Yesterday, June 18, 2014, the 11th Circuit Court of Appeals issued its decision in the case of Wells Fargo Bank, N.A. vs. Scantling (In re: Scantling) on an issue where there has been a split of authority in the courts for many years. The Court held that a chapter 13 debtor (a "chapter 20" debtor) who was not entitled to a chapter 13 discharge (due to prior chapter 7 case within 4 years) could avoid wholly-unsecured (wholly "underwater") junior mortgages. By this decision, the 11th Circuit Court of Appeals upheld the Bankruptcy Court of the Middle District of Florida's decision.The 11th Circuit Court of Appeals reviewed the following in making its decision:
- Pre-BAPCA practice in "chapter 20" cases - lien avoidance was allowed
- In re Tanner (2000) - 11th Circuit Court of Appeals
- 11 U.S.C. §§ 506, 1322(b), 1325 (a)(5)
- Dewsnup v. Timm (1992) - U.S. Supreme Court
- Nobelman v. American Savings Bank (1993) - U.S. Supreme Court
- Changes made by BAPCPA (2005) - a chapter 13 debtor not entitled to a discharge if filed within 4 years of a chapter 7 case
- Reviewed the split of authority on the issue - the majority and minority views
- Adopted the majority view
- Noted its unpublished opinion in In re Malone (2014) - chapter 7 debtor able to avoid wholly unsecured mortgage lien (Court held it was bound by its prior published decision)
