U.S. Supreme Court Weighs in on Mortgage "Strip-Offs"

Yesterday the United States Supreme Court ruled that a Chapter 7 debtor may not avoid - aka "strip off" - a second mortgage even though the amount owed on the first mortgage exceeds the value of the home that secures the loans. This ruling is consistent with the law applied in bankruptcy courts in Virginia for many years. The decision originated from two bankruptcy cases in Florida in which Chapter 7 debtors were allowed to strip off their second mortgages.

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Bankruptcy Developments: (1) Supreme Court Gets Active in Bankruptcy Law, and (2) Chapter 11 Reform is Under Way

While overall bankruptcy filings continue a decline that started in 2010, the U.S. Supreme Court is unusually active in bankruptcy issues this term, having accepted six cases with bankruptcy issues. In this article, we discuss one of the issues the Supreme Court is considering: whether a debtor can strip a lien off of real estate in a Chapter 7 case.

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