Win: Ninth Circuit BAP affirms client's objection to lender’s claim in Chapter 13, holding that the unsecured claim resulting from successful lien avoidance was wiped out by prior Chapter 7 discharge
/Debtor Aleli A. Hernandez (Client) obtained a chapter 7 discharge, then later initiated this chapter 13 proceeding to strip off the second mortgage lien held by appellant AMH. She obtained a lien avoidance order, but did not immediately challenge AMH’s assertion of an unsecured claim, so the trustee began making distributions under the confirmed plan to AMH as an unsecured creditor. Over two years into her plan, Ms. Hernandez filed an objection to AMH’s proof of claim, arguing that her debt to AMH was not an allowed unsecured claim because her personal liability had been wiped out by the prior chapter 7 discharge.
The bankruptcy court sustained the objection.
AMH appealed from the order sustaining the claim objection, arguing that Bankruptcy Code § 506 and the language of the lien avoidance order dictate that its claim must be treated as unsecured debt under the plan notwithstanding the prior discharge. AMH also argued that Mrs. Hernandez acquiesced to such treatment, sat on her rights, and that other equitable doctrines and policy considerations preclude her from challenging its claim.
The BAP determined that the Bankruptcy Court’s ruling sustaining the claim objection comports with the Ninth Circuit BAP’s recent decision in Washington v. Real Time Resolution, Inc., 602 B.R. 710 (9th Cir. BAP 2019), which rejected the same arguments that § 506 and the lien avoidance order require that the lender’s claim be treated as an allowed unsecured claim under the Chapter 13 plan. The BAP also held that AMH’s various equitable and policy consideration arguments were meritless.
Therefore, the bankruptcy court did not err in sustaining the claim objection and disallowing AMH’s claim.
Judgment in favor of Client was Affirmed.