The Supreme Court’s Caulkett decision, reversing the 11th Circuit’s ruling that chapter 7 debtors could strip off totally underwater mortgages, was disappointing, if not totally unexpected. As amicus, NCBRC had considered the risk that an unfavorable, overly broad opinion in this case could negatively impact lien-stripping in chapter 13 and, in addition to arguing for affirmance, specifically sought to limit any holding to chapter 7 cases and to preserve the right to strip liens in chapter 13. This effort was successful. In fact, Justice Thomas’s remarks reinforce the continued validity of the widely accepted interpretation of Nobelman in chapter 13. This case should have no effect at all on lien-stripping in chapter 13.
Caulkett simply reaffirms the holding in Dewsnup which applies only in chapter 7 cases. The opinion made this clear in several ways. First, the court distinguished Nobelman, stating that Nobelman “addressed the interaction between the meaning of the term “secured claim” in § 506(a) and an entirely separate provision, §1322(b)(2).” (emphasis supplied) Second, while stating that it is may be inadvisable to adopt a line-drawing test where a difference of $1 could have an arbitrary impact, the court nonetheless found that such tests are appropriate where Congress has drawn the line, as the court had found it had done in Nobelman. Third, the conclusion of the opinion states “a debtor in a Chapter 7 bankruptcy proceeding may not void a junior mortgage lien under §506(d) when the debt owed on a senior mortgage lien exceeds the current value of the collateral.”
The NCBRC amicus brief was the only one to focus on limiting any decision to chapter 7. This is another example of the importance of NCBRC’s work, which can only continue with your support. Please donate at www.ncbrc.org