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5 Superb Attorney

Attorney March and her excellent staff were very professional and took the time to make sure we understood every step of the bankruptcy process. We chose Attorney March based on her reputation as a former bankruptcy judge and her extremely informative website. Anytime we had a question or concern Attorney March was there with an immediate answer. Our case went so smoothly based on the knowledge and dedication of this firm. We highly recommend "The Bankruptcy Law Firm".

- M.

The Bankruptcy Law Firm - Bankruptcy in Los Angeles

Lienstripping at a Glance

• Debtors want to "Lienstrip" secured debts, because bankruptcy discharge does not get rid of liens; discharge only eliminates debtor’s "in personam" liability, it does not eliminate "in rem" liability (i.e. liens remain on collateral liens were on pre-petition).



• Lienstripping a totally under water junior lien turns the creditor’s claim from secured to general unsecured.



• 9th Circuit In re Zimmer case, 313 F.3d 1220 (9th Cir. 2002) and 9th Circuit BAP In re Lam case, 211 BR 36, 37, fn.2 (9th cir. BAP 1997), are a case law exception to the Bankruptcy Code’s prohibitions [found at 11 USC §1322(b)(5) and 11 USC §1123(b)(5)] on an individual debtor’s lienstripping DOT debt secured only by a lien on the individual debtor’s principal residence. Zimmer and Lam allow lienstripping junior DOT debt on debtor’s principal residence that is totally "under water" (not even $1 of equity available for it after 1st DOT is paid in full). Some judges allow debtor to seek to do a Lam/Zimmer lienstrip by motion; some judges require debtor to bring an adversary proceeding to seek to do a Lam/Zimmer lienstrip, in a Chapter 13 case, and the lienstripped junior lien is then treated as general unsecured debt in the Chapter 13 plan. In Chapter 11 case, lienstripping is done through the chapter 11 plan.



• Modify OR Cure a single Secured Debt, Not Modify and Cure: Chapter 13 Plan cannot both cure default on, AND modify (aka "lienstrip") the same secured debt. In re Enewally, 368 F.3d 1165, 1172 (9th Cir. 2004) Probably same restriction in Chapter 11 plan.



• Using 11 USC §506(a) to bifurcate an undersecured secured claim into two claims - a secured claim of the amount of the fair market value of the collateral available to pay that secured claim, plus a general unsecured claim for the remainder of the amount owed.



• The (smaller) secured claim that results from a11 USC §506(a) bifurcation of an undersecured secured claim into a secured claim, and an unsecured claim, must be paid in full, with interest, through the Chapter 11 or 13 plan.



• The unsecured claim that results from the 11 USC §506(a) bifurcation can be treated in the Chapter 11 or 13 plan like any other general unsecured claim, which usually means being paid substantially less than 100% of what is owed.



• If Chapter 11 debtor which has lienstripped does not receive a Chapter 11 discharge, the lienstrip will "undo", with the creditor going back to its rights under nonbankruptcy law.



• Majority of case law holds if Chapter 13 debtor who has liesntripped does not receive Chapter 13 discharge, the linestrip will "undo", creditor goes back to its rights under nonbankruptcy law; minority case law holds debtor can lienstrip in chapter 13, even if debtor is ineligible to receive a discharge in Chapter 13 case.



• Debtor must pay the secured claim that results from doing an 11 USC §506(a) bifurcation over life of Chapter 11 or 13 plan, which may not be feasible in Chapter 13, where maximum plan is 5 years, and which may require doing a longer than 5 year plan in Chapter 11.



• Long 11 or 13 plan length is undesirable for individual Chapter 11 debtor, and for Chapter 13 debtors. In both Chapter 11 and 13, individual debtor must pay debtor’s monthly disposable income into debtor’s Chapter 13 or 11 plan, for full life of plan.

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