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.

If you filed a chapter 7 bankruptcy, look into filling IRS form 982 When you…

BEWARE OF USING MONEY FROM YOUR IRA OR 401(K) TO PAY DEBTS This can be…

How to Spot Student Loan Scams. Things you can do to protect yourself. “Enroll now…