Opinion
No. 10-11878.
January 10, 2011
Memorandum on Motion to Value Tax Lien
Debtors Gerald and Patti Schneider allege that the value of their residence at 1850 Trimble Lane, Cloverdale, California, is less than they owe on their first mortgage. They therefore seek an order valuing three subsequent liens of the California Franchise Tax Board at zero and avoiding the liens upon completion of their Chapter 13 Plan. The court will grant the motion only in part.
A tax lien may be valued pursuant to § 506(a) as part of a plan of reorganization. In re Taffi, 96 F.3d 1190 (9th Cir. 1996). However, valuing a lien for plan purposes is very different from avoiding or "stripping" the lien. Section 506(a) can be used to permanently remove a lien only to the extent that the lien secures a dischargeable debt. The debtors have cited no authority, nor has the court found one, for avoidance of a tax lien securing nondischargeable taxes. When the tax lien secures a nondischargeable tax, it will remain as a lien on the property after bankruptcy notwithstanding valuation unless the underlying tax debt has been fully satisfied pursuant to the debtors' plan.
Some bankruptcy courts have held that a discharge is not necessary to permanently strip a lien. See, e.g., In re Tran, 431 B.R. 230, 235 (Bankr.N.D.Cal. 2010). However, even applying the reasoning of those courts a tax lien would immediately re-attach after bankruptcy to the extent it secured nondischargeable taxes.
The court notes from the motion that at least some, if not all, of the taxes secured by the tax liens appear nondischargeable. However, dischargeability can only be decided in an adversary proceeding. Rule 7001(6), Federal Rules of Bankruptcy Procedure. The court cannot make the determination as part of this motion.
For the foregoing reasons, the court will grant the motion in part and value the tax liens at zero for plan purposes. However, the tax liens will be avoided only to the extent that this court determines in an adversary proceeding that they secure tax debt which is dischargeable.
Counsel for the debtors shall submit an appropriate form of order.
Dated: January 10, 2011