Case No. 14-14757-13
At issue in this case was the debtors’ eligibility for chapter 13. Pursuant to 11 U.S.C. § 109(e), only an individual with unsecured debts of less than $383,175 may be a debtor under chapter 13. The debtors scheduled over $800,000 in unsecured debt due to a deeply underwater mortgage. This unsecured debt also included a judgment lien which was found to be non-dischargeable in a previous bankruptcy. Debtors wanted the court to define secured debt using the Dewsnup v. Timm, 502 U.S. 410 (1992), rationale resulting in the judgment lien as a secured debt and debtors falling below the unsecured debt ceiling in § 109(e). The court declined to extend Dewsnup to chapter 13 eligibility determinations. Furthermore, controlling 7th circuit precedent applied the § 506(a) test. Consequently, a debt is only secured for the purposes of chapter 13 eligibility to the extent of the value of the collateral.
11 U.S.C. § 109(e)