Major Setback for Underwater Homeowners

Major Setback for Underwater Homeowners

Owners of homes with underwater second mortgages recently suffered a large setback after the U.S. Supreme Court ruled that they cannot free themselves of their obligation to pay these debts by filing for Chapter 7 bankruptcy protection. The court’s decision on the case – Bank of America, N.A. v. Caulkett – was unanimous.

The Supreme Court provided the ruling in response to Chapter 7 bankruptcy cases that underwater homeowners filed in 2013. In writing the court’s opinion, Justice Clarence Thomas cited the ruling for a prior case, Dewsnup v. Timm, writing that lenders have a secured claim “regardless of whether the value of that property would be sufficient to cover the claim.”

The court ruling “is a clear victory for mortgage lenders,” Isaac Boltansky, an analyst at Compass Point Research & Trading, told MarketWatch. “It clarifies the path to recoveries for second lien holders in bankruptcy … This decision will undoubtedly make the bankruptcy process more difficult for impacted borrowers.”

More specifically, the ruling will deny financially troubled homeowners – those with high debt loads and or modest incomes – of one particular method for eliminating some of their debt burden, bankruptcy lawyers told The New York Times.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.