The Bankruptcy Appellate Panel affirmed a bankruptcy court judgment of dismissal. The court held that where a second mortgage lien on a debtor’s residence was wholly unsecured on the petition date, the debt constituted unsecured debt for purposes of the chapter 13 unsecured debt eligibility ceiling, notwithstanding that the creditor’s lien had not been avoided judicially as of the petition date.
Russell and Joy Smith bought a California home with first position deed of trust financing from Countrywide Home Loans. One year later, Washington Mutual Bank (WAMU) loaned the Smiths additional funds, secured by a second position deed of trust on the residence. A year after the WAMU financing, the Smiths filed a voluntary chapter 13 bankruptcy petition. At that time, they asserted, the value of their residence was over $200,000 less than the amount owed to Countrywide on the first lien.
