On June 5, the Debtors filed a brief in support of confirmation of their amended plan. Doc. No. 19. They urged the Court to avoid Homecoming's lien under the authority of Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220 (9th Cir. 2002), and to do so through the plan confirmation process rather than an adversary proceeding. Doc. No. 19 at 1 (citing In re King, 290 B.R. 641 (Bankr. C.D. Ill. 2003)). The Debtors served Homecoming's counsel with the brief on June 5, and also again served such counsel with notice of the July 2 hearing.
The following two facts are required to establish that a junior lien is wholly unsecured: (1) the value of the secured property and (2) the amount due on the first mortgage. In re King, 290 B.R. 641, 648 (CD. I11. 2003). "[T]he plan may . . . modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence . . . ."
2001); In re Waters, 276 B.R. 879 (Bankr.N.D.Ill.2002); In re King, 290 B.R. 641 (Bankr.C.D.Ill.2003). Contra In re Barnes, 207 B.R. 588 (Bankr.
The process of bifurcating the secured from the unsecured claim is referred to as a “strip-down” because the lien is stripped down to the value of the collateral. In re King, 290 B.R. 641, 645 (Bankr.C.D.Ill.2003). “Where the collateral is fully encumbered by a prior lien so that no value is available to support a junior lienholder's secured claim, the entire debt is classified as unsecured.”
In Jarvis, the court held that " [c]onsistent with its past practice, this Court also holds that the lien-avoiding effect of the confirmed plan, while established at confirmation, is contingent upon a discharge pursuant to Section 1328." Apart from " past practice," the primary authorities cited by Jarvis were In re Lilly, 378 B.R. 232 (Bankr.C.D.Ill.2007) and In re King, 290 B.R. 641 (Bankr.C.D.Ill.2003), cases out of the same district. Lilly, however, dealt with the rights of " holders of secured claims" and § 1325(a)(5)(B)(i)(I)(bb), which expressly conditions any permanent modification of the rights of a holder of a secured claim on either full payment of the underlying contractual debt or the debtor receiving a " discharge under section 1328."
Apart from "past practice," the primary authorities cited by Jarvis were In re Lilly, 378 B.R. 232 (Bankr. C.D.Ill. 2007) and In re King, 290 B.R. 641 (Bankr.C.D.Ill. 2003), cases out of the same district. Lilly, however, dealt with the rights of "holders of secured claims" and § 1325(a)(5)(B)(i)(I)(bb), which expressly conditions any permanent modification of the rights of a holder of a secured claim on either full payment of the underlying contractual debt or the debtor receiving a "discharge under section 1328."
Where the collateral is fully encumbered by a prior lien such that the junior lien has no value to support it, the modification is referred to as a "strip-off" since the lien is stripped and eliminated. In re King, 290 B.R. 641, 645 (Bankr.C.D.Ill.2003). Section 506(d) provides:
Numerous courts have held that wholly unsecured junior liens on a debtor's residence may be stripped off in Chapter 13 cases. See, e.g.,In re Waters, 276 B.R. 879 (Bankr. N.D. Ill. 2002); In re King, 290 B.R. 641 (Bankr. C.D. Ill. 2003); In re Bennett, 312 B.R. 843 (Bankr. W.D. Ky. 2004). The strip off and avoidance of wholly unsecured junior liens is based on § 506 of the Bankruptcy Code. 11 U.S.C. § 506; Waters, 276 B.R. at 888; King, 290 B.R. at 648.
As pointed out by the court in Bennett, had a debtor contested the validity, extent or priority of the lien, he/ she would have had to commence an adversary proceeding (Id. at 847); otherwise, it is appropriate to seek the relief by motion or as part of the confirmation process. In this regard, the court in Yekel found particular favor with In re King, 290 B.R. 641 (Bankr.C.D.Ill.2003). In King the court indicated that
See Fed.R.Bankr.P. 3015(f) and 9014. Courts reviewing whether a matter is of the type which may appropriately be resolved as part of the confirmation process have looked to whether the matter is one which is generally considered to be a contested matter or one which requires the filing of an adversary complaint. In re King, 290 B.R. 641, 647 (Bankr. C.D. Ill. 2003); Fed.R.Bankr.P. 7001. Contested matters may be resolved as part of the confirmation process.