Whether or not you can strip off your home’s second mortgage in bankruptcy used to be any easy answer to arrive at. If your home was worth less than the balance of the first mortgage, you could strip off any junior mortgage. Historically, this relief was available in Chapter 13 bankruptcies only (see my Chapter 13 web page here: Chapter 13 Bankruptcy).
Then, when the McNeal case reached the 11th Circuit in 2012, this relief also became available in Chapter 7 bankruptcies filed Florida, Georgia and Alabama. But, with the recent United States Supreme Court decision, In re Caulkett, the landscape has changed.
On June 1, 2015, the United States Supreme Court ruled in Caulkett that one cannot strip off a junior lien from a home or any other property in Chapter 7. However, because of the anti-modification provision of 1322(b)(2), the logic of the opinion would seem to apply to a debtor’s principal residence in Chapter 13 as well. Following that logic, one bankruptcy judge in the Southern District of Florida began denying strip offs of junior liens from debtors’ principal residences the same day the opinion was released (talk about what a difference a day can make!).
On the 5th of June, at a bankruptcy seminar attended by a number of Southern District bankruptcy judges, it appeared that the consensus view of the judges is that strip offs of unsecured junior mortgages in Chapter 13 WOULD be allowed. Whether the one judge that denied the strip offs would follow the consensus of the other judges remains to be seen. It is important to note, however, that the judges have not firmly ruled one way or the other, and it seems likely that some banks will argue strip offs of junior liens from primary residences is impermissible in Chapter 13.
So, the answer to the question “Can I Strip Off my Home’s Second Mortgage in Bankruptcy?” is a definite maybe!