## Facts

- Andrea Cain received a Chapter 7 discharge on February 1, 2008.
- On July 3, 2008, Cain filed a Chapter 13 case, making her ineligible for a Chapter 13 discharge under 11 U.S.C. § 1328(f)(1) because of the recent Chapter 7 discharge.
- Cain’s Chapter 13 plan was confirmed and provided for stripping off Amerifirst Home Improvement Financial Company’s junior mortgage lien on her principal residence as wholly unsecured.
- The parties’ valuation showed Cain’s residence was worth $100,800, while the senior mortgage balance was $106,306.38, leaving no collateral value to support Amerifirst’s junior lien.
- Cain completed all payments required by the confirmed plan.
- After plan completion, Cain moved to avoid Amerifirst’s lien consistent with the plan’s strip-off provision.
- The bankruptcy court denied the motion, reasoning that lien avoidance could not occur absent a Chapter 13 discharge.
- Cain appealed to the Bankruptcy Appellate Panel for the Sixth Circuit.

## Issues

1. Whether a Chapter 13 debtor ineligible for a discharge under 11 U.S.C. § 1328(f) may, after completing plan payments, avoid a wholly unsecured junior mortgage lien on the debtor’s principal residence.

## Decision

- The Bankruptcy Appellate Panel held it had jurisdiction because the post-completion order denying lien avoidance was final.
- The Panel reversed the bankruptcy court’s denial of Cain’s motion to avoid Amerifirst’s lien.
- The Panel held that completion of the confirmed Chapter 13 plan permitted stripping a wholly unsecured junior lien even though the debtor could not receive a Chapter 13 discharge under § 1328(f).
- The Panel remanded for proceedings consistent with granting lien avoidance.
- Having resolved the merits, the Panel declined to decide whether the bankruptcy court was independently bound by the confirmed plan’s terms.

## Legal Principles

- Under 11 U.S.C. § 506(a), a junior mortgage claim is treated as unsecured to the extent the collateral value is fully exhausted by senior liens; if there is no remaining value, the junior lien is wholly unsecured.
- Under 11 U.S.C. § 1322(b)(2), a Chapter 13 plan may modify the rights of holders of claims that are not “secured claims” as determined under § 506(a); wholly unsecured junior mortgages are not protected from modification as “secured claims” by the principal-residence anti-modification clause.
- Section 1328(f) limits a debtor’s eligibility for a Chapter 13 discharge based on prior discharges; it does not, by itself, bar lien modification otherwise authorized by Chapter 13 when the debtor completes plan obligations.
- In a Chapter 20 case, lien strip-off of a wholly unsecured junior mortgage may become effective upon completion of the confirmed plan, without requiring entry of a Chapter 13 discharge.

## Conclusion

The Bankruptcy Appellate Panel reversed and remanded, holding that a debtor who cannot receive a Chapter 13 discharge due to § 1328(f) may still avoid a wholly unsecured junior mortgage lien after completing all payments under a confirmed Chapter 13 plan.


In re Cain, 513 B.R. 316 (B.A.P. 6th Cir. 2014)