DocketNumber: BAP No. 12-6040
Citation Numbers: 477 B.R. 749
Judges: Federman, Kressel, Venters
Filed Date: 9/24/2012
Status: Precedential
Modified Date: 11/22/2022
The Debtors appeal the bankruptcy court’s order granting Defendant Citi-Mortgage, Inc.’s motion to dismiss the Debtors’ adversary proceeding seeking the avoidance of CitiMortgage’s lien on the Debtors’ residence. For the following reasons, we affirm the decision of the bankruptcy court.
BACKGROUND
The facts are straightforward and uncontested. The Debtors filed a Chapter 13
The Debtors objected to CitiMortgage’s proof of claim on August 29, 2011, seeking its disallowance as an untimely filed claim. Notably, the Debtors’ objection did not dispute the validity of CitiMortgage’s lien or seek its avoidance. On November 18, 2011, the bankruptcy court entered an agreed order disallowing CitiMortgage’s claim on the ground that it was filed after the bar date.
Shortly thereafter, on December 9, 2011, the Debtors filed an adversary proceeding seeking the avoidance of CitiMortgage’s lien pursuant to § 506(d). CitiMortgage responded with a motion to dismiss the adversary proceeding. Fed.R.Civ.P. 12(b)(6) and Fed. R. Bankr.P. 7012(b).
The bankruptcy court held a hearing on CitiMortgage’s motion on February 22, 2012, and took the matter under advisement. On April 30, 2012, the court granted CitiMortgage’s motion and dismissed the adversary proceeding. The Debtors timely appealed.
JURISDICTION
An order granting a motion to dismiss an adversary proceeding is a final order over which we have jurisdiction under 28 U.S.C. § 158(b).
STANDARD OF REVIEW
We review de novo the bankruptcy court’s order granting CitiMortgage’s motion to dismiss.
DISCUSSION
The issue on appeal, as it was before the bankruptcy court, is whether a creditor’s lien can be avoided under 11 U.S.C. § 506(d) solely on the ground that the creditor’s proof of claim has been disallowed for being untimely filed.
Section 506(d) provides:
To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless—
(1) such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or
(2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title.3
The Debtors argue that CitiMortgage’s lien is void under the plain language of § 506(d) because CitiMortgage’s claim was disallowed for being untimely filed, which is not one of the specific exceptions to avoidance provided in § 506(d)(1) and (2).
The Debtors are not the first ones to have raised this argument, nor are we the first to note that the plain language of § 506(d) lends superficial support to the Debtors’ argument.
When statutory language is plain, “the sole function of the courts is to enforce it according to its terms;”
The destruction of a lien is a disproportionately severe sanction for a default that can hurt only the defaulter. Once the deadline for filing claims had passed, Tarnow (the debtor) and his (other) creditors did not have to worry that still other creditors might pop up later and try to establish a claim on the assets of the bankrupt estate; any late-filing creditors would be time-barred. They did have to worry (unless late filings really do extinguish liens) that Tarhow’s secured creditors might try to seize and sell the security; but we have seen that secured creditors are allowed to ignore the bankruptcy proceeding without endangering their liens.8
The Fourth Circuit Court of Appeals echoed this interpretation of § 506(d), stating:
This view comports with the 1984 amendment to § 506(d), adding § 506(d)(2), which clarifies that Congress did not intend for a perfectly valid lien to be extinguished any time a creditor’s claim on the bankrupt estate is disallowed. Of course, that provision does not explicitly refer to claims that are disallowed merely because they were filed after the bar date. But we conclude, following the reasoning set forth in Tarnow, that the failure to file a timely claim, like the failure to file a claim at all, does not constitute sufficient grounds for extinguishing a perfectly valid lien. The contrary result, which [the debtor] seeks here, would lead to considerable inequity.9
Given the Supreme Court’s holding in Dewsnup, that “liens pass through bankruptcy unaffected,” even if § 506(d)(2) could be read to require the result [the debtor] seeks, adopting that interpretation would produce “a result demonstrably at odds with the intentions of its drafters.”10
More pertinently, this interpretation of § 506(d) is consistent with and mandated
At neither hearing did the bankruptcy court make factual findings or legal conclusions to show that the FDIC’s lien was invalid. It instead denied the FDIC leave to file its proof of secured claim and allowed the FDIC to have only an unsecured claim based solely on the untimeliness of the filing. As the Tamow court pointed out, “this ground of rejection does not call into question the validity of the lien.” 749 F.2d at 465. The bankruptcy court therefore erred in disallowing the secured claim without first determining that the lien was invalid.13
Based on this precedent, we conclude that a secured creditor’s lien cannot be avoided under § 506(d) based solely on the fact that the creditor’s claim has been disallowed for untimeliness. Liens pass through bankruptcy unless avoided on their merits.
Finally, our conclusion is bolstered by 11 U.S.C. § 502(b)(9) and the context in which it was enacted. That section provides that a late-filed claim may be disallowed, but it says nothing about the effect of disallowance on the underlying lien. Section 502(b)(9) was added to the Bankruptcy Code as part of the Bankruptcy Reform Act of 1994, Public Law 103-934, for the specific purpose of overruling In re Hausladen,
“When Congress amends the bankruptcy laws, it does not write on a clean slate.”
CONCLUSION
For these reasons, the decision of the bankruptcy court is affirmed.
. The Honorable James G. Mixon, United States Bankruptcy Judge for the Eastern District of Arkansas.
. See GAF Holdings, LLC v. Rinaldi (In re Farmland Industries, Inc.), 408 B.R. 497 (8th Cir. BAP 2009).
. 11 U.S.C. § 506(d) (West 2012).
. See e.g., In re Hamlett, 322 F.3d 342 (4th Cir.2003) (“Read literally and in isolation, this provision provides some support for Hamlett's argument. But established Supreme Court and circuit precedent render his argument untenable.”).
. See, e.g., In re Hamlett, 322 F.3d at 348-349; In re Tarnow, 749 F.2d 464, 466 (7th Cir. 1984); In re MacKenzie, 314 B.R. 277, 280 (Bankr.N.H.2004); In re Femwood Markets, 76 B.R. 501, 504 (Bankr.E.D.Pa.1987). But see, In re Wise, 41 B.R. 51, 52 (Bankr.W.D.La. 1984) (holding, without explanation or supporting citation, that the disallowance of a claim for untimeliness is grounds to void the creditor's lien under § 506(d)).
. Hartford Underwriters Ins. Co. v. Union Planters Bank, N. A., 530 U.S. 1, 6, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000) (quoting United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989), in turn quoting Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 61 L.Ed. 442 (1917)).
. Id.
. In re Tarnow, 749 F.2d at 465-66.
. In re Hamlett, 322 F.3d at 348-49.
. Id. at 350 (quoting United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989)).
. 83 F.3d 1020 (8th Cir.1996).
. Id. at 1025-28.
. Id. at 1026-27.
. In re Be-Mac Transport, 83 F.3d at 1025. (citing Dewsnup v. Timm, 502 U.S. 410, 417, 112 S.Ct. 773, 778, 116 L.Ed.2d 903 (1992); Long v. Bullard, 117 U.S. 617, 620-21, 6 S.Ct. 917, 918, 29 L.Ed. 1004 (1886)). See also In re Tamow, 749 F.2d at 466 (“One purpose of section 506(d)(1) is simply to codify the rule of Long v. Bullard—which previously had been purely a judge-made rule of bankruptcy law—permitting liens to pass through bankruptcy unaffected.”) (citing H.R.Rep. No. 595, 95th Cong., 2d Sess. 357 (1978), U.S.Code Cong. & Admin. News 1978, pp. 5787).
. 146 B.R. 557 (Bankr.D.Minn.1992).
. H.R. REP. 103-835, 48, 1994 U.S.C.C.A.N. 3340, 3357 ("The amendment to section 502(b) is designed to overrule In re Hausladen, 146 B.R. 557 (Bankr.D.Minn.1992), and its progeny by disallowing claims that are not timely filed.”).
. Dewsnup v. Timm, 502 U.S. 410, 419-420, 112 S.Ct. 773, 779, 116 L.Ed.2d 903 (1992).
. Id. Dewsnup’ interpretive directives are particular germane here inasmuch as Dewsn-up was also examining § 506(d), albeit a different aspect of the statute (i.e., the meaning of the phrase, "allowed secured claim.”).