Bankruptcy Courts In Georgia And Florida Show Obedience To Eleventh Circuit Court Of Appeals And Reluctantly Begin To Allow Lien Stripping In Chapter 7 Cases

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Three bankruptcy courts within the Eleventh Circuit have recently issued opinions in which they have reluctantly allowed the debtor to entirely strip off the interests held by junior lienholders when the value of the real property collateral is less than the amount of debt securing the senior lien. In In re Malone (Northern District of Georgia -- Judge Diehl), In re Williams (Middle District of Georgia -- Judge Walker), and In re Bertan (Southern District of Florida – Judge Cristol), the courts issued opinions stating that a chapter 7 debtor may strip off a wholly unsecured junior lien, despite what appears to be all three judges’ personal disagreement with this outcome.

The facts of Malone, Williams, and Bertan are very similar. In each of these three cases, the debtor owned real property upon which multiple liens had attached. In each case, the value of the property was less than the amount of debt owed to the senior lienholder. The debtors sought a court ruling holding that the liens asserted by junior lienholders can be avoided when the value of the collateral does not extend to the junior lien.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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