[CLBS] IN RE CHAGOLLA, 9th Cir BAP, 2/9/16 (per ABI's VOLO service)

[D. Blair Clark]

Citation: 

 In re Chagolla, No. 15-1142-JuKuW (9th Cir. B.A.P. Feb. 9, 2016).

Ruling: 

A debtor may avoid an unsecured junior lien even after plan confirmation,
discharge, and case closure, absent unfair prejudice to the secured
creditor. Published.

Procedural context: 

Under debtors' chapter 13 plan, nothing would be paid to unsecured
creditors, and debtors would file an adversary proceeding to avoid a junior
lien on their residence within 90 days after the petition was filed. The
bankruptcy court confirmed the plan without objection. No adversary
proceeding was commenced by debtors. Over five years later, after completing
all plan payments, debtors received their discharge, and the case was
closed. Nearly a year later, debtors moved to reopen the case to file a
motion to avoid the junior lien. The court reopened the case, and debtors
filed the avoidance motion. Although the lienor did not oppose the motion,
the court denied the motion, holding that the court lacked jurisdiction to
grant it and that it was untimely. On appeal, the BAP reversed and remanded.

Facts: 

A bankruptcy court's "related-to" jurisdiction after confirmation of a plan,
including one under chapter 13, is limited to closely related matters,
including those affecting the interpretation, implementation, consummation,
execution, or administration of the plan. Here, the plan stated that the
junior lien would be avoided and the lienor's claim treated as unsecured, so
the bankruptcy court's post-confirmation jurisdiction to implement or
enforce the confirmation order allowed the bankruptcy court to consider the
avoidance motion. Neither section 506(a) nor FRBP 3012 imposes a time limit
for filing a valuation motion. A motion under section 506(a) may be brought
after discharge or case closure if, at a minimum (1)the confirmed plan calls
for avoiding the lien and treating the claim as unsecured, (2) the trustee
treats the claim as unsecured under the plan, and (3) the creditor is not be
sufficiently prejudiced so that it would be inequitable to allow avoidance
after discharge or case closure. Here, those conditions were satisfied. The
language of section 506(a) does not require that valuation of property be
made in conjunction with plan confirmation. Rather, the statute operates in
the conjunctive to permit valuation in conjunction with the debtors'
continued use of the property. And because the plan called for avoiding the
junior lien and treating it as unsecured, a valuation hearing at any time
could be deemed to be in conjunction with the plan.

 

 

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