11th Circuit Says No Chapter 20 Lien Strip: Binding Authority?

Suppose a debtor has already filed chapter 7 and discharged his or her debts.  The debtor then files a chapter 13 and attempts to strip off a second mortgage. There have been differing opinions across the country, but locally the judges in the Southern District of Florida have said no.   A debtor who is not eligible to receive a discharge cannot strip a second mortgage.

On October 29, 2013 the 11th Circuit held that the lien strip cannot take place in a Chapter 13 after the chapter 7 discharge.  The issue now seems resolved within this circuit which includes Florida-or does it?  See In re Colbourne, 2013 WL 5789159, 2013 US App Lexis 22011.  Colbourne is another unpublished opinion by the 11th Circuit which does not create binding precedent, though should be persuasive.  Also, the case involved non-homestead property.  The court expressly stated that it was not ruling as to junior liens on principal residences, but the same reasoning would seem to apply in that typical chapter 13 fact pattern.

Colbourne does not change the practice for a Fort Lauderdale bankruptcy because it supports the decisions of the local bankruptcy judges.

But keep in mind the reasoning of the cases based on the statutory language is that the debtor must be eligible for a discharge to strip a second mortgage.  A debtor can file a chapter 13 four years after filing of a prior chapter 7 and obtain a new discharge in the new chapter 13.


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