Mortgage

Two Courts Rule on Chapter 7 Debtors’ Standing for Objections to Sales and Claims

Virginia’s Judge Keith Phillips sides with courts that bar lenders from cutting deals with trustees to eliminate debtors’ homestead exemptions.

In In re Smith, [1] the Third Circuit reminded consumer bankruptcy practitioners of the wrath of res judicata. The debtor owned an encumbered rental property with an assignment of rents to her mortgage lender. The debtor’s proposed chapter 13 plan included a cramdown of the mortgage lender’s claim that reduced the secured portion of the claim from $150,000 to $95,000 — the value of the collateral. The plan further provided that the payment of rents would pay down the secured portion of the lender’s claim.