Update: Supreme Court Halts Chapter 7 Lien-stripping

June 2, 2015 | Category: Chapter 7, Current Events, Mortgages

On Monday, June 1, 2015, the Supreme Court entered a decision which changes the landscape for Georgia individuals in Chapter 7 bankruptcy cases. Since 2012, Chapter 7 debtors in the Eleventh Circuit, which includes Georgia, Alabama, and Florida, have been able to invalidate the security interests held by their second (or more junior) mortgage lenders in the debtor’s residence when the value of the debtor’s home was less than the amount owing on senior loans through a process known as “lien-stripping.”

Unfortunately, the Supreme Court’s decision in Bank of America, N.A. v. Caulkett shuts off this relief for Chapter 7 debtors across the country. Applying reasoning from a prior decision, Dewsnup v. Timm, 502 U.S. 410 (1992), the Court held that a junior lender’s security interest in a Chapter 7 debtor’s property survives the debtor’s bankruptcy case undisturbed, notwithstanding Bankruptcy Code provisions that may suggest otherwise.

Fortunately, the Court did not shut off debtors’ ability to lien-strip in Chapter 13 bankruptcy cases. Since 1986, The Rothbloom Law Firm has represented individuals and businesses in Cobb, Fulton, Gwinnett, Cherokee, DeKalb, and all other metro-Atlanta counties as debtors in Chapter 7, Chapter 11, and Chapter 13 bankruptcy cases. Our top-rated attorneys, Howard Rothbloom and Adam Herring, provide thoughtful counseling, careful planning, and creative lawyering in helping our clients obtain favorable results in bankruptcy cases. Contact us today to discuss the options available to you.