Supreme Court Ruling Says Second Mortgages Cannot Be Voided in Bankruptcy

The Supreme Court of the United States ruled on Monday, June 1st 2015, that homeowners who cannot repay their debt and file for bankruptcy in order to receive protection cannot have their second mortgage loan canceled even if they are underwater.

The decision, which all nine Supreme Court justices supported, stated that second mortgages cannot be voided even in cases when the homeowner owes more on the property than it is worth. Those filing for Chapter 7 bankruptcy cannot cancel their second mortgage loan when the value of their property is lower than the value of the first mortgage on it.

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The Supreme Court ruling was for a case involving Bank of America and two homeowners from Florida, which is a state where nearly a quarter of all underwater homes have multiple mortgages on them. The homeowners filed for Chapter 7 bankruptcy and attempted to cancel the second mortgages on their properties back in 2013. The lawyers of the homeowners argued that since the outstanding amount of the first mortgage taken out exceeded the value of the property, the second mortgage, which was provided by Bank of America, was essentially unsecured and was supposed to be treated as such in the case of bankruptcy. Under bankruptcy law in the United States, individuals have the right to cancel unsecured debt.

The ruling of the court stated that second mortgages cannot be treated as unsecured debt and consequently canceled in bankruptcy despite the fact that the underlying asset that secured the debt was worth less than it. In the decision, Justice Clarence Thomas, wrote that in some cases dollar’s difference would have impact on the proceedings for bankruptcy. He also stated that the court’s decision was based on the consideration of constantly shifting real estate values in the country.



Christian Calvin mortgage Christian is a contributing writer for He is a graduate from the University of Tennessee with a degree in Communications and a concentration in Broadcasting. Christian has served as vice-president for a privately-held company for more than 20 years. Additionally, he has also applied his writing and business knowledge to various websites with a focus on business and sports news . . . both of which are passions. Christian enjoys playing golf and spending time with his family and friends.


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