Lexology-
Bankruptcy practitioners routinely advise secured creditor clients to file protective proofs of claim in bankruptcy proceedings despite those clientsâ ability to ignore bankruptcy proceedings and decline filing claims without imperiling their lien due to the protections afforded by state law foreclosure rights.[1] But a recent Ninth Circuit decision is causing attorneys and clients to reconsider whether this traditionally conservative approach is simply too risky in Chapter 13 cases. HSBC Bank v. Blendheim (In re Blendheim), No. 13-35412, 2015 WL 5730015 (9th Cir. Oct. 1, 2015).
The Blendheims filed for Chapter 13 relief after receiving a Chapter 7 discharge, making them what is commonly referred to as âChapter 20â debtors. Holding a first-position lien secured by the Blendheimsâ West Seattle condominium, HSBC filed a timely proof of claim, to which the Blendheims filed an objection. HSBC did not respond, and hearing no response, the court entered an order disallowing HSBCâs claim. HSBC was served with the order, but continued to take no action until several months later when the Blendheims filed an adversary proceeding seeking, among other things, to void HSBCâs first-position lien pursuant to Bankruptcy Code § 506(d). Section 506(d) provides that â[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.â
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