Lien Stripping In Bankruptcy

On October 11, 2016, Chief Judge Brendan L. Shannon of the Delaware Bankruptcy Court issued a letter ruling in which he opined on the appropriate valuation of a fist lien.  A copy of the Opinion is available here.

While the ruling is short, it is important that lenders are cognizant of it.  Judge Shannon cites to a prior opinion he issued in which he held that "the operative date for valuation of residential property under § 1322(b)" is the petition date.  In re DiMauro, 548 B.R. 685, 689 (Bankr. D. Del. 2016).

The result in this case is that the proof of claim filed by the first lien lender is operative in valuing the property, and the payoff amount sought by the first lien lender is not.  This is the value used to determine whether second (and possibly third) liens should be stripped off.