US Supreme Court Holds that Out of the Money Mortgages Cannot be Stripped Off in Chapter 7 Bankruptcy Cases

June 05, 2015

The U.S. Supreme Court held that a secured creditor in a chapter 7 bankruptcy case is protected from having its lien “stripped off” even if the collateral securing its claim is worth less than the claims asserted by a senior secured creditor; i.e. the junior creditor’s secured claim is completely "out of the money.” The June 1, 2015 decision, Bank of America, N.A. v. Caulkett, reaffirmed the Court’s prior holding in Dewsnup v. Timm that chapter 7 debtors cannot reduce the value of a creditor’s secured claim to the market value of the collateral supporting it.

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