The U.S. Supreme Court has denied a petition for writ of certiorari in Bank of America v. Sinkfield, an 11th Circuit case raising the issue whether a junior lien wholly unsupported by collateral value can be stripped off in chapter 7.
The high court's denial of certiorari yesterday (March 31) is a victory not only for the debtor who prevailed in the case below but also for the National Association of Consumer Bankruptcy Attorneys, represented by the National Consumer Bankruptcy Rights Center, which argued in an amicus brief against Supreme Court review on the ground that the case had not been fully litigated below and thus was a poor one for the Supreme Court to take up.
The creditor in Sinkfield stipulated to the result that strip off was permitted in the case, based on an Eleventh Circuit opinion so holding in another case, In re McNeal, 735 F.3d 1263 (11th Cir. 2012), one in which en banc rehearing has been sought.
The Supreme Court's decision not to review Sinkfield avoids for now the possibility of disturbing the solid precedent for lien strip off in chapter 13. McNeal is the first circuit court case to allow lien strip off in chapter 7; two other circuits have extended Dewsnup v. Timm, 502 U.S. 410 (1992), to come to the opposite conclusion. See here for background. Lien strip off in chapter 13 has been one of the few ways for debtors in bankruptcy to hold on to homes on which they are underwater while making them more affordable by removing junior liens unsupported by collateral value. Extending that sort of relief to chapter 7 cases would be helpful, but Supreme Court review also poses a serious downside risk of making bankruptcy less promising for consumer debtors.