Gerardin Decision: Chapter 7 Prevents Lien Strip in Later Chapter 13

In a recent court case decided by a panel of the three bankruptcy judges in the Miami division of the Southern District of Florida, the court held that a debtor who received a discharge in a chapter 7 and was not eligible to receive a discharge in a subsequently filed chapter 13 could not strip a second mortgage. In re Gerardin, 2011 Bankr Lexis 514(Bankr. S.D. FL. Feb. 17, 2011).

The court rejected contrary case law, but the decision does seem to be the prevailing view. The court also observed that it agreed with decisions finding that a second mortgage could not be stripped in a chapter 7. The decision is based on a technical reading of the statute(Section 506 valuation does not provide an independent basis to strip a second mortgage and chapter 13 does not provide any basis to strip a mortgage after discharge)

Debtors should be careful before filing a chapter 7 when they have a second mortage that could be stripped in a chapter 13. A debtor might not intend to keep his or her home in the long run, file a chapter 7, and then later wish they had filed a chapter 13. As a Ft. Lauderdale bankruptcy attorney in Broward County, I recognize that this is an important planning issue when deciding what chapter to file.

Note that a debtor can file a chapter 13 four years after filing a chapter 7 and would be eligible to obtain a discharge in the chapter 13, and thus strip a second mortgage.

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