## Facts

- Homeowners Robert and Darlene Blendheim filed Chapter 7 in 2007 and received a discharge of unsecured debts in 2009.
- The day after the Chapter 7 discharge, they filed Chapter 13 to address mortgage debt on their primary residence.
- The residence was encumbered by a first deed of trust held by HSBC and a junior lien held by another lender.
- In the Chapter 13 case, HSBC filed a proof of claim on the first lien; the debtors objected, disputing HSBC’s ability to enforce the note and related documentation.
- HSBC received notice of the objection, was warned that nonresponse could result in disallowance, and did not respond; the bankruptcy court disallowed the claim.
- About 18 months later, HSBC sought reconsideration; the bankruptcy court denied relief.
- The debtors moved to void HSBC’s lien under 11 U.S.C. § 506(d); the bankruptcy court ordered the lien would be void upon successful completion of the Chapter 13 plan.
- HSBC objected to confirmation, arguing permanent lien avoidance was improper because the debtors were ineligible for a Chapter 13 discharge due to the prior Chapter 7 discharge (11 U.S.C. § 1328(f)).
- The bankruptcy court confirmed a plan providing for permanent lien voidance upon plan completion; the district court largely affirmed. HSBC appealed, and the debtors cross-appealed regarding appellate attorneys’ fees.

## Issues

1. Whether 11 U.S.C. § 506(d) authorizes voiding a lien securing a claim that has been disallowed, including when disallowance follows a creditor’s failure to respond to a properly noticed objection.
2. Whether Chapter 13 discharge ineligibility under 11 U.S.C. § 1328(f) prevents “Chapter 20” debtors from permanently voiding a lien through Chapter 13 plan completion.
3. Whether the creditor received due process before its lien was voided.
4. Whether the Chapter 13 petition and plan were proposed in good faith.
5. Whether the district court had jurisdiction to decide the debtors’ request for appellate attorneys’ fees without prior bankruptcy-court consideration.

## Decision

- The Ninth Circuit affirmed that § 1328(f) discharge ineligibility does not bar Chapter 20 debtors from using Chapter 13 lien-voidance mechanisms.
- The court held that, because HSBC’s claim was disallowed, § 506(d) authorized voiding the lien securing that claim, and the lien voidance was permanent upon plan completion.
- The court rejected HSBC’s due process challenge, finding notice and an opportunity to be heard were provided through the claim-objection process.
- The court affirmed the bankruptcy court’s good-faith finding under the totality of the circumstances.
- The court vacated the district court’s ruling on attorneys’ fees and remanded because the district court lacked jurisdiction to decide fees in the first instance.

## Legal Principles

- Under 11 U.S.C. § 506(d), a lien securing a claim that is not an allowed secured claim is void; the statute does not distinguish among reasons for claim disallowance, including a creditor’s default after proper notice.
- A creditor’s full and fair opportunity to respond to a claim objection satisfies due process for later lien voidance based on claim disallowance.
- A Chapter 13 discharge is not a prerequisite to lien voidance where § 506(d) applies; 11 U.S.C. § 1328(f) limits discharge eligibility but does not, by its text, eliminate Chapter 13 lien-voidance tools for Chapter 20 debtors.
- Good faith in Chapter 13 is assessed under the totality of the circumstances; sequential Chapter 7 and Chapter 13 filings, and the pursuit of lien modification, are not per se bad faith.
- Appellate jurisdiction limits a district court’s ability to decide issues not first addressed by the bankruptcy court, including entitlement to attorneys’ fees.

## Conclusion

The Ninth Circuit held that when a creditor’s secured claim is disallowed after proper notice and an opportunity to respond, § 506(d) permits permanent voiding of the associated lien upon completion of a confirmed Chapter 13 plan, even if the debtor is ineligible for a Chapter 13 discharge under § 1328(f); the court also vacated the district court’s attorneys’ fees ruling for lack of jurisdiction.


HSBC Bank USA, Nat’l Ass’n v. Blendheim (In re Blendheim), 803 F.3d 477 (9th Cir. 2015)