HSBC Bank USA, National Ass'n v. Blendheim (In Re Blendheim)

Robert and Darlene Blendheim are colloquially known as “Chapter 20” debtors. Like many others who sought bankruptcy relief during the housing crisis, they took advantage of the bankruptcy tools available under Chapter 7 and then filed for Chapter 13 relief. One of the tools available in a Chapter 13 reorganization is lien voidance, or “lien stripping.” Ordinarily, the Bankruptcy Code permits Chapter 13 debtors to void or modify certain creditor liens on the debtor’s property, permanently barring the creditor from foreclosing on that property. However, a 2005 amendment to the Bankruptcy Code bars Chapter 20 debtors from receiving a discharge at the conclusion of their Chapter 13 reorganization if they received a Chapter 7 discharge within four years of filing for Chapter 13 relief. 11 U.S.C. § 1328 (f).

In this case, we are tasked with deciding whether by making Chapter 20 debtors like the Blendheims ineligible for a discharge, Congress also rendered them ineligible for Chapter 13’s lien-voidance mechanism. This question has divided bankruptcy courts in our circuit and divided bankruptcy courts, bankruptcy appellate panels, district courts, and courts of appeals…