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Debtors in Bankruptcy can strip away 2nd Mortgages on their homes in Chapter 11, 12 and 13, under 11 U.S.C. § 506, as long as the Balance owed on the 1st Mortgage is greater than the value of the home. Not so in chapter 7 because of “Dewsnup v.Timm, 502 U.S. 410 (1992)”
However now, a new case (pending certiorari) may be heard by the U.S. Supreme Court in which two retired Bankruptcy Judges and four law professors have filed a Motion for leave to file an Amicus Curie Brief urging the overruling of “Dewsnup”. Their argument is that it would bring Chapter 7 into alignment with the other chapters where it is well settled law that allows debtors to avoid liens that have no claim in equity based on their position in priority and the value of the property.
Up to 2015 Florida and Georgia were stripping 2nd Mortgages in spite of “Dewsnup”. However, another case “Bank of America v. Caulkett, 135 S. CT. 1995 (2015)” stopped that all together. Now a new case “Ritter v Brady (Supreme Court Case No. 18-747) is in the wings and the Professors and Retired Judges believe the that case presents an opportunity to overrule “Dewsnup”, long a target of criticism, because lien avoidance is a critical aspect of the “fresh start” policy in Bankruptcy.
If “Desnup” is overruled, it may well be a case of too little too late to help many homeowners save their home due to the continued run up that has been occurring in values since 2010 following the Real Estate Collapse. All it takes is $1.00 of an equity position to be “in the Money.”
On the other hand, it could create a minor surge in Chapter 7 filings for those homeowners who still find themselves short of 1st Mortgage Balance in their home’s value while struggling to keep up with onerous payments up on 2nd mortgages that are “out of the Money.” Under the means test however debtors stripping 2nd Mortgages will have to be cautious about having a resulting budget that throws them into Chapter 13!

For more information on bankruptcy and debt settlement issues, please contact Jon L Martin Bankruptcy Attorney at (772)419-0057 or visit us online http://jonlmartinlaw.com/. With over 40 years of combined legal and business experience, we have helped hundreds of people in and around Martin and St Lucie County to relieve their financial problems. Bankruptcy Lawyer Port St Lucie Florida and a chairman of Martin County Bar Bankruptcy Committee Jon L. Martin helps clients throughout the following cities and surrounding areas: Hobe Sound, Jensen Beach, Palm City, Port Salerno, Port St. Lucie, Stuart, Sewall’s Point, and the entire Treasure Coast of Florida.