McNeal–a Double-Edged Sword?

Earlier this month, the 11th Circuit Court of Appeals ruled that a debtor can have a junior deed of trust avoided in a Chapter 7 case where the deed of trust is completely unsecured. The Ninth Circuit, which covers California, has never ruled this way and this opinion is unpublished, which means that the persuasiveness of the authority is limited.

If, however, the Ninth Circuit adopted this view, it would result in a sea change in bankruptcy. Right now, the only way debtors can remove an unsecured junior deed of trust is to complete a 3-5 year Chapter 13 bankruptcy plan. If debtors could get rid of a deed of trust with a Chapter 7, which only took a few months, many would likely choose to do so. However, if debtors could do this, less above median debtors would qualify for Chapter 7, because they would likely not be able to deduct the payments on the junior deed of trust as an expense.