a n un se cu red cl ai m to th e ex te nt th at th e va lu e of su ch

cred it or ’s in te res t . . . is les s t ha n t he am ou nt of s uc h a ll owe d c la im

.

11 U.S.C. § 5 06 (a).

W it h an ex cep ti on , a Ch ap te r 13 de bt or m ay mo d i f y th e rig ht s of cred it or s,

su ch as b y a vo id in g th ei r li en s, th ro ug h hi s pl an

. Sect io n 13 22 (b )(2 ) of th e

Ban kr up tc y Co de pe rm it s a Ch ap te r 13 pl an to “ m od ify th e rig ht s of ho ld ers of

se cu red cl ai m s, ot he r th an a cl ai m se cu red on ly by a se cu rit y in te res t in real pr op ert y

th at is th e de bt or ’s p rin c i p al res id en ce, or of ho ld ers of un se cu red cl ai m s

. . . .” 11

U.S.C. § 1 32 2( b) (2 ).

-5-In No bl ema n v. Am. Sa v. Ban k

, 50 8 U.S. 32 4 (1 99 3)

, th e Su pr em e Co ur t

e x a mi n e d t he rel at io ns hi p be twee n § 13 22 (b )(2 ) an d § 50 6( a) wit h res pe ct to a n

un de rs ecu red li en ho ld er. Bar te e v. Ta ra Co lo ny Homeo wn er s Ass’ n (In re Bart ee),

21 2 F.3d 27 7, 28 5 (5 th Ci r. 20 00 ) (ci ti ng No bl ema n, 50 8 U.S. 32 4)

. It hel d th at th e

de bt or s co ul d no t “ st rip do wn” th e un se cu red po rti on of th e cred it or ’s un de rs ecu red

cl ai m on th e de bt or s’ pr in ci pa l res id en ce. No bl ema n , 50 8 U.S. at 3 3 2. The Co ur t
reject ed th e de bt or s’ arg um en t th at § 13 22 (b )(2 )’s an ti m od ifi cat io n cl au se sh ou ld

ap pl y on ly t o th e se cu red po rti on of th e cl ai m , and no t to th e un se cu red po rti on s of

th e un de rs ecu red cl ai m

. Id

. at 32 8- 33 2. The ph ras e “ cl ai m se cu red on ly by a se cu rit y

i nt eres t in real pr op ert y th at is th e de bt or ’s pr in ci pa l res id en ce” in §1 3 2 2 ( b ) ( 2 )

in cl ud ed bo th th e se cu red an d th e un se cu red po rti on of th e No bl ema n cred it or ’s

un de rs ecu red cl ai m

. Id . a t 33 0- 31

. The Co ur t ex pl ai ne d th at th e de bt or s co ul d no t

m od ify th e pa y m en t an d in te res t te rm s fo r th e un se cu red po rti on of th e cl ai m wit ho ut

m od ifyin g th e rig ht s of th e cred it or wit h res pe ct to th e se cu red po rti on of th e cl ai m , th us vi ol at in g § 13 22 (b )(2 ). Id

. at 33 1. “ The de ci si on in No bl ema n th en st an ds fo r

th e pr op os it io n th at th e an ti m od ifi cat io n cl au se of § 13 22 (b )(2 ) ba rs Ch ap te r 13

de bt or s f r o m s tri pp in g do wn a de bt or ’s cl ai m wh en an y po rt io n of th at cl ai m is

s e c u r e d b y th e de bt or ’s ho me. ” Gri ff ey v. U.S. Ban k (In re Gri ff ey ), 33 5 B.R. 16 6,

16 8- 69 (B.A.P. 10 th Cir . 20 05 ) (em ph as is ad de d)

.

The No bl ema n co ur t di d no t di rect ly an swe r th e qu es ti on of whe th er a de bt or

co ul d s tri p o ff a wh ol ly un se cu red li en on th e d eb to r’s pr in ci pa l re si de nc e.

Befo re an d aft er No bl ema n , b an kr up tc y co ur ts in Mi nn es ot a h av e h el d t ha t a

de bt o r m ay no t st rip of

f a who ll y un se cu red li en on hi s pr in ci pa l res id en ce wit ho ut

vi ol at in g th e pr ov is io ns of § 13 22 (b )(2 ). S e e

, e

. g

. , In re Fra me , No. 09 -4 10 10
(Ban kr

. D. Mi nn

. Sep te m be r 23

, 20 09 ); In re Hug he s, 40 2 B.R. 32 5, 32 6 (Ban kr

. D.

M i n n

. 2 0 0 9) ; In re Hus sma n , 13 3 B.R. 49 0, 49 1- 93 (Ban kr

. D. Mi nn

. 19 91 ).

Ove ral l, th es e co ur ts in te rp ret § 13 22 (b )(2 ) to m ean th at a de bt or can no t m od ify th e rig ht s of an

y cred it or wit h a “ cl ai m se cu red on ly by a se cu rit y in te res t in real pr op ert y

-6-th at is th e de bt or ’s p r i nc ip al res id en ce.” The y be li ev e th at th e type of th e cl ai m an t

is co nt ro ll in g, an d th at de te rm in at io n of th e se cu red st at us of th e cl ai m un de r § 50 6( a)

is irr el ev an t whe n ap pl y in g §1 32 2( b) (2 )’s an ti m od ifi cat io n cl au se

. W e res pe ct fu ll y

di sa gr ee wi th th es e cas es

.

W e ag ree wit h co ur ts ho ld in g th at §1 32 2 ( b ) ( 2 ) do es no t ba r a Ch ap te r 13

de bt or fro m st rip pi ng of f a who ll y un se cu red li en o n h i s pr in ci pa l res id en ce, a

po si ti on th at ha s b een ad op te d b y all Cir cu it Co ur ts of App eal to ad dr es s th is is su e.

Se e, e.g

., Zi mmer v. PSB Len di ng Co rp

. (In re Zi mmer)

, 31 3 F.3 d 12 20 (9 th Ci r.

20 02 ); La ne v. W

. In te rs ta te Ban co rp (In re La ne )

, 28 0 F. 3 d 6 6 3 ( 6t h Ci r. 20 02 );

Pon d

, 25 2 F.3 d at 12 7; Ta nn er v. Fir st Plu s Fin., Inc. (In re Tan ne r)

, 21 7 F.3 d 13 57
(1 1t h Ci r. 20 00 ); In re Bar te e , 2 12 F.3 d 2 7 7 ( 5 t h Ci r. 20 00 ); McDo na ld v. Mas te r 2

Fin

. In c. (In re McDo na ld )

, 20 5 F.3 d 60 6 (3 d Ci r. 20 0 0 )

. Ban kr up tc y ap pe ll at e 3

pa ne ls of th e Ten th an d Fi rs t Ci rcu it s ha ve ag reed wit h th is co nc lu si on

. Gri ff ey , 33 5

B.R. 1 66 ; In re Ma nn , 24 9 B .R. 83 1 (B .A.P. 1s t Ci r. 20 00 ). 4

As th es e co ur ts ha ve reco gn iz ed

, we fir st de te rm in e whe th er th e cred it or ho ld s

a se cu red cl ai m by lo ok in g to § 50 6( a). The No bl ema n Co ur t cl as si fie d th e cred it or ’s

cl ai m un de r § 50 6( a) as th e fir s t s t e p in it s an al y si s, no ti ng th at th e de bt or s were

“ co rrec t in lo ok in g to § 50 6( a) for a jud ic ia l val ua ti on of th e co ll at eral to de te rm in e

I n American G en. Finance , Inc. v . Dicke rson (

In re Dic kerson) , 222 F.3d 924, 926 2 (11th Cir. 2000), the Eleve nth Circuit ex plained that it was bound by its prior decision but, if it

wer e to write on a

clea n slate, it would adopt the position that a wholly unsecur ed lien could not

be avoide d.

I n two unpublished per c uriam dec isions, the Fourth Circuit aff irmed dec isions of 3

the district court that a llowed the strip off of wholly unsecur ed liens on debtors’ residenc es. See
First Mariner Bank v. J

ohnson , 411 B.R. 221, 225 (D .Md. 2009), aff’d 407 Fe d. Appx. 713 (4th Cir.2011) (per

curia m) (unpublished); Suntrust Bank v. Millard ( In re M illard) , 414 B.R. 73 (D

. Md. 2009), aff’d 404 Fe d. Appx. 804 (4th C ir. 2010) (pe r cur iam) (unpublished).

See also Lam v. Inv estors Thrif t ( In re Lam) , 211, B.R. 36 (B .A.P. 9th Ci r. 1997) 4 (ca se dec ided prior to the time of the Ninth Circuit’s decision in Zimmer )

-7-th e st at us of th e [cre di to r]’ s se cu red cl ai m .” No bl ema n , 50 8 U.S. at 32 8; Bar te e , 21 2

F.3 d at 28 6 (rec og ni zi n g th at th e No bl ema n Co ur t “ co nf irm[ed] th at §5 06 (a) is th e

st art in g po in t in th e an al y si s.

. . .”) (q uo te d in La ne , 28 0 F.3 d at 66 7) ). In acco rd an ce

wit h th e la ng ua ge of § 13 22 (b )(2 ), on ly if th e cred it or is th e ho ld er of a se cu red cl ai m ,

mea ni ng th at it s cl ai m is at le as t pa rti al ly s ecu red af te r ap pl ic at io n of §5 06 (a), w i l l

it be el ig ib le fo r th e pr ot ect io n of §1 32 2( b) (2 )’s an ti m od ifi cat io n pr ov is io n. Zi mmer,

3 1 3 F

. 3 d at 12 26 (“ W hi le it is cl ear th at th e te rm ‘clai m se cu red on ly by’ i n t h e

a n ti m od ifi cat io n cl au se is no t li m it ed to ‘secu red cl ai m s,’ it is eq ua ll y cl ear t h a t

‘hol de rs of se cu red cl ai m s’ do e s r e f e r t o th e te rm of art as de fin ed in §5 06 (a).” );

La ne , 28 0 F.3 d at 66 8 (“ And th e on ly ap pa ren t reas on why th e cl as si fic at io n [of th e

cl ai m ] co ul d m ak e a di ffer en ce is th at th e sp eci al pr ot ect io n acco rd ed by th e

an ti m od ifi cat io n pr ov is io n ex te nd s to th e rig h t s o f ho ld ers of ‘secu red cl ai m s’ an d

do es no t ex t e n d t o t he rig ht of ho ld ers of ‘uns ecu red cl ai m s.’”). The cred it or in

No bl ema n was “ ‘sti ll th e ‘hol de r’ of a ‘secu red cl ai m ’” aft er ap pl ic at io n of § 50 6( a)

be c a us e it s cl ai m was pa rti al ly se cu red by va lu e in th e co ll at eral

, an d it was , th eref or e, en ti tl ed to ha ve it s rig ht s pr ot ect ed un de r § 13 22 (b )(2 ). Zi mmer, 31 3 F.3 d

at 12 24 (qu ot in g No bl ema n , 50 8 U.S. at 32 9)

.

The fact s in No bl ema n are di st in gu is ha bl e fro m th e fact s in th is cas e. Here, th e

va lu e of th e Deb to r’s pr in ci pa l res id en ce is le ss th an th e cl ai m of th e se ni or li en ho ld er

an d th ere is

, th eref

or e, no va lu e se cu rin g th e jun io r li en ho ld ers , ren de rin g th ei r cl ai m s

un se cu red un de r § 50 6( a). Sect io n 13 22 (b )(2 )’s an ti m od ifi cat io n pr ov is io n do es no t

ap pl y to th em , an d th ei r rig ht s m ay pr op erl y be m od ifi ed un de r § 13 22 (b )(2 ). La ne , 28 0 F .3d at 66 8 (“ Sect io n 13 22 (b )(2 ) sa y s, with ou t qu al ifi cat io n and in th e pl ai ne st

of Eng li sh , t ha t a Ch ap te r 13 pl an ‘ m ay ’ m od ify the rig ht s ‘of h ol de rs of u ns ecu red

cl ai m s.’ ”).

Co nt rary to th e arg um en ts of th e Ch ap te r 13 tru st ee an d TFC Nati on al Ban k,

an ex pl an at io n by th e No bl ema n Co ur t th at th e la ng ua ge of § 13 22 (b )(2 ) fo cu se s on

th e “ rig ht s” of ho ld ers of cl ai m s, in st ead of on th e va lu e of th e cl ai m s, do es no t m ean

-8-th at a who ll y un se cu red li en o n a de bt or ’s pr in ci pa l res id en ce is pr ot ect ed fro m

m od ifi cat io n. No bl ema n , 5 08 U.S. a t 32 8 (th e de bt or s ’ “i n t e r pr et at io n fai ls to ta ke

acco un t of § 13 22 (b )(2 )’s fo cu s o n ‘r i g h t s ’ ”). The Co ur t in No bl ema n po in te d to

cert ai n rig ht s pr ot ect ed by § 13 22 (b )(2 ) th at were he ld by th e p a r t i a ll y se cu red

cred it or in th at cas e, an d st at ed th at su ch rig ht s were no t “ li m it ed by th e va lu at io n of

it s se cu red cl ai m .” Id

. at 32 9. Howev er, th e No bl ema n Co u r t d i d n o t ex am in e th e rig ht s pr ot ect ed by § 13 22 (b )(2 ) un ti l af te r it es ta bl is he d th at th e c red it or he ld a

se cu red cla im

. Se e Zi mmer , 31 3 F .3d at 1 22 6 (“ Fi na ll y , and on ly after d et erm in in g

th at th e cred it or was th e ho ld er of a se cu red cl ai m a n d t h u s el ig ib le fo r

an ti m od ifi cat io n pr ot ect io n, th e Co ur t pr oc eed ed to th e qu es ti on of ex act ly wha t was

en ti tl ed to su ch pr ot ect io n.” ) ( ci ti ng No bl ema n , 31 3 F.3 d at 32 9- 33 0) ); Ta nn er , 21 7

F.3 d at 13 60 (“ on ly th e rig ht s s e c u r e d by so m e rem ai ni ng eq ui ty wil l be pr ot ect ed

fr o m mo d ifi cat io n” ). Mo reo ve r, th e rig ht s id en ti fie d by th e No bl ema n Co ur t were

th os e r i g h t s th e cred it or ha d un de r th e m or tg ag e in st ru m en ts th at were en fo rcea bl e

un de r st at e la w. As th e ho ld ers of cl ai m s wit h no va lu e to su pp or t th ei r li en s on th e 5

Deb to r’s pr op ert y , an y rig ht s affo rd ed to th e jun io r li en ho ld ers un de r st at e la w wou ld

pr es um ab ly be on ly e mp t y r ig ht s in th e se ns e th at th ey wou ld no t pr ov id e th e

li en ho ld ers wit h a rem ed y

. Se e La m , 2 11 B.R. 40 (s ta te la w r ig ht s of an un se cu red

li en ho ld er, i f an y , are em pt y rig ht s)

.

In La ne , th e Si xt h Ci rcu it Co ur t of App eal s pr ov id ed a he lp fu l su m m ary of th e

po si ti on we fo ll ow i n t hi s ca se :

The rig hts that ex isted under the a pplicable state law in Nobleman included: 5

[T] he rig ht to repa y ment of the principal in monthly installments over a fix ed

term at specifie d adjustable rates of intere st, the rig ht to retain the lien until

the debt is pa id of

f, the rig ht to acc eler ate the loan until the debt is paid off,

the rig ht to acc eler ate the loan upon defa ult and t o proce ed ag ainst [t he]

residenc e by fore closure and publ ic s ale, and the right to b ri n g an action to

rec over a ny defic iency

rema ining a fter f

orec losure.

Nobleman , 508 U.S. at 329 (citation omitted).

-9-The m es sa ge , to reca pi tu la te , is th is :

— Sect io n 13 22 (b )(2 ) pr oh ib it s m od ifi cat io n of th e rig ht s of a ho ld er of

a se cu red cl ai m if th e se cu rit y co ns is ts of a li en on th e de bt or 's pr in ci pa l

res id en ce;

— Sect io n 13 22 (b )(2 ) pe rm it s m od ifi cat io n of th e rig ht s of an un se cu red

cl ai m ho ld er;

— W he th e r a l i e n c la im an t is th e ho ld er of a “ se cu red cl ai m ” or an

“ un se cu red cl ai m ” de pe nd s, th an ks to § 50 6( a), on whe th er th e cl ai m an t's sec ur it y

in te res t h as an y

act ua l “ va lu e; ”

— If a cl ai m an t's li en on th e de bt or 's ho m es te ad ha s a po si ti ve va lu e, no

m at te r h o w sm al l in rel at io n to th e to ta l cl ai m , th e cl ai m an t ho ld s a

“ se cu red cl ai m ” an d th e cl ai m an t's co nt ract ua l rig ht s un de r t h e lo an do cu m en ts are n ot su bjec t t o m od ifi cat io n b y th e Ch ap te r 13 pl an ;

— If a cl ai m an t's li en on th e de bt or 's ho m es te ad ha s no va lu e at all

, on th e ot he r ha nd

, th e cl ai m an t ho ld s an “ un se cu red cl ai m ” an d th e cl ai m an t's co nt ract ua l ri gh ts are s ub ject t o m od ifi cat io n b y

th e p la n.

La ne , 28 0 F .3d at 6 69

.

Hav in g de te rm in ed th at a de bt or may g e n e r al ly st rip of f a who ll y un se cu red

li en on hi s pr in ci pa l res id en ce, we no w an al y ze whe th er su ch li en av oi da nc e is

av ai la bl e whe n t he de bt or is in el ig ib le for a Ch ap te r 13 di sc ha rg e.

II

. Stri p Off Whe re Debto r is In el ig ib le fo r a Dis cha rg e Under 11 U.S

. C

. §

13 28 (f)(1 )

Co m m on ly, a Ch ap te r 13 de bt or rece iv es a di sc ha rg e at ab ou t th e sa m e ti m e he

co m pl et es hi s ob li ga ti on s un de r hi s Ch ap te r 13 pl an

. 11 U.S.C. § 13 28 (a) (“ as so on

as pra ct ic ab le aft er co m

pl et io n b y

th e d eb to r of al l pa y m en ts un de r th e pl an

. . . t he

-10-co ur t sh al l gr a n t th e de bt or a di sc ha rg e of al l de bt s pr ov id ed fo r by th e pl an or

di sa ll owe d un de r se ct io n 50 2 of th is ti tl e”); In re Oko si si

, 45 1 B.R. 90

, 94 -9 5 (Ban kr

. D. Nev

. 20 11 ) (ex pl ai ni ng li en av oi da nc e in a typic al Ch ap te r 13 cas e). In m an y li en

s t r i p p i n g cas es , th e who ll y un se cu red li en is

, th us , av oi de d at th e ti m e th e de b t o r

c o mp l e te s hi s pl an pa y m en t an d ob ta in s hi s di sc ha rg e. In th is cas e, we co n s i d e r

whe th er a d eb to r m ay

st il l av oi d a who ll y un se cu red li en on hi s p rin ci pa l re si de nc e

if h e is no t el ig ib le for a Ch ap te r 13 di sc ha rg e.

W he n a de bt or o b t a i n s a Ch ap te r 7 di sc ha rg e an d fil es a Ch ap te r 13 cas e in

su ch cl os e pr o x i mi t y t o hi s Ch ap te r 7 cas e th at he is in el ig ib le fo r a Ch ap te r 13

di sc ha rg e un de r § 13 28 (f)(1 ), th e si tu at io n is co m m on ly refe rred to as a “ Ch ap te r 20 .”

A Ch ap te r 7 de bt or ’s di sc ha rg e, st an di ng al on e, do es no t de pr iv e a m or tg ag ee

of it s rig ht to co ll ect it s de bt in re m

. 11 U.S.C. § 52 4( a)(2 ) (“ A di sc ha rg e

. . . op erat es

as an in jun ct io n ag ai ns t th e c om m en cem en t or co nt in ua ti on of an act io n, th e

em pl oym en t of pr oc es s , or an act

, to co ll ect

, reco ve r or of fs et an y su ch de bt as a

p e r so na l li ab il it

y of th e de bt or ”) (em

ph as is ad de d) ); Jo hn so n v. Home St at e Ba n k

, 50 1 U.S. 78

, 84 (1 99 1) (“ [A] b a n k r u p t c y di sc ha rg e ex ti ng ui sh es on ly on e m od e of

en fo rci ng a cl ai m - na m el y , an act io n ag ai ns t th e de bt or in pe rs on am - whi le le av in g

in ta ct an ot he r - na m el y , an act io n ag ai ns t th e de bt or in re m .”). In hi s Ch ap te r 13 cas e,

a Ch ap te r 20 de bt or who is in el ig ib le fo r a di sc ha rg e un de r § 13 28 (f)(1 ) m ay se ek to

st rip of f a m or tg ag ee’s li en th at rem ai ne d in pl ace fo ll owi ng hi s Ch ap te r 7 di sc ha rg e. 6

Th e D e bt or co nc ed es th at hi s Ch ap te r 7 cas e was fil ed wit hi n 4 y ears of hi s

Ch ap te r 13 cas e, th a t h e o b ta in ed a di sc ha rg e in hi s Ch ap te r 7 cas e, an d th at he is

I n Harmon v. U

.S. , 101 F.3d 574, 581- 82 (8th Cir. 1996), the Eig hth Circuit 6 explained that even in Chapter 7 case s, liens often do not pass throug h bankruptc y unaff ecte d. I n this case, the D ebtor a dmits t hat the sec ond and third liens on his home survived his Chapter 7 discharg e.

-11-in el ig ib le fo r a di sc ha rg e in hi s Ch ap te r 13 cas e. 1 1 U

. S

. C

. §1 32 8( f)(1 ). He al so 7

ad m it s th at th e jun io r li en ho ld ers ’ li en s su rv iv ed hi s Ch ap te r 7 di sc ha rg e an d th at th ey

were to rece iv e no pa y m en t th ro ug h hi s or ig in al Ch ap te r 13 pl an

. Nev ert he le ss , th e

Deb to r arg ue s t ha t hi s in el ig ib il it y fo r a Ch ap te r 13 di sc ha rg e d oe s n ot pre ve nt hi m

fro m st rip pi ng off

th e jun io r li en ho ld ers ’ li en s.

Co ur ts di sa gr ee reg ard in g whe th er a de bt or ’s in el ig ib il it y fo r a di sc ha rg e ba rs

hi m fro m us in g § 13 22 (b )(2 ) to pe rm an en tl y st rip of f an ot he rwis e who ll y un se cu red

li en on hi s pr in ci pa l res i d e nc e. So m e co ur ts sa y th at a de bt or ’s el ig ib il it y fo r a

di sc ha rg e is no t a req ui rem en t fo r li en av oi da nc e

. S e e

, e .g., Jen ni ng

s, --- B.R. ---,
20 11 W L 29 09 88 8 (Ban kr

. N.D. Ga. Ju ly 11

, 20 11 ); Oko si si

, 45 1 B.R. 90 ; Fai r , 45 0

B.R. 8 53 (E.D. Wis. 20 11 ); In re W at er man , 4 47 B.R. 32 4 (Ban kr . D. Co lo . 20 11 );

In re T ra n , 43 1 B .R. 23 0 (Ban kr . N.D. Cal . 20 10 ); In re Hi ll , 44 0 B .R. 17 6 (B an kr

. S.D. Cal

. 20 10 ). Oth er co ur ts sa y th at a de bt or can no t pe rm an en tl y st rip of f a li en on

hi s pr in ci pa l res id en ce if he is in el ig ib le fo r a di sc ha rg e. Se e, e.g

., In re Vict or io

, ---
B.R. ---, 20 11 W L 2 74 60 54 (Ban kr . S .D. Cal. 2 01 1) ; In re Ge ra rd in

, 44 7 B .R. 34 2
(Ban kr

. S.D. Fl a. 20 11 ); In re Fen n , 42 8 B.R. 49 4 ( B a n k r

. N

. D

. Ill

. 20 10 ); In re

Men do za

, No. 0 9- 22 39 5 HRT, 2 01 0 WL 73 68 34 (Ban kr . D. Co l. J an . 21 , 20 10 ); In

re Ja rv is

, 39 0 B .R. 60 0, 6 04 -0 6 (B an kr . C.D. Ill . 20 08 ).

W e ho ld th at th e st rip of

f of a who ll y u n s e c u r ed li en on a de bt or ’s pr in ci pa l

res id en ce is effe ct iv e up on co m pl et io n of th e de bt or ’s ob li ga ti on s un de r hi s pl an , an d

it is no t co nt in ge nt on hi s re cei pt of a Ch ap te r 13 di sc ha rg e.

Section 1328(f) (1) pr ovides, in pertinent par t, that: 7

(f) . . . the cour

t shall not gra

nt a dischar g e of a ll debts provided for in the plan or disallowed unde r sec tion 502, if the debtor has r ece ived a discharg e - (1) in a c ase f

iled under c hapter

7 . . . of this titl e during the 4-y ear period pre ceding the date of the orde r for

relief under this cha

pter.

11 U.S.C. §1328(f)(1)

.

-12-As so m e co ur ts ha ve reco gn iz ed

, no th in g in th e Ban kr up tc y Co de co nd it io ns

a Ch ap te r 1 3 d e b to r’s ab il it y to m od ify a who ll y un se cu red cred it or ’s li en un de r §

13 22 (b )(2 ) on hi s el ig ib il it y fo r a di sc ha rg e. Se e, e.g

., Tr an , 43 1 B.R. at 23 5 (ci ti ng

va rio us Ban kr up tc y Co de pr ov is io ns an d co nc lu di ng th at th e Ban kr up tc y Co de do es

no t “ pr ecl ud e[] a de bt or th at is no t el ig ib le fo r a di sc ha rg e fro m fil in g a ch ap te r 13

cas e, ob ta in in g co nf

irmatio n of a ch ap te r 13 pl an , an d wit h th e ex cep ti on of th e rig ht

to a di sc ha rg e, fro m en

joy in g al l th e rig ht s of a ch ap te r 13 de bt or , in cl ud in g th e rig ht

to st rip of f li en s.”) ; W

at er man , 44 7 B.R. at 32 8- 29 (fi nd in g th e reas on in g an d an al y si s

in Tr an an d ot he r cas es al lo win g st rip of fs in no -d is ch arg e C h a p t e r 13 cas es to be

“ pe rs ua si ve an d co m

pe ll in g” ). Fo r ex am

pl e, §1 32 5 do es no t in cl ud e el ig ib il it y fo r

a di sc ha rg e as a req ui rem en t fo r co nf irmatio n of a pl an

. Tr an

, 43 1 B.R. at 23 5
(“ [A]lth ou gh § 13 25 (a) an d (b ) se ts fo rth nu m ero us req ui rem en ts fo r co nf irmatio n of

a ch ap te r 13 pl an , no th in g in § 13 25 co nd it io ns co nf irmatio n on th e de bt or be in g

el ig ib le for a di sc ha rg e.”).

As su pp or t fo r he r po si ti on , th e Ch ap te r 13 tru st ee ci te s to § 13 25 (a)( 5)

, whi ch

pr ov id es , in pe rti ne nt pa rt, fo r co nf irmatio n o f a Ch ap te r 13 pl an if:

(5 ) wit h res pe ct to each al lo wed se cu re d cl ai m pr ov id ed fo r by th e pl an

-
(A) the ho ld er o f su ch cla im ha s ac cep te d t he pl an ; 8

(B)(i) th e p la n p ro vi de s t ha t -

(I) th e ho ld er of su ch cl ai m ret ai n th e li en se cu rin g su ch

cl ai m un ti l t he earl ie r of

-
(aa) th e p ay m en t o f th e u nd erl y in g d eb t . . . ; o r

(b b) di sc ha rg e u nd er s ect io n 1 32 8. . .; a nd

Even if § 1325( a)( 5) applied to a wholly unsecur ed cla im, in the Debtor’s c ase, 8 the junior lienholders did not object to conf irmation of the De btor’s orig inal plan that proposed to strip off their liens.

-13-(II) if th e cas e un de r th is ch ap te r is di sm is se d or co nv ert ed

wit ho ut co m

pl et io n of th e pl an , su ch li en sh al l al so be ret ai ne d by su ch

ho ld er to th e ex te nt reco gn iz ed by ap pl ic ab le no nb an kr up tc y la w.

. . or

. . . (C) th e de bt or su rren de rs th e pr op ert y se cu rin g su ch cl ai m to su ch

ho ld er.

11 U.S.C. § 1 32 5( a)(5 ) (em ph as is ad de d)

.

Sect io n 13 2 5 ( a )(5 ), in cl ud in g it s sp eci fic su bs ect io n th at was ci te d by th e

Ch ap te r 13 tru st ee, § 13 25 (a)( 5) (B)( i)( I)(b b)

, do es no t app ly in th e cas e of a who ll y

un se cu red li en on a de bt or ’s p r i n c i p a l res id en ce. Hil l

, 44 0 B.R. at 18 3 (“ Sect io n

13 25 (a)( 5) ha s no ap pl ic ab il it y to un se cu red cl ai m s.

. . .”). The req ui rem en ts un de r §1 32 5( a)(5 ) on ly ap pl y w h en th ere is va lu e in th e co ll at eral to su pp or t th e

li en ho ld er’s cl ai m ; th e pl ai n la ng ua ge of th at se ct io n s p e c i f i e s th at it ap pl ie s to an

“ al lo wed se cu re d cl ai m. ” 11 U.S.C. § 13 25 (a)( 5) (em ph as is ad de d)

. As we

ex pl ai ne d, No bl ema n i n s tru ct s us to fir st lo ok to § 50 6( a) to cl as si fy th e cl ai m as

se cu red or un se cu red

. Se e No bl ema n , 50 8 U.S. at 32 8. In No bl ema n , “ th e ba nk [wa]s

st il l th e ‘hol de r’ of a ‘secu red cl ai m ,’ be ca us e pe ti ti on er ’s ho me re ta in [e d] $2 3,5 00
of va lu e as co ll at er al .” 50 8 U.S. at 32 9 (em ph as is ad de d )

. Wh e r e t h e co ll at eral

ret ai ns no va lu e to su pp or t th e li en ho ld er’s cl ai m , li ke in th is cas e, a cred it or do es no t

h a v e a se cu red cl ai m an d th e req ui rem en ts of §1 32 5( a)(5 ) do no t ap pl y

. Se e I n r e

Fra zi er , 44 8 B.R. 80 3, 81 1 (Ban kr

. E.D. Cal

. 20 11 ) (“ A cred it or en ti tl ed to as se rt th e

pr ov is io ns of 11 U.S.C. § 13 25 (a)( 5) m us t be t h e h o l d er of an “ al lo wed se cu red

cl ai m .” A “ se cu red cl ai m ” is a te rm of art un de r th e Ban kr up tc y Co de

, . . . an d is th e

se cu red cl ai m de te rm in ed pu rs ua nt to § 50 6( a)

. ”). The Eig ht h Ci rc u i t ’s an al y si s in

Har mon v. U.S.

, 10 1 F.3 d 57 4, 58 3 (8 th Ci r. 19 96 ), fu rth er su pp or ts ou r po si ti on

. The

co ur t in Har mon ex am in e d th e ph ras e “ al lo wed se cu red cl ai m ” in §1 22 5( a)(5 ), a

Ban kr up tc y Co de se ct io n co nt ai ni ng la ng ua ge si m il ar to th e rel ev an t la ng ua ge fo un d

in §1 32 5( a)(5 ), an d “ co nc lu d[ ed ] th at ‘allo wed se cu red cl ai m ’ in §1 2 2 5( a)(5 ) m us t

-14-be in te rp ret ed by refe ren ce to th e bi fu rcat io n of cl ai m s in to se c u r e d a n d un se cu red

cl ai m s b y §5 06 (a).” 10 1 F .3d at 5 83

.

W e se e n o mer i t in th e arg um en t m ad e by th e Ch ap te r 13 tru st ee an d cas es

s a yi ng th at al lo win g a st rip of f in a “ no di sc ha rg e” Ch ap te r 20 cas e am ou nt s t o
al lo win g th e de bt or a “ de fact o di sc ha rg e.” Se e, e.g

. , Fen n , 42 8 B.R. at 50 0 (s ay in g
th at al lo win g a pe rm an e n t s t rip of f of a jun io r m or tg ag e li en aft er th e de bt or

co m pl et es th e pl an in a cas e whe re the de bt or is no t eli gi bl e fo r a di sc ha rg e “ res ul ts

in a de fact o di sc ha rg e”) (ci ta ti on om it te d) ; bu t se e, e.g

., Fai r, 45 0 B.R. at 85 7 (“ [I]t

is in accu rat e to ch arac te riz e li en st rip pi ng as a de fact o di sc ha rg e un de r th e
ba nk ru pt cy co de .”). By se ek in g t o s t r i p o f f a jun io r li en , a de bt or se ek s to do jus t

th at : av oi d th e li en

. He do es no t s e e k a di sc ha rg e. In ad di ti on , no th in g in § 9

13 28 (f)(1 ), th e pr ov is io n ba rri ng a Ch ap te r 20 de bt or ’s di sc ha rg e, li m it s th e de bt or ’s rig ht s un de r § 13 22 (b )(2 ). Se e Oko si si

, 45 1 B.R. at 10 1 (§ 13 28 (f) on l y p r o h ib it s
di sc ha rg e an d c ou rt wo ul d n ot read fur th er re st ric ti on s i nt o t hi s s ect io n)

.

Our de ci si on th at : (1 ) th e Ban kr up tc y Co de pe rm it s a Ch ap te r 13 de bt or to st rip

of f a w ho ll y un se cu red li en ; an d (2 ) a de bt or ’s ab il it y to st rip of f a li en is effe ct iv e

up on co m

pl et io n of hi s ob li ga ti o n s un de r hi s pl an , rat he r th an on hi s rece ip t of a

di sc ha rg e , d o e s n o t am ou nt to a co nc lu si on th at th e Deb to r’s or ig in al pl an sh ou ld

ha ve be en co nf

irmed. And it is fo r th e ba nk ru pt cy co ur t to co ns id er whe t h er th e

Deb to r’s pl an co m

pl ie s wi th th e ad di ti on al req ui rem en ts for co nf irmatio n.

CONCLUSI ON

Fo r th e fo reg oi ng reas on s, we REVERSE t he de ci si on of t he ba nk ru pt cy

co ur t an d R EMAND th is cas e to th e b an kr up tc y co ur t fo r fu rth er p ro ceed in gs

co ns is te nt wit h t hi s o pi ni on

.

The strip off

of a lien unde r § 1322(b) (2) is not the equiva lent of re ceiving a 9 discharg e. As wa s previously explained, a dischar g e re lease s a debtor’ s in personam liability , but

it does not affe ct the lien. See 11 U.S.C. § 524(a) a nd Johnson , 501 U.S. at 84. A strip off avoids the lien, thus exti ng uishing a cre ditor’s ability

to proce ed ag ainst the debtor in rem

.

-15-