How Does Non-Recourse Debt Fit Into Chapter 13 Eligibility?

Another great thought from Arne Wuhrman: where the second that is being stripped because it is entirely unsecured, the debt should not be treated as unsecured if it is a non-recourse loan.  There is no Section 1111(b) in chapter 13 providing that non-recourse debt is treated as recourse for purposes of a plan.  Section 102(2) defines claim to include a claim against property of the debtor but if the debt is treated as unsecured for eligibility purposes, 102(2) should not apply and then there is no “right to payment” and therefore no claim.  Attached is a tentative ruling from Judge Erithe Smith that lays out the argument pretty well.  Smith Tentative.  Remember though, a secured loan is only purchase money if it was incurred to buy the property or is a seller-financed debt and a refi of either makes the new debt recourse.  CCP 580(b).

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