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SCOTUS hears arguments in chapter 7 lien strip case

On Behalf of | Mar 27, 2015 | Bankruptcy, Chapter 7, Firm News, Lien Stripping

This week the United States Supreme Court heard oral arguments in a case involving stripping off a wholly unsecured junior mortgage in a chapter 7 case. There has been a split amongst the federal circuits, with some permitting it, but most not permitting it. There is no case law on this subject here in the Eighth Circuit, but considering that the Eighth Circuit was one of the last circuits to catch on to the concept of lien stripping in a chapter 13, for which there is no division amongst the circuits, I would think it unlikely that the Eighth Circuit or a Minnesota court would permit chapter 7 lien stripping until and unless the United States Supreme Court permits it. There is a Supreme Court case from 1992, Dewsnupp v. Timm, which has generally stood for the proposition that this cannot be done. But some courts have distinguished this case by pointing out that it involved a partially secured junior mortgage.

The Supreme Court justices appeared to be receptive of the arguments. A decision is expected by summer. Here is a oral argument in chapter 7 case. I know that I had a lot of clients who had filed chapter 7 five or six years ago and simply stopped paying on their second mortgage, and hopefully they would be able to benefit by this ruling.