On June 1, 2015, the U.S. Supreme Court ruled in Bank of America v. Caulkett that borrowers cannot void second mortgages under Chapter 7  bankruptcy protection if the secured property’s value falls below the amount owed on the first mortgage.  In a unanimous decision, the Court held that bankruptcy courts may not use Section 506(d) of the Bankruptcy Code to “strip off” junior liens on property if the value of the property used as collateral is less than the amount the debtor owes to the senior lien holder — that is, when the loan is “underwater.”   The Court’s decision affects the right of junior lienholders to collect on loans in the event of a debtor’s declaration of bankruptcy and the treatment of previously secured, but subordinate, debt in bankruptcy proceedings.

Read more:  The Wall Street Journal: High Court: Underwater Homeowners Can’t Void Second Mortgage in Bankruptcy

New York Times:  Supreme Court Ruling Little Help to Struggling Homeowners