The United States Supreme Court recently denied certiorari to an Eleventh Circuit appeal which would have addressed the issue of whether section 506(d) of the Bankruptcy Code permits a chapter 7 debt to “strip off” a wholly unsecured junior lien in Bank of America, N.A. v. Sinkfield. As a result, wholly unsecured junior creditors will continue to suffer the harsh consequence of having its junior lien completely “stripped off” in Eleventh Circuit bankruptcy cases, despite other Circuits around the country holding to the contrary.
The facts of Sinkfield are similar to other lien “strip off” cases that have been flooding Bankruptcy Courts in the Eleventh Circuit for the last few years. In this case, the debtor owned real property that was subject to two mortgage liens. At the time of the debtor’s voluntary chapter 7 bankruptcy petition, the amount outstanding on the debtor’s first-priority mortgage exceeded the fair market of the real property. Relying on In re McNeal, the debtor sought a court ruling holding that the mortgage lien asserted by Bank of America, who held the second-priority mortgage on the debtor’s real property, could be avoided because the value of the real property did not extend to Bank of America’s wholly unsecured junior lien.
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