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Supreme Court Rules Second Mortgages May Not Be Voided

Supreme Court justices unanimously dealt banks a victory by determining that homeowners may not void their second mortgage if their home is now worth less than the mortgage debt. The New York Times reports that the ruling is a reaction to homeowners who filed for Chapter 7 bankruptcy cases in 2013 in an attempt to discharge their second mortgages.

The case brought before the Supreme Court revolved around whether these second mortgages could be defined as unsecured debt for homeowners whose property is underwater, or not as valuable as the mortgage debt. Homeowners filing for Chapter 7 protection argued that the security of their debt had been eroded by plummeting property values.

In response to a 1992 case in which the Supreme Court earlier defined “secured claim[s]” as those “supported by a security interest in property, regardless of whether the value of that property would be sufficient to cover the claim,” justices ruled that that homeowners could not simply void their second mortgage because the security backing that debt was now worth less than the debt itself.

It should be noted that the Supreme Court ruling does not make it impossible to discharging second mortgages since homeowners may still do so through the process of Chapter 13 bankruptcy.

Consult with a Bankruptcy Attorney in Cincinnati

If you are considering bankruptcy, you should speak with the Cincinnati bankruptcy attorneys with Ryan J. Ruehle Attorney at Law, LLC, about the options you will have at your disposal as you move forward with your life. To discuss your situation with a Cincinnati bankruptcy lawyer, please call our Cincinnati offices at (513) 621-0999 today.

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