In re Gary A. SHELTON; Elizabeth Dawn Shelton, also known as Dawn Shelton Debtors.
Citimortgage, Inc., Appellee. Gary A. Shelton; Elizabeth Dawn Shelton, Appellants
Submitted: Sept. 24, 2013.
Rehearing and Rehearing En Banc Denied Dec. 17, 2013.[*]
John Alexander Flynn, argued, Cabot, AR, for Appellants.
Charles Thomas Ward, Little Rock, AR, Edward D. Russell, argued, Brentwood, TN, for appellee.
Before MURPHY, MELLOY, and SHEPHERD, Circuit Judges.
MELLOY, Circuit Judge.
Chapter 13 Debtors Gary A. Shelton and Elizabeth Dawn Shelton appeal the bankruptcy court's dismissal of their adversary proceeding. The bankruptcy court held that a secured creditor's lien was not void due solely to the fact that the secured creditor filed an untimely claim. The BAP affirmed. We also affirm.
The claims bar date in the Shelton bankruptcy was January 25, 2011. Secured creditor Citimortgage, Inc., held a lien on Debtors' primary residence and filed a claim for $210,596.66 on August 22, 2011. A week after Citimortgage filed its claim,
Debtors filed an objection urging disallowance of the claim as untimely. Debtors did not contest the substantive validity of the claim or otherwise challenge the validity of the underlying debt or lien. Prior to a scheduled hearing on the timeliness objection, the parties agreed to the entry of an order disallowing the claim.
After disallowance of the claim, Debtors initiated an adversary proceeding seeking the avoidance of Citimortgage's lien. Again Debtors did not challenge the substantive validity of the lien or debt. Debtors relied upon 11 U.S.C. § 506 which provides:
(d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless—
(1) such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or
(2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title.
According to Debtors, Citimortgage's lien secured a claim that was " not an allowed secured claim[.]" 11 U.S.C. § 506(d). Debtors further argued that the exception of subpart (d)(2) did not apply because Citimortgage filed a proof of claim, and the exceptions of subpart (d)(1) did not apply because neither section 502(b)(5) nor 502(e) involved the disallowance of claims as untimely. Relying upon the plain language of § 506(d), ...