In re Gounder, 266 B.R. 879 (Bankr. E.D. Cal. 2001)

In a previous Chapter 7 bankruptcy case, Real Time asserted a secured claim. Debtor’s personal liability was discharged but the lien passed through the Chapter 7 case unaffected by the discharge. Debtor then filed a Chapter 13 case. In an unpublished decision, the Bankruptcy Court for the Eastern District of California followed In re Lam, 211 B.R. 36 (BAP 9th Cir. 1999), and allowed the debtor to strip off Real Time’s lien, which was totally undersecured, leaving the claim unsecured.

The debtor then filed an objection to the unsecured claim of Real Time, represented by Malcolm Cisneros, alleging the unsecured claim had been discharged in his previous Chapter 7 case. The Bankruptcy Court overruled the debtor’s objection. To hold otherwise, the Court reasoned, would evade the result of Dewsnup v. Timm, 502 U.S. 410 (1992), in which the Supreme Court held that a debtor may not strip off a lien to the extent the claim is under-collateralized in a Chapter 7 bankruptcy case. Dewsnup would be evaded, the Court held, if debtor could file Chapter 7 to discharge personal liability for an undersecured claim and then file Chapter 13 to strip off the lien without paying the undersecured portion of the claim.

The Bankruptcy Court’s decision was affirmed in an unpublished decision by the United States District Court for the Eastern District of California.