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ARTICLE · 28 JANUARY 2014

Right Or Wrong, Dewsnup Is Law

Pepper Hamilton LLP
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A Chapter 13 debtor sought to void a federal tax lien under Section 506(d) of the Bankruptcy Code to the extent that it exceeded the value of his assets.

United StatesInsolvency/Bankruptcy/Re-Structuring
Vicki Harding
Vicki Harding

A Chapter 13 debtor sought to void a federal tax lien under Section 506(d) of the Bankruptcy Code to the extent that it exceeded the value of his assets. The Seventh Circuit joined the Tenth Circuit in holding that the U.S. Supreme Court's interpretation in Dewsnup applies in Chapter 13 cases to preclude lien stripping under 506(d).

In this case the debtor owed federal income taxes for several years, and the Internal Revenue Service recorded a notice of federal tax lien prior to bankruptcy. The tax liability was about $137,000, while the total value of the debtor's possessions was $1,625. The debtor argued that the tax lien in excess of $1,625 was void.

The question turned on the interaction (or not) of Sections 506(a) and 506(d):

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