Gerald George Schneider and Patti Jeanne Schneider

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re
GERALD and PATTI SCHNEIDER, 	No. 10-11878
Debtor(s).
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Memorandum on Motion to Value Tax Lien
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Debtors Gerald and Patti Schneider allege that the value of their residence at 1850 Trimble
Lane, Cloverdale, California, is less than they owe on their first mortgage. They therefore seek an
order valuing three subsequent liens of the California Franchise Tax Board at zero and avoiding the
liens upon completion of their Chapter 13 Plan. The court will grant the motion only in part.
A tax lien may be valued pursuant to § 506(a) as part of a plan of reorganization. In re Taffi,
96 F.3d 1190 (9th Cir. 1996). However, valuing a lien for plan purposes is very different from avoiding
or “stripping” the lien. Section 506(a) can be used to permanently remove a lien only to the extent that
the lien secures a dischargeable debt. The debtors have cited no authority, nor has the court found one,
for avoidance of a tax lien securing nondischargeable taxes. When the tax lien secures a
nondischargeable tax, it will remain as a lien on the property after bankruptcy notwithstanding
valuation unless the underlying tax debt has been fully satisfied pursuant to the debtors’ plan.1
1Some bankruptcy courts have held that a discharge is not necessary to permanently strip a lien.
See, e.g., In re Tran, 431 B.R.230, 235 (Bkrtcy.N.D.Cal.2010). However, even applying the reasoning
of those courts a tax lien would immediately re-attach after bankruptcy to the extent it secured
nondischargeable taxes.
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Entered on Docket
January 10, 2011
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 10-11878 Doc# 42 Filed: 01/10/11 Entered: 01/10/11 14:10:58 Page 1 of 2

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The court notes from the motion that at least some, if not all, of the taxes secured by the tax
liens appear nondischargeable. However, dischargeability can only be decided in an adversary
proceeding. Rule 7001(6), Federal Rules of Bankruptcy Procedure. The court cannot make the
determination as part of this motion.
For the foregoing reasons, the court will grant the motion in part and value the tax liens at zero
for plan purposes. However, the tax liens will be avoided only to the extent that this court determines
in an adversary proceeding that they secure tax debt which is dischargeable.
Counsel for the debtors shall submit an appropriate form of order.
Dated: January 10, 2011
SAlan Jaroslovsky
U.S. Bankruptcy Judge
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Case: 10-11878 Doc# 42 Filed: 01/10/11 Entered: 01/10/11 14:10:58 Page 2 of 2