Drawing A Bright Line In The Fog: Eleventh Circuit Precedent For Challenging McNeal

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As most mortgage lenders know by now, on May 11, 2012, the Eleventh Circuit issued an unpublished decision in McNeal v. GMAC Mortgage, LLC (In re McNeal) , 477 Fed. App’x 562, holding that a chapter 7 debtor can “strip off” (extinguish) a lien that is no longer secured by the current value of the collateral pursuant to 11 U.S.C. § 506(d). This ruling may cause surprise, if not confusion, for most mortgage lenders, considering that since the inception of bankruptcy law in America over one hundred years ago, liens have generally survived a bankruptcy liquidation case untouched. Notwithstanding the perplexities of McNeal , there is still hope for a reversal. This article will explore some of the inequities that result from a bankruptcy court's application of McNeal in the context of valuing property in bankruptcy, and point to the Eleventh Circuit's own precedent as grounds for challenging the decision in McNeal.

MUCH ADO ABOUT NOTHING: THE PRECEDENTIAL EFFECT OF MCNEAL -

McNeal is not binding on any bankruptcy court in the Eleventh Circuit. As bankruptcy courts following McNeal have recognized, McNeal is only persuasive authority. In her decision in In re Malone, Judge Diehl provides a well-reasoned analysis of the flawed reasoning of McNeal in light of the clear and binding precedent from the United States Supreme Court in Dewsnup v. Timm, 502 U.S. 410, 418 (1992). As Judge Diehl implies, the Eleventh Circuit likely misconstrued the Supreme Court’s holding in Dewnsup...

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Topics:  Bright-Line Rule, Consumer Bankruptcy, In re McNeal, Liens, Section 506

Published In: Bankruptcy Updates

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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