Chapter 7 Lien Strip: 11th Circuit Allows in McNeal

On May 11, the US 11th Circuit Court of Appeals issued an opinion not for publication. This short opinion could transform fort lauderdale bankruptcy practice and miami bankruptcy practice.

It is commonly “understood” that a wholly unsecured second mortgage or equity line can only be stripped in a chapter 13 and cannot be stripped in a chapter 7. This is based on the reasoning in the Supreme Court case Dewsup. However. the 11th Cir in In re McNeal, Case no 11-11352, found that Folendore, 862 F. 2d 1537(11th Cir 1989) remains as controlling precedent within the 11th circuit which allows stripping in a chapter 7.

A more distressing recent lien stripping case is Judge Cristol’s in In re Alvarez, 11-44246 BKC AJC(DE 63)(April 24, 2012). Debtor owned the home with non-debtor spouse as tenancy by the entireties. Spouse did not sign the promissory note. Court held that debtor could not strip the second mortgage unless both husband and wife filed the chapter 13. (Does anyone see the irony? Local judges have held that a Debtor cannot strip if not eligible for discharge due to prior 7, in Alvarez, even though never signed the note so nothing to discharge spouse must join in the chapter 13?)


3 Responses to Chapter 7 Lien Strip: 11th Circuit Allows in McNeal

Leave a Reply

Your email address will not be published. Required fields are marked *