Supreme Court to Decide Lien Strips in Chapter 7

Last week the U.S. Supreme Court agreed to hear an appeal on whether debtors can strip or eliminate  underwater second  mortgages in chapter 7.  Fort Lauderdale bankruptcy debtors have been able to strip second mortgages and equity lines in  chapter 7 for only about the past year based on an appellate court’s decision that is binding in Florida, Georgia and Alabama.  The 11th Circuit Court of Appeals  in the GMAC v McNeal decision held that based on prior authority of this circuit, debtors could strip underwater second mortgages and equity lines.  (See prior blog posts on McNeal) The 11th Circuit Court opinion is contrary to the rulings in most of the country.  The Supreme Court agreed to resolve the conflict in this “McNeal appeal.” (This rhymes and sounds good, but actually the appeal is not in this GMAC v McNeal case but in an appeal brought by Bank of America.  See Bank of America, N.A. v Edelmiro Toledo-Cardona, 556 Fed, Appx. 911 (11th Cir May 15, 2014), pet. for cert granted 2014 WL 3965212(Nov. 17, 2014)

Miami bankruptcy, Fort Lauderdale bankruptcy, and Palm Beach bankruptcy clients who want to strip a second mortgage need to proceed now to consult with a bankruptcy attorney regarding filing their cases before the eventual Supreme Court decision, which most expect will not permit the lien stripping of junior liens in chapter 7.  There is no question that lien strips can continue in chapter 13.



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