The United States Supreme Court is set to pick up an unusual Chapter 7 bankruptcy case that had recently been challenged, because the Circuit Court of Appeals allowed a debtor to strip off his second mortgage with Chapter 7 bankruptcy.
Generally, you cannot remove an underwater second mortgage in Chapter 7 bankruptcy. Chapter 13 bankruptcy is usually the method for removing these debts.
What Does Underwater Mean in Bankruptcy?
The term “underwater” means that the value of your home has decreased to a level that is lower than the value of your first mortgage. If this happens, then you may be able to strip this second mortgage lien off during Chapter 13 bankruptcy.
For instance, in the court case above, Mr. Caulkett’s first mortgage was for $183,000 and his second mortgage was $47,855. The value of his home at the time of his Chapter 7 bankruptcy filing was $98,000. Despite having filed for Chapter 7, instead of Chapter 13 bankruptcy, the judge allowed him to strip off the worthless second mortgage since the house’s value could not even cover the first mortgage.
How Is the Supreme Court Getting Involved in This Chapter 7 Bankruptcy Case?
Bank of America has decided to challenge the Circuit Court of Appeal’s decision to allow a second loan to be stripped off with Chapter 7 bankruptcy, which is highly unusual.
Since this case could be influential to the future of bankruptcy law and for mortgages, the U.S. Supreme Court has decided to take up the case, which could affect millions of debtors with underwater second mortgages.
Although, banks, like Bank of America, expect to be bailed out when they have financial problems, they often do not wish the same treatment for financially struggling individuals. However, debt solutions can often be found against seemingly tough odds if you select an experienced bankruptcy attorney who is tough in the courtroom and passionate about helping people find their gateway to financial freedom.
To see how our bankruptcy attorney Kevin D. Judd helps people find debt solutions, you can follow his Facebook and Twitter pages. Additionally, his legal blog is a good source for news and information on bankruptcy and other methods of debt relief.
[Did You Know? Chapter 7 bankruptcy in Alabama, Florida and Georgia sometimes allows the stripping of mortgages.]