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[1]There are legions of cases interpreting the anti-modification clause of the Bankruptcy Code in the context of stripping off, cramming down or bifurcating residential mortgages. However, when it comes to other security interests recorded against residential properties, the law is not so clear.

Section 506(a) of the Bankruptcy Code provides that a claim is secured “to the extent of the value of such creditor’s interest in the estate’s interest in such property,” and that for purposes of determining a secured claim, the value of collateral “shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property.”

Hurricane Sandy was the deadliest hurricane in the 2012 hurricane season and the second-costliest hurricane in U.S. history. It was Sandy that came ashore on Oct. 29, 2012, with a vengeance and destroyed the Zairs’ home, which was located within the jurisdiction of the U.S. Bankruptcy Court for the Eastern District of New York.

On May 3, 2016, Hon. Shelley C. Chapman of the U.S. Bankruptcy Court for the Southern District of New York ruled that covenants contained in certain executory contracts do not run with the land and may be rejected pursuant to § 365 of the Bankruptcy Code. In re Sabine Oil & Gas Corp., et al. involved agreements between the Sabine Oil & Gas Corp.

Under § 363 of the Bankruptcy Code and subject to bankruptcy court approval, chapter 7 trustees have the power to sell the entire interest in property that the debtor owns with nondebtor co-owners. This unique power to sell the debtor’s and nondebtor’s interests can only be exercised by a trustee in certain circumstances and when the trustee is able to satisfy all the requirements of § 363(h) of the Bankruptcy Code.

The decision in Zachary v. California Bank & Trust[1] brings the Ninth Circuit in line with the four other circuits that have concluded that BAPCPA did not abrogate the absolute priority rule in individual chapter 11 cases.