State Property Law

| Dec 15, 2010 | Bankruptcy |

A case out of the Southern District dealt with the intersection of state property law under the Texas Property Code and Section 1322(b)(2) of the Code, which prohibits lien stripping of the claim that is secured only by a security interest in real estate that is the debtor’s principle residence. The debtors had a manufactured home but under the State’s Property Code qualified as personal property, not real property. The creditors have a security interest in both the manufactured home and the real property on which the home sat. The court found the creditor did not qualify under the lien stripping exception carved out in Section 322(b)(2) since the creditors claim was secured by the real property and the personal property and not only the real property as required by the Code.

Accordingly, it is imperative to review the documentation of the execution of a mobile home or trailer home prior to filing the Petition to determine how much of the lien can be stripped in a Chapter 13 Bankruptcy.