Lien Stripping Still Possible Despite Supreme Court Case

By Sam Calvert, Attorney At Law |

You may have seen this headline in today's news:

"Supreme Court says homeowners underwater on loans can't void second mortgage in bankruptcy"

HOWEVER, this decision was issued in a Chapter 7 case. The case is entitled: Bank of America N. A. v.. Caulkett, and was issued June 1, 2015.

The Supreme Court syllabus (synopis) says:

A debtor in a Chapter 7 bankruptcy proceeding may not void a junior mortgage lien under §506(d) when the debt owed on a senior mortgage lien exceeds the current value of the collateral if the creditor’s claim is both secured by a lien and allowed under §502 of theBankruptcy Code.
The Minnesota Bankruptcy Judges have never, as far a I know, allowed a person to strip an underwater second mortgage in a chapter 7.  

However, the rules of the game in Chapter 13 are different. The courts have been allowing persons in a chapter 13 to strip a second mortgage, and since the Caulkett case was not a chapter 13, it is my hope and belief that lien stripping is still available in a chapter 13 case.