The underwater second deed of trust was listed on Schedule F in the debtor’s prior Chapter 13 case as an unsecured claim.
Functionally, the lien was without value.
But, the debtor, now my client in a subsequent case, took a gentle tongue lashing from a bankruptcy judge about the classification of the claim on the schedules.
The debtor was complaining that the lien hadn’t been stripped in the previous case, as he expected.
The judge saw the scheduling choice as an indication that the debtor wasn’t paying attention in his prior case.
I saw it, more probably, as a case of a confused bankruptcy lawyer. The prior lawyer saw an absolutely underwater mortgage, and gave it the practical, rather than the formal, treatment it should have.
[I also saw the issue as the sort of question that a layman cannot be expected to know.]
So, let’s walk through the differences between liens and allowed, secured claims.
We’re lucky: ”lien” is defined in the code.
§101 (37) The term “lien” means charge against or interest in property to secure payment of a debt or performance of an obligation.