Breaking News from the Supreme Court! Everything is the Same.
Debt secured by collateral can be either over-secured (meaning that the value of the collateral exceeds the loan balance) or under-secured (meaning that the value of the collateral is less than the loan balance). When there are multiple loans secured by a single item of collateral (like first and second mortgages on a house), then there is also the possibility that the subordinate lien is wholly under-secured, meaning that the value of the collateral is not sufficient even to satisfy the balance of the first mortgage, let alone even a penny of the second. Determining the extent and manner in which loans in these three categories can be maintained, cured, or modified constitutes a significant part of what a debtor hires a bankruptcy attorney to do.
For those of us in the Fourth Circuit, the law has been relatively settled for a number of years: in chapter 7, neither partially under-secured nor wholly under-secured mortgages could be reduced based on the value of the collateral securing them. (In chapter 11 and 13 cases, the law has, and does, work differently).
Recently, the US Supreme Court revisited this rule (one that it, itself, promolgated many years ago in the Dewsnup case). The question was, maybe they had been wrong in Dewsnup. Maybe chapter 7 debtors should have the same ability that chapter 13 debtors have, to “strip-off” wholly under-secured second mortgages? There was even a possibility that the court would go further and allow even partially under-secured mortgages to be bifurcated like they can be in chapter 11 cases. The bankruptcy world was on the edge of its seat. Then the decision came. And everything stayed the same. The court (somewhat surprisingly, given certain statements made from the bench at oral arguments) was that they had been right in Dewsnup all along and that nothing should change.
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For more than 20 years, the Sasser Law Firm has been helping individuals and business owners sort through financial hardships to see the light at the end of the tunnel. Our North Carolina bankruptcy attorneys are all board-certified specialists, which means we have passed a complex exam, undergone a thorough peer review, and continue to earn legal education credits in this ever-evolving area of law.
