Second Mortgages and Bankruptcy

27 Feb Second Mortgages and Bankruptcy

You can get rid of a wholly unsecured mortgage in a Chapter 11 or Chapter 13 bankruptcy case. In the Eastern District of New York, you can alsodo this in a Chapter 7 filing. In re Lavelle, Bankr LEXIS 3795 (Bankr SD NY 2009).

A wholly unsecured mortgage is one where there is no home value greater than an earlier mortgage. Commonly, the value of one’s home has decreased to below the balance of the first mortgage. This leaves a second mortgage without anyhome value to secure it(and a third mortgage also), so we call it an unsecured mortgage.

We’ve been able to get rid of an unsecured mortgage in Chapter 13 cases (with repayments)since the Supreme Court’s Dewsnup decision in 1992. Courts have split on doing this in Chapter 7 (no repayments), including the 4th (MD, WV, VA, NC, & SC) and the 6th (MI, OH, KY, & TN) Circuits and other lower courts. The 3rd Circuit (PA, NJ, & DE) has expressly left the issue open.

Sometimes, an idea is so important that it bears repeating. My colleague Dan Press wrote on this first at our affiliated BankruptcyLawNetwork site, and more information is available there.

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L. Jed Berliner practices exclusively in consumer bankruptcy, foreclosure defense, and related consumer protection litigation such as credit card defenses and suing debt collectors. He established his Springfield, MA practice in 1988. Attorney Berliner is a regular and active contributor to the Bankruptcy Law Network, the Bankruptcy Roundtable, and the National Association of Consumer Bankruptcy Attorneys, three specialized consumer bankruptcy forums on the Internet, and is an informal mentor to regional practitioners. He is recognized by his peers as an expert in consumer bankruptcy issues. He thoroughly enjoys being rated "excellent" in his client surveys.

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