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In Re: William Nicks v. United States of America

July 31, 2012

IN RE: WILLIAM NICKS,
DEBTOR.
WILLIAM NICKS, APPELLANT.
v.
UNITED STATES OF AMERICA, APPELLEE.



(Bankr. No. 11-31930) (Adv. No. 11-1671)

The opinion of the court was delivered by: Judge Ronald A. Guzman

MEMORANDUM OPINION AND ORDER

William Nicks, a Chapter 13 Debtor, appeals from the bankruptcy court's January 26, 2012 order dismissing his adversary complaint. For the reasons set forth below, the Court reverses the order and remands the case to the bankruptcy court for further proceedings.

Background

In October 2009 and March 2010, the government filed notices of lien on plaintiff's possessions in the total amount of $34,175.45 for income tax due for 2002 through 2008. (Adversary Compl. ¶¶ 22-64, 76.)

In August 2011, after filing a voluntary petition for Chapter 13 bankruptcy, Debtor filed an adversary proceeding against the government to determine the nature and extent of its liens. In Count I of the complaint, Debtor alleged that the amount of the government's secured claim should be reduced to $9,525.00, the value of the property securing it, and the remaining unsecured portion of its claim should be voided pursuant to 11 U.S.C. § 506, which provides:

(a)(1) An allowed claim of a creditor secured by a lien on property . . . is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property . . . and is an unsecured claim to the extent that the value of such creditor's interest . . . is less than the amount of such allowed claim. . . . .

(d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless--(1) such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or (2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title.

11 U.S.C. § 506(a)(1), (d).

On January 26, 2012, the Bankruptcy Court dismissed the adversary complaint, saying: A response to the adversary proceeding has been filed. The court raised the question of whether such an adversary proceeding could avoid a lien under 11 U.S.C. 506(d) based on a lack of collateral value. . . . . "For purposes of lien avoidance under Section 506(d) the court may consider only if the claim is allowed and then whether it's secured." That's the holding in Dewsnup.

The analysis in Dewsnup does not change depending on the amount of equity in the collateral to which the lien attaches, and the Dewsnup reasoning is equally relevant in a case where a debtor attempts to strip off rather than merely strip down a lien.

In the present case, the IRS filed a proof of claim to which no party has objected, therefore, it's allowed pursuant to 11 U.S.C. Section 502(a). The IRS is also secured because it obtained a lien pursuant to 26 U.S.C. Section 6321. Because the IRS's claim is an allowed secured claim, under the Dewsnup court's interpretation of Section 506(d) it cannot be avoided, stripped off or stripped down. And, of course, all of the provisions of Chapter 5 of the Bankruptcy Code including[] Section 506(d), apply equally to Chapter 13 and to Chapter 7. So the Dewsnup interpretation of 506(d), which as I said is this two-step analysis: Is the claim allowed; is the claim secured[,] [n]ot whether it's an allowed secured claim under 506(a)[,] is binding on this court in the context of Chapter 13.

(Hr'g Tr. at 2-4, Jan. 26, 2012) (citations omitted). The Court reviews this decision de novo. See In re Consol. Indus., ...


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