The United States Supreme Court yesterday ruled that someone in chapter 7 bankruptcy cannot “strip off” a second or junior mortgage even if there is no value in the property securing the mortgage. An article about the case is available here. Those of you who really like to read dry court opinions can find the full, written opinion from the Supreme Court here.
These mortgages are often referred to as “underwater”. Currently someone in a chapter 13 mortgage can strip off a second or junior mortgage when there is no value in the property securing the mortgage.
This is bad news for homeowners whose property values are less than the amount of debt against the property. So chapter 13 bankruptcy remains the only option to eliminate these “underwater” mortgages.