roperty of the estate: The key to when a lien can be stripped by the bankruptcy court.
By Christopher C. Carr, Esq., Suburban Philadelphia Bankruptcy Lawyer
When you inherited that property from your father who died in Texas, it had a second lien which was completely under water and impairs an exemption but you had no liability for the underlying home equity loan so it can’t be stripped in your Chapter 13 bankruptcy, right? Wrong. Let’s see why.
To be “strip eligible”, a secured claim has to be an “allowed claim”. Section 506(a)(1) of the US Bankruptcy Code provides:
An allowed claim of a creditor secured by a lien on property in which the estate has an interest … is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property…”,
The relevant inquiry then for lien stripping is not does the “debtor” owe the debt but does the estate have an interest in the property to which the lien attaches? For that to happen all that is required is that the subject property be in the estate created when the debtor declares bankruptcy. Here are 3 examples to better illustrate the point:
- Simple Inheritance Scenario. Suppose the debtor inherited a parcel of real property from her deceased father subject to a lien in favor of his creditors. In the debtor’s bankruptcy case, a lien securing the father’s promise to pay the Bank of Armadillo is just as strip eligible as if the debtor rather than her deceased father were herself the borrower. As long as the property which is collateral for the debt is properly before the court, the lien is subject to stripping.
- Co-Beneficiary Scenario. Take the same case but now we have two debtors, each a co tenant and heir with a sibling in the same inherited house (a duplex). Both halves of the house are subject to the BOA lien. If only one debtor files bankruptcy, only that co-tenant’s interest in the house is property of the estate, and the court can only strip the lien from the half of the property because only half is in the bankruptcy estate.
- Husband & Wife (certain states only) Scenario. Somewhat the reverse fact pattern is a very common one in Pennsylvania, where I primarily practice law. This can happen for example because the original owner, say the wife, upon marriage deeds the property into husband and wife form, which under Pennsylvania is called “tenancy by the entireties” and serves to protect the marital property from the creditors of the individual marriage partners. The husband is now on title to the property while the wife, the original owner, remains the only one liable on the note. If both spouses file for bankruptcy,, the real estate comes into the bankruptcy estate. Once again, it’s strippable simply because the collateral is property of the estate without reference to the locus of the debt.
Because bankruptcy is essentially “all about the debtor and his or her debts”, it is a common mistake to overlook liens that could have been stripped because the debts do not happen to “belong” to the debtor. This then is another illustration of how competent counsel, by properly identifying and claiming this benefit for you, can save you far more than any legal fee you might have to pay.
If you live in the Suburban Philadelphia area, including the counties of Berks, Bucks, Chester, Delaware, Lancaster, or Montgomery, and are seeking a competent and compassionate bankruptcy lawyer to help you explore your options and find the optimum solution, please call Attorney Christopher C. Carr, MBA (Finance) at 610-380-7969 (Offices in Paoli and Coatesville) for a FREE DEBT RELIEF EVALUATION. Or visit my web site at westchesterbankruptcyattorney.org and fill out the contact sheet.
I also provide Mortgage Modification Services.
Other Attorneys Blogging on the Letter P Include:
- Omaha and Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell: P is for Plan.
- New York Bankruptcy Lawyer, Jay S. Fleischman: P is for Pay Advice.
- Colorado Springs Bankruptcy Attorney Bob Doig: P is for Preferences.
- Maui Bankruptcy Attorney, Stuart Ing: P is for Preference.
- Southgate, Michigan Bankruptcy Lawyer, Christopher McAvoy: P is for Pride.
- Cleveland Bankruptcy Attorney, Bill Balena: P is for Phone Call
- Wisconsin Bankruptcy Lawyer, Bret Nason: P is for Property of the Estate
- San Mateo Bankruptcy Lawyer, Jeff Curl: P is for Priority Debt
- Metro Richmond Consumer and Bankruptcy Attorney, Mitchell Goldstein: P is for Privacy
- Jacksonville Bankruptcy Attorney, J. Dinkins G. Grange: P is for Payment
©Christopher C. Carr, Attorney at Law, 2012, All Rights Reserved. See Disclaimers.
Photo by Too Far North