In re: Patrick J. Ryan, Debtor-Appellant.
United States of America, Defendant-Appellee. Patrick J. Ryan, Plaintiff-Appellant,
Argued April 15, 2013
On Appeal from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. No. 11 b 34346—A. Benjamin Goldgar, Judge.
Before Ripple, Rovner, and Williams, Circuit Judges.
Rovner, Circuit Judge
Patrick James Ryan failed to pay his federal income taxes for 2006, 2007, 2008, 2009, and 2010, resulting in outstanding liabilities totaling at least $136, 898.93. In January 2011, pursuant to Internal Revenue Code § 26 U.S.C. 6323, the IRS recorded a notice of federal tax lien against Ryan's possessions with the Cook County Recorder of Deeds with respect to the liabilities for 2006-09.
On August 23, 2011, Ryan filed a voluntary Chapter 13 bankruptcy petition. 11 U.S.C. §§ 1301 et seq. At that time, he had personal possessions worth $1, 625. He subsequently filed an adversary proceeding entitled "Complaint to Determine Nature and Extent of Federal Tax Lien, " in which he admitted that he owed tax liabilities for 2006 through 2010 and that a federal tax lien had been recorded for liabilities for 2006 through 2009. He further alleged that his residence had been sold for delinquent real estate taxes and that he did not own a bank account, vehicle, or retirement account. Because the total value of his possessions was $1, 625, Ryan alleged that pursuant to Bankruptcy Code § 506(a), the IRS's secured claim for the 2009 tax was limited to that amount, and that the remainder of the IRS's claim was unsecured. 11 U.S.C. § 506(a). Ryan also asserted that under Bankruptcy Code § 506(d), the amount of the tax lien that exceeded $1, 625 was void. 11 U.S.C. § 506(d).
Section 506(a) of the Bankruptcy Code separates loans into secured and unsecured portions. In re Wright, 492 F.3d 829, 830 (7th Cir. 2007). As we explained in In re Howard, 597 F.3d 852, 854 (7th Cir. 2010), "[t]he bankruptcy judge first determines the market value of the collateral . . . [and] [t]he creditor's claim is treated as a secured claim to the extent of that value." If the value is less than the unpaid balance of the secured loan, the difference is considered an unsecured claim of the creditor. Id.; 11 U.S.C. § 506(a)(1). Here, the United States conceded that pursuant to § 506(a), its secured claim was limited to $1, 625 for purposes of plan confirmation, but maintained that § 506(d) did not authorize the bankruptcy court to void the federal tax lien to the extent that it exceeded $1, 625. The bankruptcy court sided with the government, holding that § 506(d) as interpreted by the Supreme Court in Dewsnup v. Timm, 502 U.S. 410 (1992), did not allow Ryan to void, or "strip down" the lien, and granted judgment on the pleadings under Fed.R.Civ.P. 12(c). The sole issue on appeal is whether the bankruptcy court erred in that determination.
Section 506(d) of the Code provides:
(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.A. § 506. In Dewsnup, the Supreme Court considered the proper interpretation of that language, and held that §§ 506(a) and 506(d) did not have to be read together, and that the term "allowed secured claim" in § 506(d) was not defined by reference to § 506(a). Instead, the Court determined that, consistent with pre-Code rules that liens pass through bankruptcy unaffected, the term "allowed secured claim" in § 506(d) means a claim that is, first, allowed under § 502 and, second, secured by a lien enforceable under state law, without regard to whether that claim would have been deemed secured or unsecured under § 506(a). Id. at 777-78; In re Woolsey, 696 F.3d 1266, 1273 (10th Cir. 2012). Under that interpretation, Ryan would not be entitled to void the lien in this case. With the exception of a conclusory argument without adequate development or citation, Ryan does not dispute that the lien is allowed and secured if the Dewsnup interpretation is applied to this Chapter 13 context, and that argument is therefore waived (and is, in any event, meritless). Bank of America, N.A. v. Vluechamy, 643 F.3d 185, 189-90 (7th Cir. 2011); MMG Financial Corp. v. Midwest Amusements Park, LLC, 630 F.3d 651, 659 (7th Cir. 2011). Instead, Ryan contests the applicability of the Dewsnup interpretation to the Chapter 13 context at all.
Ryan maintains that § 506(d) should be interpreted differently in his case than in Dewsnup because his petition was filed under Chapter 13 whereas Dewsnup involved Chapter 7. Ryan points out that in defining the terms in § 506(d), the court focused on the concerns underlying Chapter 7 bankruptcy and interpreted it in a manner consistent with those concerns. Unlike Chapter 7, Chapter 13 involves a different set of concerns, with its goal of reorganization and repayment without necessitating the liquidation of assets. See Thompson v. General Motors Acceptance Corp., LLC, 566 F.3d 699, 705 (7th Cir. 2009).
The obvious problem with that argument is that § 103(a) of the Code states that: "Except as provided in section 1161 of this title, chapters 1, 3, and 5 of this title apply in a case under chapter 7, 11, 12, or 13 of this title . . . ." 11 U.S.C. § 103. The exception in § 1161 is inapplicable here, as it merely provides that certain sections of the Code do not apply "in a case concerning a railroad." Accordingly, § 506(d), which is part of Chapter 5, applies equally to cases under Chapter 7 and Chapter 13. In fact, Ryan does not contest that under § 103(a), § 506(d) applies to both Chapter 13 and Chapter 7 petitions, and he does not seek to carve out an exception to that rule for § 506(d). Instead, his argument is that the language in § 506(d) should be interpreted differently in Chapter 13 than in Chapter 7 cases because to hold otherwise would be contrary to the purposes of those statutory vehicles. This argument is not based on any language in § 506(d) that would signal differential treatment. In fact, the language of ...