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Judge Bason and 109(e) debt limits?=20=20=20=20=20
If it is subject to 506, he will most likely follow Smith and count it as part of the debtor's "noncontingent, liquidated, unsecured debts" under 109(e)
This is the issue I took to the 9th Circuit Court of Appeals (and lost) in Santos.
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On Sunday, September 21, 2014 6:48 PM, "Nicholas Gebelt ngebelt@gebeltlaw.com [cdcbaa]" wrote:
Dear Michael,
I just wrote a blog post on the question Ill post it tomorrow and came across some case law on point. Courts in the Ninth Circuit side with me, but some courts in other circuits disagree. HereSince the Nobelman Court held that a Chapter 13 debtor may not bifurcate an undersecured mortgage on the principal residence for 506(a) and lien strip purposes, it seems reasonable to conclude that the debt cannot be bifurcated for 109(e) eligibility purposes. This has been the position of the Ninth Circuit courts that have faced the question. For example:It is also readily determinable that the obligation is partially secured by Debtors principal residence and thus Debtors cannot modify the claim. Accordingly, the entire amount of the debt must be counted as secured for purposes of eligibility.
In re Blackwell, Case Nos. 12-57109-ASW, 12-57115-ASW (Bankr. N.D. Cal. 2014).
The undersecured portion of a lien that cannot be modified in Chapter 13 should not be included in the amount of unsecured debts for purposes of determining eligibility under 11 U.S.C. 109(e), but as part of the amount of secured debts.
In re Munoz, 428 B.R. 516, 519 (Bankr. S.D. Cal. 2010).
The court notes that some courts have held that since 1322(b)(2) of the Code prevents a bankruptcy court from modifying a lien secured only by the debtors principal residence through a Chapter 13 plan, this anti-modification protection applies to the entire claim, even if the debt is undersecured, so that a lien against the debtors personal residence should not be bifurcated into secured and unsecured claims for eligibility purposes. . . . [T]he court agrees with these decisions . . .
In re Tolentino, No. 10-10511 (Bankr. N.D. Cal. 2010).
However, there are some courts in other circuits that have held the contrary. For example:
The Court, therefore, holds that the undersecured portion of a debt must be included within the unsecured portion of the debt limits in 109(e) even when the debt in question is a mortgage on the debtors primary residence.
In re Werts, 410 B.R. 677, 686 (Bankr. D. Kan. 2009).
Nothing in 1322(b)(2) warrants abandoning that rationale and jettisoning 506(a) in the determination of the amount of unsecured claims for purposes of 109(e). When some of those unsecured debts arising from the application of 506(a) in making the eligibility determination under 109(e) are attributable to the undersecured portion of a claim secured by a security interest on the debtor's principal residence, the holders of unsecured claims still ought to enjoy the same protections of chapter 11 if the unsecured claims (determined by applying 506(a)) exceed the 109(e) unsecured debt limit.
In re Brammer, 431 B.R. 522 (Bankr. D.C. 2009).
My own feeling is that the Ninth Circuit courts are correct because nder 1322(b)(2), and pay that debt in full during the plan, but then treat that same unsecured portion as part of unsecured debt to determine eligibility under 109(e). In re Werts, 410 B.R. at 686.
However, for the bankruptcy attorney who practices outside of the Ninth Circuit, my opinion and a couple of dollars will get you coffee at Starbucks, and not much else. The case law on this question is sparse I have found no appellate cases and in most jurisdictions will therefore be one of first impression. I will keep you posted.
All the best,
Nick
Nicholas Gebelt
Nicholas Gebelt, Ph.D., J.D.
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From:cdcbaa@yahoogroups.com [mailto:cdcbaa@yahoogroups.com]
Sent: Sunday, September 21, 2014 8:32 AM
To: cdcbaa@yahoogroups.com
Subject: Re: [cdcbaa] Judge Bason and 109(e) debt limits?
To clarify, the ultimate conclusion you two arrived at is that if the debt can be bifurcated into unsecured and secured portions, then it must be characterized as such.
So a primary residence with an undersecured first lien, the undersecured portion of which is 300k would have the 300k be treated as secured.
A primary residence with a wholly undersecured second lien in the amount of 300k would have the 300k be treated as unsecured.
Is that correct?
Sincerely,
Michael Avanesian
On Sat, Sep 20, 2014 at 7:36 PM, Nicholas Gebelt mailto:ngebelt@gebeltlaw.com [cdcbaa] wrote:
Dear Larry,
Thank you for the reference. I read with interest the holding in Soderlund, and some of the cases that cite it. In Soderlund the asset that partially secured the debt in question, was not the debtors principal residence. This can be seen in footnote 5, to wit:
We note that a different question might be presented if the debts in question were entitled to the protection afforded by 1322(b)(2), i.e., claims secured only by a security interest in real property that is the debtor U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993) and Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992). Here, the debts are not entitled to such protection, accordingly, we do not attempt to resolve this issue.
One case that cited Soderlund is In re Marques, Case No. 12-01434, Related Doc. No. 30. (Bankr. D. Haw. 2012) (available at: http://scholar.google.
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