Justices Curb Bankruptcy Filers’ Ability to Have Second Mortgages Canceled – NYTimes.com

The Supreme Court ruled that second mortgages may not be voided if the property is worth less than the mortgage debt.

Source: Justices Curb Bankruptcy Filers’ Ability to Have Second Mortgages Canceled – NYTimes.com

The Supreme Court ruling will now prevent underwater homeowners from easily discharging home equity loans and other types of second mortgages in Chapter 7 bankruptcies.

The ruling covers a potentially large pool of people who might seek bankruptcy protection as a solution to their housing woes. In Florida alone, 23 percent of the state’s roughly 1.3 million underwater homes have multiple mortgages, according to an analysis in March by RealtyTrac. . . .

The Supreme Court ruling does not completely prevent homeowners from voiding their second mortgages. Bankruptcy lawyers say homeowners may still seek to strip off second mortgages by filing Chapter 13 bankruptcy cases. But that process, the lawyers said, can cost more and take many years to complete. By contrast, Chapter 7 is geared toward helping lower-income people and typically takes just months.

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