United States Bankruptcy Appellate Panel of the Ninth Circuit
In re: SERGE MICHEL BOUKATCH and LORI JEAN BOUKATCH, Debtors. SERGE MICHEL BOUKATCH; LORI JEAN BOUKATCH, Appellants,
MIDFIRST BANK; RUSSELL A. BROWN, Chapter 13 Trustee, Appellees
Argued and Submitted June 19, 2015, at Phoenix, Arizona
Appeal from the United States Bankruptcy Court for the District of Arizona. Bk. No. 2:14-bk-04721-EPB. Honorable Eddward P. Ballinger, Jr., Bankruptcy Judge, Presiding.
Lawrence D. Hirsch of Parker Schwartz, PLLC, argued for appellants.
Craig Lawrence Friedrichs argued for appellee Chapter 13 Trustee Russell A. Brown.
Before: KIRSCHER, PAPPAS and JURY, Bankruptcy Judges.
KIRSCHER, Bankruptcy Judge:
Chapter 13 debtors, Serge M. Boukatch and Lori J. Boukatch (" Debtors" ), appeal an order denying their motion to avoid a lien on their principal residence. The bankruptcy court determined that, as a matter of law, a " chapter 20"  debtor is not entitled to avoid a wholly unsecured junior lien under § § 506(a) and 1322(b)(2) against the debtor's principal residence when no discharge will be entered in the pending chapter 13 case. On this issue of first impression, we REVERSE and REMAND.
I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Debtors filed a chapter 13 bankruptcy case on February 8, 2011. They valued their residence located in Phoenix, Arizona at $187,500. Debtors identified two liens against the residence: Wells Fargo Bank NA (" Wells Fargo" ) held a first lien, amounting to $228,300; and MidFirst Bank (" MidFirst" ) held a second lien, amounting to $67,484.96. The bankruptcy court converted the case to a chapter 7 case on November 21, 2012. The chapter 7 trustee abandoned the residence, given it was burdensome and of inconsequential value to the estate. Debtors received a chapter 7 discharge on March 25, 2013.
Debtors filed the instant chapter 13 bankruptcy case on April 2, 2014, less than four years after the filing of Debtors' case
in which they received their chapter 7 discharge. Debtors again valued their residence at $187,500. In addition to Wells Fargo's first lien for $228,300, Debtors identified MidFirst's second, wholly unsecured junior lien for $67,484, contending that MidFirst held a lien only; their personal liability on this debt had been discharged in the prior chapter 7 case.
Debtors filed an amended chapter 13 plan on June 27, 2014, which provided the following regarding MidFirst's junior lien:
SECOND LIEN: The claim of MidFirst Bank was discharged on 3/25/13 (dkt #89) in Debtors' Chapter 7 case (2:11-bk-03143 RJH) and this second place lien is totally unsecured. The property is encumbered by a first lien in favor of Wells Fargo in the amount of $228,300 and the fair market value of the property is $187,500. Debtors' counsel shall file a separate motion to set aside the MidFirst Bank lien prior to confirmation of the plan pursuant to 11 U.S.C. § 506(a) and the lien of creditor, MidFirst Bank shall be stripped from the property. No payments shall be made to MidFirst Bank.
Am. Ch. 13 Plan, Dkt. no. 20 at 6. Debtors conceded they were ineligible for a chapter 13 discharge under § 1328(f)(1). Id. Appellee, Chapter 13 Trustee Russell A. Brown (" Trustee" ), who supports Debtors on appeal, filed a motion to deny entry of discharge; the bankruptcy court granted that motion.
On July 7, 2014, Debtors filed a motion to determine the value of the residence, seeking to avoid or " strip off" MidFirst's wholly unsecured junior lien under § § 506(a) and 1322(b)(2) (the " Lien Strip Motion" ). MidFirst did not object to Debtors' amended chapter 13 plan or the Lien Strip Motion; Trustee did not object to the " Lien Stripping" provision in Debtors' amended plan.
On July 28, 2014, Debtors filed a Notice of No Objection as to the Lien Strip Motion. Despite the lack of any objection, the bankruptcy court denied the Lien Strip Motion on October 1, 2014. The bankruptcy court did not conduct a hearing. The court's order sets forth its limited findings and conclusions:
The question presented is whether a " chapter 20" debtor can invoke § 506 and § 1322 to permanently strip unsecured liens, in the absence of a discharge. Under the analysis of Victorio v. Billingslea, 470 B.R. 545 (S.D. Cal. 2012), the answer is no. For this reason, the motion is denied.
Order, Dkt. no. 40. Debtors timely filed their notice of appeal on October 7, 2014.
The bankruptcy court had jurisdiction under 28 U.S.C. § § 1334 and 157(b)(2)(K). We have ...