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Burkhart v. Grigsby

United States Court of Appeals, Fourth Circuit

March 29, 2018

EDWIN MICHAEL BURKHART; TERESA STEIN BURKHART, f/k/a Teresa S. Barham, Debtors - Appellants,
v.
NANCY SPENCER GRIGSBY, Trustee - Appellee, and COMMUNITY BANK OF TRI-COUNTY, Defendant.

          Argued: October 24, 2017

          Appeal from the United States District Court for the District of Maryland, at Greenbelt. Peter J. Messitte, Senior District Judge. (8:14-cv-00315-PJM)

         ARGUED:

          John Douglas Burns, BURNS LAW FIRM, LLC, Greenbelt, Maryland, for Appellants.

          Rebecca Anne Herr, OFFICE OF CHAPTER 13 TRUSTEE, Annapolis, Maryland, for Appellee.

         ON BRIEF:

          Mary Park McLean, OFFICE OF CHAPTER 13 TRUSTEE, Bowie, Maryland, for Appellee.

          Before KING and DIAZ, Circuit Judges, and SHEDD, Senior Circuit Judge.

          DIAZ, Circuit Judge:

         In this case, we consider whether a bankruptcy court may strip off valueless liens on a Chapter 13 debtor's principal residence when no proof of claims have been filed. The trustee opposed the debtors' request to strip the liens, arguing that 11 U.S.C. § 506(d)[1]expressly prohibits lien avoidance where no proof of claims have been filed. The bankruptcy court agreed and refused to strip the liens. The district court affirmed, holding that even if § 506(d) did not bar the debtors' effort to strip the liens, the text of § 506(a) still requires a proof of claim to be filed before a lien can be stripped.

         We disagree and reverse. There is no question that the liens at issue are entirely without value making the creditor the holder of an unsecured claim under § 1322(b). Accordingly, the liens may be stripped regardless of whether a proof of claim has been filed.

         I.

         Before turning to the merits, we discuss the relevant provisions of the bankruptcy Code and the factual and procedural history of this case.

         A.

         The Bankruptcy Code contains two chapters aimed at individual debtors. Under Chapter 7, a debtor's estate is liquidated to pay creditors, after which he can obtain a discharge, eliminating personal liability for nonexempt debts. §§ 726-727. Chapter 7 thus "allows a debtor to make a clean break from his financial past, but at a steep price: prompt liquidation of the debtor's assets." Harris v. Viegelahn, 135 S.Ct. 1829, 1835 (2015). By contrast, Chapter 13 operates as a "reorganization, " allowing a debtor to keep certain assets by promising to repay creditors from future income streams over a three to five year period. See id.; §§ 1306(b), 1322, 1327(b). However, only those debtors with a regular income sufficiently stable to enable payments under a plan may seek relief under Chapter 13. §§ 101(30), 109(e).

         Despite their differences, both chapters are governed by the same subchapter on creditors and claims, found at §§ 501-511. See § 103(a). Among other things, this subchapter details the formal process for filing a proof of claim and claim allowance.[2]See ยงยง 501-503. It also provides the mechanism for determining a claim's secured status and instructs courts to ...


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