Fourth Circuit Eliminates a Split on Modifying Short Term Mortgages in Chapter 13
Sitting en banc, the Fourth Circuit voted 11-3 to overrule its own precedent and held that Section 1322(c)(2) permits a debtor to strip down a claim on a home mortgage that matures before the last payment is due under a chapter 13 plan. In other words, a debtor with an underwater, short term mortgage is only required to pay the value of the home and may discharge the remainder as an unsecured claim.
The 11-3 decision eliminated a split of circuits by aligning the Fourth Circuit with the Eleventh Circuit’s opinion in American General Finance Inc. v. Paschen (In re Paschen), 296 F.3d 1203, 1209 (11th Cir. 2002). However, the dissenters in the Fourth Circuit believe that Section 1322(c)(2) only permits modifying the payment schedule in a short term mortgage, not the amount of the claim.
Oddly, the Fourth Circuit had validated the so-called chapter 20 strategy six years ago in Branigan v. Davis (In re Davis), 716 F.3d 331 (4th Cir. 2013), a seemingly more exaggerated employment of the same provisions of the Bankruptcy Code.
In a chapter 20 case, the consumer first files under chapter 7 to extinguish personal liability on an underwater mortgage. Later, the consumer initiates a separate chapter 13 case to strip off the mortgage lien that survived chapter 7 as an in rem liability solely against the real property. Although the Supreme Court’s 1992 Dewsnup decision holds that a mortgage cannot be stripped off in chapter 7, the high court so far has thrown up no explicit roadblock to prevent chapter 20 from stripping off an underwater mortgage.
Related Stories
June 9, 2022
IRS First Time Penalty Abatement – FTA The first-time penalty abatement (FTA) waiver is an…
March 26, 2022
If you filed a chapter 7 bankruptcy, look into filling IRS form 982 When you…
Posted in: Debt & Bankruptcy
March 26, 2022
DID SOMEONE FILE FOR UNEMPLOYMENT BENEFITS UNDER YOUR NAME? If you discover that someone has…
February 3, 2022
RICO suit, McKinsey In a decision last week, the Court of Appeals for the Second…
December 17, 2021
BEWARE OF USING MONEY FROM YOUR IRA OR 401(K) TO PAY DEBTS This can be…
Posted in: Debt & Bankruptcy
December 17, 2021
How to Spot Student Loan Scams. Things you can do to protect yourself. “Enroll now…
Posted in: Debt & Bankruptcy
January 23, 2021
Covid relief for evictions. New York has passed a COVID-19 Emergency Eviction and Foreclosure Prevention…
June 9, 2022
IRS First Time Penalty Abatement – FTA The first-time penalty abatement (FTA) waiver is an…
March 26, 2022
If you filed a chapter 7 bankruptcy, look into filling IRS form 982 When you…
Posted in: Debt & Bankruptcy
March 26, 2022
DID SOMEONE FILE FOR UNEMPLOYMENT BENEFITS UNDER YOUR NAME? If you discover that someone has…
February 3, 2022
RICO suit, McKinsey In a decision last week, the Court of Appeals for the Second…
December 17, 2021
BEWARE OF USING MONEY FROM YOUR IRA OR 401(K) TO PAY DEBTS This can be…
Posted in: Debt & Bankruptcy
December 17, 2021
How to Spot Student Loan Scams. Things you can do to protect yourself. “Enroll now…
Posted in: Debt & Bankruptcy
January 23, 2021
Covid relief for evictions. New York has passed a COVID-19 Emergency Eviction and Foreclosure Prevention…