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On May 11, the US 11th Circuit Court of Appeals issued an opinion not for publication.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?)



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

  1. This decision is unpublished and therefore, is not considered a binding precedent, but may be cited as persuasive authority. In the Southern district of Florida, some Judges have said they will not follow it. In contrast, the Middle district of Florida has amended its local rules to permit negative notice for motion filed pursuant to the McNeal decision.

  2. Jeffrey Solomon says:

    Recent public announcements and seminars would suggest that the bankruptcy judges in Miami are not inclined to follow McNeal. At least one judge in Broward has indicated that he might be inclined to follow McNeal. A judge in Palm Beach indicated that he might defer upon any ruling if a motion is filed pending a rehearing in McNeal.

  3. A motion to rehear the McNeal case has been filed. The matter will now be heard and decided en bank by the 11th Circuit.

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