Lien Stripping Order Vacated Due to Inadequate Notice

A lien stripping confirmation order was challenged because of inadequate notice in In re Stassi, 20 CBN 236 (Bankr. C.D.IL 2009). There, the court granted the junior mortgagee's motion for relief from the confirmation order that contained language stripping the junior mortgagee's lien. The court held that debtors who propose a strip off of wholly unsecured liens as part of a Chapter 13 confirmation process are responsible for ensuring that the creditor whose lien is to be stripped receives notice of the plan provisions, related motions, and the dates set for objections and hearings in a manner which fully complies with the Bankruptcy Rules.


In Stassi, the Chapter 13 debtors said their home was worth $270,000 and subject to two mortgages both held by United Community Bank. The debtors said they owed UCB $341,721 on the two mortgages, with the junior mortgage being wholly unsecured. The debtors’ plan proposed to void the junior lien and treat that claim as unsecured. The debtors’ plan was confirmed without objection.

More than two months after the plan was confirmed, the junior mortgagee asked for relief on the basis that it did not receive notice of the filing of the case or of the debtors’ proposed plan. The mortgagee said it learned of the bankruptcy filing only after the debtors defaulted on the payment of the second mortgage.

The junior mortgagee said the debtors informed it of the bankruptcy in response to the lender’s inquiry about the missing payment. The junior mortgagee’s request for relief was filed less than one week after learning of the bankruptcy filing. The lender asserted its belief that the debtor’s home was worth $380,000 and that both of its mortgages were fully secured.

The court said its practice is to allow debtors to strip off wholly unsecured mortgages through plan confirmation provided that service of the plan is made in the same manner as service of an adversary complaint.

The docket in this case indicated that service of the debtors’ plan was made on the junior mortgagee by regular mail at a bank branch located in Chatham, IL. The service was made by the clerk of court through the Bankruptcy Noticing Center. The mailing to the junior mortgagee was not directed to any officer or agent and was not made by certified mail. Although the debtors objected to granting the relief requested by the junior mortgagee, they provided no evidence that the mortgagee was served in accordance with the Rules, the court said.

The court granted the junior mortgage’s request for relief and declared that “Where notice to the creditor is inadequate, secured property will still vest in the debtor upon confirmation as provided by Section 1327(b), but will remain subject to the unavoided lien rather than vesting “free and clear” as permitted by Section 1327(c).”


Warmest Regards,

Bob Schaller


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